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Trend Watch: Adjustable Mortgages on the Rise in Washington State

According to a recent report, adjustable-rate mortgage loans in Washington State and across the country are becoming more popular, as borrowers seek lower interest rates.

As house prices in Washington continue to rise, home buyers are always looking for ways to reduce their purchase-related costs. And some are turning to ARM loans as a way of securing a lower rate. Here are the latest trends relating to adjustable-rate mortgage loans in Washington and nationwide.

Adjustable-Rate Mortgage Loans More Popular in Washington?

While mortgage rates have been fairly stable over the last few months, home prices in Washington State have risen steadily. According to the real estate information company Zillow, the median home value for Washington rose by nearly 11% over the last 12 months alone (through October 2017).

As a result of this trend, many home buyers in Washington are looking for ways to reduce their monthly mortgage payments. And some are turning to the adjustable-rate mortgage, or ARM, as a way of securing a lower interest rate.

Related: Tips for getting the best rate

ARM usage appears to be on the rise nationwide, as well. According to a recent analysis by Inside Mortgage Finance, an industry publication, the number of ARM loan originations increased by more than 40% from the first to second quarter of 2017.

It’s common for ARM loan demand to rise from the first quarter to the second quarter of any given year, due to the busier spring home-buying season. But the increase from the first and second quarter of this year was larger than those seen in the past. In the spring of 2016, for example, adjustable-rate mortgage loan originations increased by 15% – compared to the 40% increase that occurred in 2017.

Adjustable-rate mortgage loans in Washington State typically offer lower rates than their fixed-rate counterparts, at least during the first few years. Many of the ARM loan products available today start off with a fixed period of at least five years. This means that the mortgage rate remains the same for the first five years, after which it can begin to adjust or change annually.

Why Some Borrowers Use ARMs

While ARM loans are less predictable than their fixed-rate mortgage counterparts, they offer an opportunity for lower rates and lower monthly payments. Washington home buyers who are looking for ways to reduce their monthly payments often turn to the adjustable mortgage options.

Let’s look at current average mortgage rates as an example:

  • According to the weekly survey conducted by Freddie Mac, the average rate for a 30-year fixed home loan during the last week of September was 3.83%.
  • In comparison, the average rate for a 5/1 ARM loan was 3.2%.

This is precisely why some home buyers in Washington opt for the ARM loan over the more popular fixed-rate mortgage. They do it to secure a lower rate and thereby reduce their monthly payments. Many people who use adjustable-rate mortgage loans plan to either refinance or sell the home before the initial fixed period expires.

The bottom line is that adjustable-rate mortgage loans in Washington State give borrowers an opportunity to secure a lower rate and reduce their monthly payments. As long as you understand how this mortgage product works, it could be a smart financing strategy.

Have questions? Sammamish Mortgage can help you choose the right type of home loan based on your financing goals. We offer a wide range of loan options, including both fixed and adjustable-rate mortgages. Please contact our staff with any financing-related questions you have, or to receive a rate quote.

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