If you’ve been looking to buy a house these last couple years you’ve probably heard this phrase from your agent. “ buy the house not the rate” With mortgage rates creeping back up again the rate looks like it’s moving into the house with you like your elderly mother-in-law.
Now what’s the problem banks are financing these conventional loans and there are safe guards right? This is correct, but the problem has been the rise of adjustable rate mortgages or ARMs.
Arms work by giving you a lower interest rate today (usually 2 points) but the rates adjust after some adjustment period usually after 3 to 5 years. The first adjustment is capped at 2% and capped out at 5% for the loan life.
When rates started to rise in 2021-2022 arms saw a huge spike in popularity. According to Corelogic in 2022 & 2023 arms spiked to 17% of all single family homes sold in the 400k-$1M range. The 2024 data isn’t out yet but I’m assuming this was even higher.
To put this into perspective 4.09 million home sales were recorded in 2023 so about 680,000 homes locked into arms. When rates adjust this year and into next you can expect someone who took out a loan on a $400k house to spend an extra $500 a month. $600k homes around $700 a month $700k $800 a month.
And these rates will readjust the year after again to the maximum rate of 5% this is going to cause a huge problem for the housing market on the upcoming years and I don’t think people are talking about it yet.
h/t justanaveragejoe520
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