The rates of 30-year fixed mortgages continue to rise, which is boxing out potential buyers. They can still buy a house, however, if they’re willing to make a risk.
CNBC reports that the villains of last decade’s housing crash, adjustable rate mortgages (ARMs), can be the right product for many borrowers.
Through a little financial creativity, ARMs allow people to buy more expensive houses with low interest rates. They are suitable for people who expect to earn a higher salary in the future, when the rate adjusts higher. Also, homeowners can refinance when the fixed term of the ARM is over. Most of the riskier ARMs are now illegal under new mortgage regulations.
ARMs may be best for younger borrowers, who tend to be more mobile. First-time homebuyers, who intend to trade up quickly, can save a lot of cash using an ARM. "If interest rates continue to rise, but really as home prices continue to appreciate, I think that you will see more people looking at ARMs when they're looking to purchase more home," said Tyrrell.