With stubbornly high interest rates, some are reconsidering adjustable-rate mortgages - NPR
By Google News Personal Finance ·
With the rates for 30-year fixed-rate mortgages at 7% or more, is it time to reconsider the far less popular adjustable-rate mortgage? New analysis shows that ARMs have paid off for borrowers.
For any American who lived through the housing crash, there's a certain type of mortgage that will send a shiver down the spine. It's called an adjustable-rate mortgage. But with interest rates as stubbornly high as they are right now, some people are reconsidering them. Our colleagues at The Indicator from Planet Money, Wailin Wong and Adrian Ma, tell us why.
WAILIN WONG, BYLINE: If you have a mortgage, chances are you have a fixed rate - one rate that stays the same for the life of the loan. The 30-year fixed rate mortgage reigns supreme in the U.S. We're actually the only country where this is the most popular kind of home loan.
ADRIAN MA, BYLINE: The fixed rate mortgage isn't the only choice though. You could also get an adjustable-rate mortgage, or ARM. These are way less popular, only about 5% of mortgages in the U.S.
WONG: ARMs embody a lot of terrifying memories for people who lived through the housing crisis. This type of loan accounted for about a third of all mortgages that originated during the run-up to the housing bubble. Adjustable-rate mortgages come with an introductory teaser rate that's usually a little lower than the prevailing fixed rate. Then after a certain amount of time, the interest rate resets at wherever the market is.
MA: In the early 2000s, predatory lenders pushed novel kinds of ARMs on people with low incomes and bad credit. Loose underwriting standards meant that they got approved for these loans based solely on whether they could afford the low teaser rate. According to analysis from Duke, the delinquency rate for conventional ARMs was…
Originally published by Google News Personal Finance
