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Embrace the Resurgence of Adjustable-Rate Mortgages – Your Path to Confident Homeownership


Embrace the Resurgence of Adjustable-Rate Mortgages – Your Path to Confident Homeownership

Cast your mind back to the housing crisis of 2008, a period marked by the widespread popularity of adjustable-rate mortgages (ARMs). Fast forward to today, and we witness the renaissance of ARMs as an attractive option for homebuyers. Let’s delve into the reasons behind this resurgence and dispel any concerns that might arise.

The Contemporary Appeal of ARMs

This compelling data, sourced from the Mortgage Bankers Association (MBA), illuminates the upward trajectory of adjustable-rate mortgages in recent years:
As depicted in the graph, the prevalence of adjustable-rate mortgages, after hovering around 3% of total mortgages in 2021, experienced a notable surge in the past year. The rationale for this upswing is straightforward. In a climate of escalating mortgage rates, many homeowners turned to ARMs as an alternative. With traditional borrowing expenses escalating, ARMs emerged as a viable solution by offering lower interest rates.

A Departure from the ARMs of 2008

It’s crucial to underline that the ARMs making waves today are a far cry from their 2008 predecessors. A pivotal factor in the housing crash was the lax lending standards prevalent at the time. During that era, borrowers secured ARMs without having to substantiate their employment, assets, income, and related factors. Essentially, loans were granted without the necessary qualifications, leading many homeowners astray as they struggled to repay loans they never should have been granted in the first place.
This time around, the lending landscape has evolved. Financial institutions have absorbed the lessons of the past, resulting in a stringent verification process encompassing income, assets, employment, and more. This signifies that present-day homebuyers must genuinely qualify for their loans, substantiating their ability to honor their repayment commitments.

Archana Pradhan, Economist at CoreLogic, illuminates this transformation:

“Approximately 60% of Adjustable-Rate Mortgages (ARMs) originated in 2007 lacked comprehensive documentation… Similarly, in 2005, 29% of ARM borrowers had credit scores below 640… At present, almost all conventional loans, encompassing both ARMs and Fixed-Rate Mortgages, mandate thorough documentation, amortization, and extend to borrowers with credit scores exceeding 640.”

In simpler terms, Laurie Goodman at Urban Institute crystallizes this fact:

“Today’s Adjustable-Rate Mortgages carry no greater risk than other mortgage products; moreover, their reduced monthly payments could broaden access to homeownership, catering to a larger pool of potential buyers.”

The Bottom Line

If concerns linger regarding today’s adjustable-rate mortgages mirroring the perilous ones of the housing crisis, you can rest assured that this time, the landscape has transformed.

Moreover, if you’re a first-time homebuyer keen on navigating the challenges of contemporary affordability, connect with a reputable lender. Their expertise will illuminate lending options tailored to your circumstances, paving the way for confident homeownership.

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