Nearly half of homeowners regret their adjustable-rate mortgage

A new survey by U.S. News & World Report found that nearly half of homeowners with adjustable-rate mortgages regret the decision.

It is based on a nationwide survey of more than 1,200 respondents conducted between December 14 and December 20, 2022, through a company called PureSpectrum.

with respondents only adjustable-rate mortgage (ARM) was included in the study.

Perhaps the biggest takeaway was that 43% of survey respondents regretted choosing ARM.

As for why, the most common response was “that their interest rate adjusted to a higher rate than expected.”

Homeowners took out adjustable-rate mortgages because they wanted lower payments

ARM top concerns

survey These homeowners were also asked why they opted for a more popular option, such as an adjustable-rate mortgage. 30 year fixed mortgage,

As expected, the top response was to get “lower monthly payments.” This is basically the only reason anyone would consider ARM.

There is no point in choosing one over the safety and stability of a fixed rate product if it does not save you money through a lower interest rate.

Interestingly, another 37% of respondents said they believe interest rates will go down once their rate is adjusted.

take it at a time because mortgage rate have doubled in the past year, and there’s a good hope they’ll come back down to earth this year.

actually, my 2023 Mortgage Rate Forecast The post has a 30-year fixed decline range of -5% until the second half of the year.

So those people may be right to go with an ARM for the short term and look for a refinancing opportunity in the near future.

The big question is whether today’s ARMs are providing enough leeway to take that opportunity.

At this time, spreads among popular ARM products such as 5/1 ARM And the fixed term of 30 years is not that wide.

This means that an ARM will not completely save you. Other times, the difference in rate can exceed 1%, which can obviously lead to some big savings for the first 60 months.

The 5/1 ARM is the most popular type of adjustable-rate mortgage.

Most Popular ARM

Speaking of the 5/1 ARM, this happens to be the most popular type of adjustable-rate mortgage, followed by the similar 5/6 ARM.

The difference between the two products is that the first product adjusts once annually after the first five years, while the latter adjusts once every six months after it is over.

The next most popular is the 3/6 ARM, which offers a fixed rate term for only the first three years, or 36 months.

followed by 3/1 ARMThen 7/1 ARM and 7/6 ARM, and finally 10/1 ARM and its cousin the 10/6 ARM.

The discount decreases as the fixed-rate portion of the ARM increases. After all, if lenders offer fixed rate tenures of seven to 10 years, you can’t expect a big difference in a 30-year fixed rate.

Too Many Homeowners Don’t Understand How ARMs Work

arm regret

While ARMs are somewhat popular (7.3% share per year). MBA), it is clear that many landlords do not really understand what they are doing.

This may explain why many of them end up regretting the decision to remove one in the first place.

The study found that 22% indicated they “did not understand the rate adjustment rules and/or schedule.”

I think ARMs can be somewhat complex, but you shouldn’t choose one unless you really have a firm grasp on the product.

Along the same lines, 36% regretted the decision as they felt it was taking too long to repay the loan.

It also shows the misperception of ARM because, if anything, they will be paying off the home loan faster than a higher-rate fixed-rate product.

one arm amortization Similar to a fixed 30-year over a fixed-rate term, and as mentioned, should pay off faster through a lower interest rate.

Are you sure you can afford this thing?

Perhaps even more frightening, 36% said they were worried about whether they would be able to afford it once payments were more adjusted.

And 32% said they wouldn’t be able to afford the higher monthly payments if things became adjustable.

The silver lining is that 55% said they have sold their property or plan to refinance their mortgage before the adjustment period.

ARM should basically work like this – as a temporary solution If you know that you will not be holding the loan/asset for long.

Otherwise you are taking the opportunity to adjust your mortgage rate significantly higher in the future.

To that end, 58% of respondents had reservations before applying for an ARM, and 47% knew they were at a higher risk with a fixed-rate mortgage.

The good news is that 72% of ARM borrowers shopped with multiple lenders to compare mortgage rates.

This is especially important because ARM rates can vary greatly between companies (more so than with fixed mortgages).

(Photo: gordon jolly,

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