Mortgage rates climbed. Borrowers panicked. Then they did what every rational human does when faced with higher fixed costs: they chose mystery rates instead.
Adjustable rate mortgages are back. The same financial product that helped crater the housing market in 2008 now looks appealing because the initial rate sits lower than a thirty-year fixed. Lower for now. Lower until it isn't. Lower in the same way a pit bull is friendly until you try to pet it.
The logic here is flawless. Fixed rates feel expensive today, so borrowers are selecting mortgages that will definitely be more expensive tomorrow. They're financing the largest purchase of their lives with an interest rate that adjusts. Adjusts based on what? Based on market conditions they can't predict, don't understand, and certainly can't control. But the payment fits the budget this month, so f*ck it.
This is the same species that reads the terms and conditions on an iPhone update. Actually, no. They don't read those either.
The adjustable rate mortgage offers one genuine benefit: it lets you qualify for a house you can't afford by pretending the rate will stay low. You get to live in a bigger house for a few years before the rate resets and you get to live in your parents' basement. It's a rental with extra steps and a credit score penalty.
Demand for these loans is rising. Not because borrowers suddenly understood interest rate risk and decided to time the curve. They're choosing ARMs because the monthly payment calculator said yes when the fixed-rate calculator said no. They're picking the mortgage that lets them pretend they can afford granite countertops.
Lenders are thrilled. They get to originate loans today and watch borrowers discover what adjustable means in eighteen months. By then it's not their problem. It's yours. Well, it's not yours. You're reading this. It's the problem of someone who just searched "can I refinance an ARM before it adjusts" at two in the morning.
Photo by Jakub Ε»erdzicki on Unsplash
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