Adjustable-Rate Mortgages Make a Comeback

But how has Today’s ARM changed since the 2008 crash?

The recent uptick in the use of Adjustable-Rate Mortgages (ARMs) is raising financial eyebrows as analysts in the housing loan market watch for its potential impact.

“Be aware, be educated before you jump in,” Linda McCoy, president of the National Association of Mortgage Brokers, told the New York Times in mid-June 2022. “There are still risks.”

ARM’s Increase by The Numbers

Nearly 11% of all mortgage applications in May 2022 were of the ARM variety, according to, an independent analysis and commentary news source covering the nation’s housing, mortgage, and real estate markets. This marks a 14-year high in ARM applications and helps ARMs recover from a sullied reputation earned during the 2008 mortgage crisis. More importantly, this 11% represents 19% of the total dollar volume of home loans for the week ending May 6, 2022.

Additional data points to the rise – and return – of the ARM to the mortgage loan market across the country:

-- Neat Loans, a Boulder, Colorado, group specializing in assisting first-time home buyers and credit-challenged buyers, reports that nearly 70% of its home loan applications in 2022 include use of ARMs.
-- The Mortgage Bankers Association based in Washington, D.C., with more than 2.200 members nationwide, reports ARM-style loans comprise 10% of its current activity as of June, up 6% since January 2022.

Driving the Increase

In a breath of fresh air, it appears the increase in ARM loans isn’t being blamed on the COVID-19 pandemic. Well, at least not directly. Dramatic inflation increases in 2021 and especially the first half of 2022 associated with the lingering economic impact of the pandemic prompted the Fed to raise interest rates. This, combined with rising home prices, has priced some would-be home buyers out of fixed-rate mortgages.

“With rates on fixed-rate mortgages running close to 6% and likely higher for less-qualified buyers, getting an ARM to snag a rate that’s south of 5% looks much more appealing,” Kate Wood, a home loan expert with Nerdwallet, told

As of mid-June 2022, borrowers could lock in a 4% rate for the first five years of an ARM loan, according to

For example, on Thursday, June 9, borrowers using Freddie Mac could get a 4.04% rate on the initial first five years fixed rate of an ARM loan as compared to the 5.09% available that day for a loan with a fixed-rate for the entire term. For a loan on a $350,000 home that 1.5% rate difference represents $200 per month.

Maybe Not So Dangerous?
What analysts consider to be a lower risk of ARM loans today has much less to do with a variable interest rate than it does with the quality of borrowers qualifying for it in 2022 as compared to borrowers defaulting back in 2008.

ARM loans begin with an initial lower-fixed rate for a pre-determined period of time ranging from three to ten years – but typically five years – and then transition to a “floating” rate of interest based on the market conditions at that time.

What has changed is significant reform in housing loan regulations – particularly under the Dodd-Frank Act enacted in 2010 and regularly updated since – in an effort to reform Wall Street and protect consumers from the federal level.

Skylar Olsen“The main differences between now (2022) and then (2008) are heightened income and credit requirements to qualify for a mortgage and requirements that banks keep proof (a huge deal), requirements around disclosure/loan counseling (maybe a big deal), and limitations on repayment penalties (which matters more for ARMs since one of the reasons you might get one is to lower payments and pay off the loan before your rate has a chance to increase),” Skylar Olsen, a PhD housing economics professor at the University of Washington, founder of Reimagine Economics, a Seattle-based data leverage firm and a former senior principal economist and director of economic research at Zillow, told Advisors Magazine.

Maybe Still Somewhat Risky

As with any other financial tool, the user is best advised to consider all the possibilities of using it. The same applies to an ARM loan.

One risk is an increase in the interest rate.

That risk is getting closer to being a sure bet in 2022 and beyond as the Fed has announced a series of interest rate hikes as part of combatting inflation.

“There is a lot of variability in the specific terms as to how much the rates can go up and how quickly,” David Mendels, a certified financial planner with Creative Financial Concepts in New York told CNBC. “No one can predict what rates will do, but one thing is clear – there is a whole lot more room on the upside than there is on the downside.”

Olsen echoes concerns regarding the use of ARM loans.

“The danger still comes down to the fact that an ARM is a more complicated product – there are more ticky-tacky details that will really matter after that fixed rate period,” Olsen said. “Let’s say your mortgage contract doesn’t spell out that the payment will increase when the rate increases. Higher rate but same payment means the balance on the loan could actually increase.”

Bottom Line

An ARM loan can still make financial sense if the initial fixed-rate period provides enough savings to pay down the principal.

This is especially applicable in cases when homeowners know they won’t be in the home they financed with the ARM loan for the long-term.

The old adage, “buyer beware,” applies to use of ARM loans in 2022, but perhaps is more accurately stated as, “borrower be educated.”

The Consumer Financial Protection Bureau created by the federal government in July 2011 offers a comprehensive look at ARM loans. Click here to view.


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