Adjustable-rate mortgage calculator: See how higher rates change your payment
CNBC · Mike Winters ·
More homebuyers are turning to adjustable-rate mortgages to save money, but lower monthly payments come with risks worth considering before signing.
With 30-year fixed mortgage rates stuck above 7% since mid-September, more homebuyers are turning to adjustable-rate mortgages seeking lower monthly payments.
The appeal is simple. ARMs typically offer lower interest rates, at least initially, than traditional 30-year fixed-rate mortgages. And lately, the discount has been substantial. The average rate on an ARM with a 5-year fixed rate that adjusts each year after was 6.41% in late October, nearly a full percentage point below the average 30-year fixed rate of 7.37%, according to the Mortgage Bankers Association. That difference can save many borrowers hundreds of dollars a month during that initial fixed-rate period.
That helps explain why ARMs have grown from 8% of mortgage applications in early September to 11.3% in late October, per MBA data.