Real Estate News

The pros and cons of ARMs for home buyers

Published: 30 Mar 2017

For those in the market for a new home, an Adjustable Rate Mortgage could seem like the perfect answer. Recent statistics seem to show that these are both attractive options and an alternative to other mortgages which may not fit buyer needs. 

There's no shortage of evidence that ARMs are getting attention. A March 24 chart from the Mortgage Bankers Association said that ARMs made up for 7.2 percent of all mortgage applications as of February 2017. The source said that ARM strength can reflect a general rise in rates and a need to make more viable purchasing decisions.

A chief economist for the MBA, Mike Fratantoni, spoke to Washington source WTOP about the conditions that make ARMs attractive. According to Fratantoni, the new home buyer could feel more assured with an ARM to support them while they make their decision.

"The ARMS in the market today are really very safe products," he remarked. "They have initial fixed periods of five years, and the 7/1 ARM is a very popular product or a 10/1 ARM fixed for a long period of time, perhaps as long as the homeowner is going to be in that house."

However, there are also some possible downsides to using the ARM, as an article from The Motley Fool pointed out. One of the issues it raised is the way the ARM could prevent buyers from the benefits of long-term ownership.

It argued that fixed-rate mortgages can be better for those who plan to stay in a home for the long-term, since they'll have a single reliable rate to remember and can achieve more stability as a result. Another issue could be the dependability of these rates, since ARMs may put borrowers at the mercy of the changing market, despite the apparent flexibility.