More Homebuyers are Turning to Adjustable-Rate Mortgages

Mortgage rates climbing above 7.1% are driving more homebuyers toward adjustable-rate loans, which start with lower payments before changing after a few years. Around 10% of mortgage applications last week were for these adjustable plans, up from 8% a month earlier. Buyers are turning to them because 30-year fixed loans feel way too expensive right now, hoping they can save money early on or refinance before their rates reset, though experts warn it is a gamble if rates stay high or house values drop.

Susan Wachter, Co-Director of the Penn Institute for Urban Research (Penn IUR) and real estate professor at Wharton, thinks going with an adjustable rate makes complete sense when regular rates look so scary. She notes that starting out near 6% gives people a needed break on monthly payments, but she warns it comes with real danger. If interest rates do not drop down the road, buyers could easily get stuck paying way more than they can actually afford.