Adjustable Rate Mortgages, Explained | Personal finance
Mortgage rates have been historically low for a few years, but they are on the rise. As interest rates rise, variable rate mortgages often become more attractive to some buyers. With 30-year fixed rate loans at 4.67%, the highest interest rate since 2018, the rate on a popular adjustable rate mortgage is 3.5%.
As the name suggests, the interest rate a homeowner pays with an adjustable rate mortgage changes over the term of the loan. After an introductory period, during which the rate is fixed and usually lower than that offered by a fixed rate mortgage, the rate can go up or down. And that carries risks.
Borrowers shunned variable-rate mortgages after the housing market crash of 2008, but guidelines put in place since then require lenders to consider homebuyers’ ability to repay mortgages on the full loan , and not just at launch rate. In 2022, interest rates are rising as house prices continue to soar, so the centralized banking system in the United States – its Federal Reserve – has raised a key interest rate in an attempt to rein in the ‘inflation.
To explain the mortgage market, real estate platform ZeroDown has compiled a list of facts about adjustable rate mortgages, including what they are, how they differ from fixed rate mortgages, what factors affect interest rates and the monthly payments of an adjustable rate mortgage, and who can benefit from this type of mortgage loan.