The average fixed rate on a 30-year mortgage is 5.09%, up from below 3% in November and the highest it’s been since 2018, according to the Federal Reserve Bank of St. Louis.
By comparison, the average introductory rate on one popular adjustable rate mortgage is at 4.04%. So naturally, more loan customers are asking about ARMs, though adjustable loans are likely to remain a small slice of the overall mortgage market because today’s price differential for most customers won’t outweigh the risk of higher rates later, says Tee Brown, CEO of GMFS Mortgage in Baton Rouge.
At the start of this year, when rates were near record lows, the ARM share was just 3% of all purchase applications. The ARM proportion reportedly reached 11% in May, the highest share since March 2008.
Brown says he would be very surprised to see that number approach 20%. While adjustable rate loans were a major factor in the 2000s housing bust, stricter underwriting standards make those loans less risky today, he adds.
Customers who plan to stay in a house only for a few years before selling are prime candidates for ARMs. If you plan to stay five years or less, you might not be worried about what interest rates will do after five years, says Nick Terito, senior loan officer with Area Home Lending in Baton Rouge.
Terito says he’s had customers inquire about ARMs recently but they’re mostly going with fixed-rate loans. Some are spending a little more up front to bring their rates down, however.
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