If you’ve been watching the housing market and interest rates rising to rates we haven’t seen in decades, you’d probably think the same thing most people are thinking: An adjustable-rate mortgage is most likely a pretty safe bet.
It’s no wonder why you’d be thinking this - and many Americans are - but it may be wise to hold your horses and put things in a different perspective before drawing any conclusions.
In today’s video, we’re putting adjustable-rate mortgages up against current 30-year fixed-rate mortgages, to see which one offers the most savings to home buyers.
We’ve been watching the housing market, making moves where it makes sense, and bringing you the most crucial points to keep in mind as an investor or potential homebuyer in today’s fluctuating market.
With the market as it’s been we’ve noticed an uptick in attention around ARMs, or adjustable-rate mortgages.
It makes sense.
For one thing, we’re seeing higher rates than we’ve seen in a long time and the longer we get used to something the more out of the ordinary it appears when it changes.
It is with this in mind that many people are running under the impression that interest rates will go back down once inflation’s been settled.
The reality, however, looks quite different, and currently, an adjustable-rate mortgage may not offer substantial cost savings to home buyers.
As 30-year fixed-mortgage rates rise, borrowers often turn to ARMs for the potential advantage of lower initial payments in the early stages of homeownership or the ability to make larger offers on houses.
ARMs start with attractively low rates but eventually adjust to higher rates after a certain period.
However, as of July 5, according to Bankrate, the average rate on ARMs, ranging from 6.5% to 7.21%, depending on the loan, is nearly on par with the average 30-year fixed rate of 6.95%.
Consequently, most buyers will not experience significant monthly payment reductions during the early years of the loan, and they will still face the risk of the Federal Reserve maintaining high-interest rates in the future.
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