Adjustable-rate mortgages gain popularity among Florida buyers seeking lower initial payments amid rising fixed mortgage rates.
Source: Original report
As mortgage rates continue to rise, more Florida homebuyers are reconsidering adjustable-rate mortgages (ARMs) to secure lower initial payments. According to ICE Mortgage Technology’s October Mortgage Monitor, ARMs accounted for nearly 11% of first-lien mortgage rate locks in the week ending September 18, marking the highest share in almost four years. Among home purchase borrowers in Florida, nearly 9% opted for an ARM, an increase of over 2 percentage points since mid-June.
The shift towards ARMs comes as fixed mortgage rates moved higher in September. ICE’s 30-year fixed-rate lock index reached 7.31% on September 30, up from 6.73% earlier in the month. This upward trend has prompted more borrowers to explore alternative financing options to manage their monthly payments.
Why the Shift to ARMs?
For many buyers, the appeal of ARMs lies in their lower initial payments compared to fixed-rate mortgages. “ARMs are becoming more attractive to borrowers looking for relief from today’s higher fixed rates,” said Andy Walden, head of Mortgage and Housing Market Research at ICE. “However, the overall market exposure to adjustable payments remains relatively limited.”
Most newer ARMs do not begin adjusting immediately. Approximately 90% of recent ARM originations carry fixed rates for at least five years, with more than 90% of ARMs originated since 2022 still in their introductory fixed-rate periods. This delay provides buyers with a buffer before facing potential payment adjustments.
Future Payment Considerations
While the initial fixed-rate period offers some stability, the future payment still matters. About 180,000 ARMs are scheduled for their first reset in 2027. ICE estimates that roughly 74,000 seven-year ARMs originated in 2020 could see a median monthly payment increase of about $1,066 when they reset. Buyers considering ARMs should weigh the potential for higher payments down the line against the immediate savings.
Upfront Costs on the Rise
In addition to exploring ARMs, buyers are also spending more upfront to lower their borrowing costs. Just over half of first-lien purchase borrowers paid at least half a mortgage point in August, compared with 46% a year earlier. More than one-third paid at least one point, indicating a willingness to invest in reducing long-term interest expenses.
What to Watch Next
As mortgage rates fluctuate, the popularity of ARMs may continue to ebb and flow. Buyers should stay informed about rate trends and consider their long-term financial goals when choosing between fixed-rate and adjustable-rate mortgages. For those opting for ARMs, understanding the terms of the adjustment period and potential payment increases will be crucial in managing future financial obligations.
