Rising home prices and mortgage rates have caused many American households to reconsider their buying strategies. While the majority of homeowners in the U.S. have fully fixed-rate mortgages, adjustable-rate mortgages are growing in popularity due to their lower introductory payments. According to the ResiClub blog, as of May 2024, 15.5% of mortgages in the U.S. are adjustable-rate mortgages. Compared with 2021, only 4% were adjustable-rate mortgages.
While fixed-rate mortgages have become the preferred lending type among mortgage-holders over the years, 45% of U.S. mortgages issued at the height of the housing bubble in 2005 were adjustable-rate mortgages. However, by mid-2009, adjustable-rate mortgages had lost their appeal, with just 2% of loan-holders having adjustable-rate mortgages.
If inflation doesn’t surge again and mortgage rates fall a bit in the years ahead, most of these borrowers will likely not be significantly affected negatively by their decision to choose an ARM. However, if the situation reverses, that’s the risk associated with taking out an adjustable-rate mortgage.
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