What Percentage Of Mortgages Are Adjustable Rate Today

In recent years, the share of adjustable-rate mortgages in the US has been steadily increasing, but what's the current percentage? According to the latest data, in 2020, about 5% of mortgages were adjustable-rate, up from 2% in 2010.

Adjustable-rate mortgages offer lower initial interest rates, but the rates can increase over time, which can be a concern for some borrowers. In fact, studies have shown that nearly 70% of adjustable-rate mortgage borrowers are unaware of the potential risks associated with these loans.

The shift towards adjustable-rate mortgages is largely driven by the desire for lower monthly payments, which can be attractive to homebuyers with tight budgets. However, it's essential to carefully consider the potential consequences of an adjustable-rate mortgage before making a decision.

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Adjustable-rate mortgages, also known as ARMs, are a type of mortgage where the interest rate changes periodically with the broader market.

An ARM starts with a low fixed rate during the introductory period, which can last anywhere from three to ten years. This introductory period is a great time to lock in a low rate and save money on interest payments.

The percentage of adjustable-rate loans to total loans is expected to increase as more borrowers seek to save money by taking out ARMs. In fact, it's predicted that the percentage of adjustable loans will rise to 20%+ over the next three years.

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The percentage of adjustable-rate mortgages to total loans shrank from a high of roughly 34% in 2005 to a low of under 5% in 2022. This decline began when the housing market peaked around 2006 and bottomed in 2009 at around 2.5%.

The share of ARM dollar volume in mortgage originations declined from nearly 45% in mid-2005 to a low of 2% in mid-2009. This significant drop was largely due to the housing bubble burst in 2007.

The most common ARMs today are of the 5/1 and 7/1 type, which minimizes the risk. Since 2010, the riskiest ARM products, such as option ARM and interest-only ARM, have largely vanished.

Despite the current rise in originations, the number and share of outstanding ARMs remains very low. As of April 2024, ARMs accounted for approximately 5% of conventional originations by dollar amount and 3% by count.

Here's a breakdown of the ARM share in different mortgage ranges as of May 2024:

An Adjustable-Rate Mortgage is a type of home loan where the interest rate can change periodically.

The interest rate on an ARM can change every 6 months to 1 year, depending on the loan terms.

Location and loan size are key factors influencing demand for adjustable-rate mortgages. The surge in mortgage rates and housing prices has made it difficult for homebuyers to afford fixed-rate mortgages, leading some to explore alternatives like ARMs.

Mortgage rates have a significant impact on affordability, with each percentage point rise resulting in higher monthly payments. This is especially true for homebuyers who are already struggling to make ends meet.

The share of ARM dollar volume in mortgage originations has fluctuated between 4% and 25% since 2009, depending on the prevailing fixed-rate mortgage rate. This indicates that demand for ARMs is closely tied to the state of the housing market and interest rates.

In the past, ARMs were more popular than they are today, with a share of nearly 45% in mortgage originations in mid-2005. However, this declined to a low of 2% in mid-2009 following the housing bubble burst.

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In May 2024, adjustable-rate mortgages (ARMs) accounted for 15.5% of the dollar volume of conventional single-family mortgage originations.

This is the highest share of the year, and it's largely due to rising interest rates. The average 30-year fixed-rate mortgage (FRM) interest rate increased to 7.06% in May from 6.99% in April.

The spread between the FRM interest rate and the ARM interest rate narrowed during the pandemic, and is now at the pre-pandemic level. This means that ARMs have become a more attractive option for homebuyers.

ARMs are more common in expensive areas, where buyers see bigger monthly savings in the initial payment, especially for bigger loans. The ARM share varies significantly based on location and loan amount.

As interest rates rose, the ARM share rose to a 10-year high, highlighting the importance of considering interest rates when choosing a mortgage.

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The mortgage market is a complex and ever-changing landscape, but one thing is clear: adjustable-rate mortgages (ARMs) are becoming increasingly popular. As of May 2024, ARMs comprised 40% of the dollar volume among mortgage originations exceeding $1 million.

The ARM share is higher for metros with a higher average sales price. For example, the San Jose, California metro area had both the highest average sale price and the largest share of ARMs out of all conventional mortgage originations in 2023.

Despite year-over-year declines in the ARM share for mortgages in the $200,001 to $400,000 range, the ARM share increased compared with the prior month. In May 2023, the ARM share for this range was only 7%, down by 4 percentage points from the previous year.

The most common ARMs today are of the 5/1 and 7/1 type, which minimizes the risk. Since 2010, the riskiest ARM products, such as option ARM and interest-only ARM, have largely vanished.

As of April 2024, ARMs accounted for approximately 5% of conventional originations by dollar amount and 3% by count. This is a relatively low number, considering the rise in originations.

Here's a breakdown of the ARM share for different mortgage ranges in May 2023: