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Adjustable-Rate Mortgage (ARM) Use Surges Among Home Buyers

By Dan Green

Improve Your Credit Score With Physics – Today's Mortgage & Real Estate News

Ellie Mae reports homeowners choosing adjustable-rate mortgages over fixed-rate ones at the highest clip since 2014; an update on today’s mortgage rates for VA, USDA, FHA, jumbo, and conforming loans; how to use probability and concepts from physics to improve your credit score and get access to the best mortgage rate possible.

Buyers Of Homes Using ARMs More Often

Adjustable Rate Mortgages as a percentage of all loans closed - Ellie Mae - Growella
ARMs as a percentage of all loans closed

Home buyers are choosing adjustable-rate mortgages (ARMs) over fixed-rate mortgages more frequently as compared to recent years.

According to mortgage software company Ellie Mae, adjustable-rate mortgages accounted for 6.3 percent of all mortgage loans closed in March 2018, marking the highest market share for ARMs on a monthly basis in almost four years.

Adjustable-rate mortgages are an important part of today’s housing market. They offer lower rates as compared to fixed-rate loans and, for home buyers who plan to move within a decade, ARMs are sometimes a clear-cut winner when choosing which is better: ARM or a fixed.

Home buyers have learned that an adjustable-rate mortgage that never reaches its phase of adjustment is actually just a mortgage like any other.

Here’s how ARMs work:

For home buyers who plan to move within six years, a 10-year ARM could be an excellent choice. The loan will come with a lower rate as compared to a comparable 30-year fixed-rate loan, and the ARM will never get a chance to adjust.

However, it’s important to remember that adjustable-rate mortgages are not affordability tools. They shouldn’t be used to increase the amount of house you can buy. ARMs should be used to limit the wasting of hard-earned cash; to help you spend more wisely.

Talk with a loan officer about adjustable-rate mortgages and how they can work for you.

Today’s Mortgage Rates & Trends

5-Day Mortgage Rate Trend - May 7, 2018 - Growella
5-Day Mortgage Rate Trend

Mortgage rates are down today, which is terrific news for refinancing households and homes buyers who went into contract this past weekend.

Rates for all government-backed loan types are lower.

What are today’s actual mortgage rates? That will depend on you, your home, and about dozen factors.

Your credit score, your loan size, and your state of residence affect your rate; as does the number of units in your home. House hackers have learned that mortgage rates for 1-unit homes are lower than rates for multi-unit homes, except when you use FHA financing. And, rates for investment properties are higher than rates for primary residences.

You’ll also get a lower rate, statistically, by talking to multiple lenders. Comparing mortgage rates among two lenders is good, but comparing among three or four can be better.

Before locking, review your quotes and your lenders to find the best combination of rates, fees, and service.

Get Another Rate Quote Here

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Improve Your Credit Score For Lower Mortgage Rates

5 Components Of A Credit Score - Growella
The 5 Components Of Your Credit Score

Use the next 30 days to improve your credit score . You’ll get a better mortgage rate quote.

Credit scores are probability statistics. For mortgage lenders, they predict the likelihood of a homeowner missing three consecutive months of payments, which puts the loan into default.

And, because credit scores are just probabilities, their outcomes can change over time.

Whether your credit score is excellent or terrible, a change in your spending patterns changes the likelihood that you’ll miss three straight months of payments, which forces your credit score to change.

Your spending patterns are grouped into 5 main areas:

  1. How you’ve paid on your debts lately
  2. The amount of credit you have available in an emergency
  3. Your years of experience managing credit and debt
  4. The types of credit currently available to you
  5. Your recent patterns in signing up for new credit accounts

The five areas are the building blocks of your credit score and they’re applied to a timeline because lenders know that if you exhibited good credit behavior yesterday, you’re likely to exhibit good credit behavior tomorrow.

It’s Newton’s First Law of Motion: an object in motion tends to stay in motion. It’s inertia.  And, it’s why improving your credit score is sometimes as basic as getting your bills (more) caught up and being smart about how you spend.

It’s also why your credit behavior of the last six months has an outsized effect on your credit score: what you’ve just done has a lot to say about what you’re about to do.

Commit to improving your credit score and, as different spending patterns emerge in your credit report history, your FICO score will reflect them. You’ll get access to a wider selection of mortgage programs, and lower mortgage rates overall.

Written by Dan Green

Dan Green is a personal finance expert and the founder of Growella. His expertise has been cited by The Wall Street, NPR, and CNBC; and, his advice has helped millions of people make better choices with their money. Dan hosts the mortgage news show "The Mortgage Minute-and-a-Half" three times weekly on YouTube.

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