Buyers take another look at adjustable-rate loans
Nearly 9% of purchase borrowers chose an ARM in mid-September as higher fixed rates pushed more buyers toward lower initial payments.
As mortgage rates climb, more borrowers are turning to adjustable-rate mortgages in search of a lower initial payment, according to ICE Mortgage Technology’s October Mortgage Monitor.
ARMs accounted for nearly 11% of first-lien mortgage rate locks in the week ending Sept. 18, the highest share in almost four years. Among home purchase borrowers, nearly 9% chose an ARM, up more than 2 percentage points since mid-June.
The shift comes as fixed mortgage rates moved higher in September. ICE’s 30-year fixed-rate lock index reached 7.31% on Sept. 30, up from 6.73% earlier in the month.
“ARMs are becoming more attractive to borrowers looking for relief from today’s higher fixed rates, but the overall market exposure to adjustable payments remains relatively limited,” said Andy Walden, head of Mortgage and Housing Market Research at ICE.
Most newer ARMs also don’t begin adjusting immediately. Roughly 90% of recent ARM originations carry fixed rates for at least five years, and more than 90% of ARMs originated since 2022 are still in their introductory fixed-rate periods.
That gives buyers time before a potential reset, but the future payment still matters. About 180,000 ARMs are scheduled for their first reset in 2027. ICE estimates that roughly 74,000 seven-year ARMs originated in 2020 could see a median monthly payment increase of about $1,066 when they reset.
Buyers are also spending more upfront to lower their borrowing costs. Just over half of first-lien purchase borrowers paid at least half a mortgage point in August, compared with 46% a year earlier. More than one-third paid at least one point.
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