Adjustable-rate mortgages got a bad rap after the housing bust.
Many homebuyers used the low initial interest rates on adjustable loans to keep payments low, but weren’t able to afford to pay their mortgage when the loans reset to a much higher rate a few years later.
In the years since, banks have tightened their lending standards to ensure borrowers who get adjustable-rate loans, or ARMs, can afford a rate reset. And as interest rates have begun to rise, ARMs have become a more attractive option for homebuyers seeking the lowest rate on a home loan.
Last month, ARMs made up 8.2 percent of all home loan applications, up from 7.7 percent in February and matching the level in December, according to the Mortgage Bankers Association. The last time ARMs’ share of mortgage applications has been at least this high was June 2008.
Mortgage rates have risen almost a full percentage point since hitting record lows about a year ago. At the same time, the spread in the rates between adjustable loans and fixed-rate loans has widened.
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