Adjustable rate mortgage originations have climbed to 14 percent of all new home loans, the highest share in over a decade. Borrowers are choosing 5/1 and 7/1 ARM products to secure initial rates roughly 1.25 percentage points below fixed-rate alternatives.
Financial advisors caution that ARMs carry inherent risk if rates rise before the borrower refinances or sells. However, for buyers planning to move or refinance within the initial fixed period, the savings can be substantial.
Lenders are required to provide worst-case payment scenarios during the application process, but consumer advocates say many borrowers still underestimate the potential for payment shock after the adjustment period begins.
