Traditionally, house hunters have avoided adjustable-rate mortgages and instead opted for fixed-rate home loans. However, this long-established state of affairs may change, according to The Wall Street Journal. Some real estate experts believe ARMs could turn into viable options for potential homebuyers looking to dodge climbing interest rates. In fact, some have already eschewed fixed-rate loans for adjustable alternatives, CNBC reported.
"Homebuyers in a strong housing market are looking for ways to extend their purchasing power, and ARMs are one way to do that," Mike Fratantoni, chief economist for the Mortgage Bankers Association, told the news organization.
While these loans offer flexibility to rate-conscious buyers, they carry an unavoidable stigma due to their role in the 2008 financial collapse. Even so, new financial regulations have made these mortgages safer, as signatories no longer have to contend with negative amoritization or prepayment fees.
What kinds of buyers can take advantage of these products? Those who plan to move soon after purchasing can benefit, as it may take years for the increased payment amounts attached to higher rates to offset earlier savings. Individuals with irregular incomes might also consider ARMs.
Despite the resurgence of adjustable-rate options, few analysts expect these loans to regain pre-recession popularity.
"While the ARM share got as high as 35 percent pre-crisis, it is really unlikely it will get nearly as high now given [new] regulations, which effectively prohibit many types of ARMs that were prevalent then," Fratantoni explained in an interview with CNBC.
The fixed mortgage is still the ideal option for house hunters. Currently, rates for fixed 30-year home loans with balances of $424,100 or less are at 4.33 percent, according to CNBC.
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