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More homebuyers are opting into a risky type of mortgage in an attempt to save money
- The share of borrowers applying for adjustable-rate mortgages (ARMs) has increased to its highest level since November 2023, as reported by the Mortgage Bankers Association.
- ARMs often come with lower interest rates compared to fixed-rate loans, making them attractive to borrowers looking to save money, especially in a rising interest rate environment.
- While ARMs can offer initial cost savings, they also bring risks as the interest rates can change after the fixed-rate period ends.
- The popularity of ARMs reflects the current trend of borrowers seeking affordability amidst increasing mortgage rates.
- Adjustable-rate mortgages work by offering a fixed rate initially, followed by periodic adjustments based on market conditions, potentially leading to fluctuations in mortgage payments.
- Financial experts suggest that ARMs are suitable for buyers who don't plan to stay in their homes long term, while those looking for stability might prefer a traditional 30-year fixed-rate mortgage.
- It's important for borrowers to understand the risks associated with ARMs, including potential payment increases and the limitations on how much rates can change.
- The decision between an ARM and a fixed-rate mortgage in 2025 depends on individual circumstances, financial goals, and the borrower's comfort with potential payment fluctuations.
- Ultimately, the choice between an ARM and a fixed-rate mortgage should be based on a borrower's risk tolerance, financial situation, and housing plans.
- Mortgage seekers interested in ARMs can compare offers from lenders to assess potential savings, considering factors like initial interest rates and future payment adjustments.
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