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 homebuyers. 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 life 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 adjustable 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, not just the introductory rate. In 2022, interest rates rise as house prices continue to riseso the centralized banking system in the United States – its Federal Reserve – raised a key interest rate in an attempt to control 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 monthly payments on an adjustable rate mortgage, and who can benefit from this type of mortgage.