Summary: The 30-year fixed-rate mortgage loan is still the most popular financing option among home buyers and homeowners in Washington State. But the adjustable-rate mortgage (ARM) loan is still a popular loan option among homebuyers looking to get lower rates.
Many homebuyers turn to adjustable-rate mortgages (ARMs) when they apply for a mortgage to finance a home purchase in Washington. But why is that? What is it about ARMs that makes them so attractive to buyers? The simple answer: to try and secure a lower rate.
Adjustable Mortgages Popular With Washington Home Buyers
Consumer demand for adjustable-rate mortgages continues to be rather high. That’s because borrowers can usually secure a lower rate on an ARM loan, when compared to the more popular fixed-rate mortgage products.
With an ARM, a lower interest rate is typically offered over the first few years of the loan compared to the rate for a 30-year fixed-rate mortgage. After that introductory period is over, the rate will adjust at various intervals as stated in the mortgage contract.
For example, with a 5/1 ARM, the initial interest rate will apply to the first 5 years of the loan term, which is where the first number is derived from. The number “1” means that the rate with adjust every year.
If you are planning to sell your home before that 5 years is up, you can essentially save money by taking advantage of a lower interest rate compared to the rate you would get with a 30-year fixed rate mortgage.
Granted, rates are extremely low right now for fixed-rate home loans, so there is still an argument to be made for these types of home loan programs. But ARMs can also offer some savings in certain situations.
Building a Better ARM Loan
ARM loans fell out of favor during the housing crash of the last decade. The adjustable-mortgage products in use back then sometimes had features that made them somewhat risky as a lending product. But the ARM loans of today are different, and arguably better.
In a recent press release from the title insurance company First American, economist Mark Fleming stated:
“At the height of the housing boom, ARMs were all the rage, and many included additional elements that added risk … Today’s ARM is not like those of the past. It is essentially the same as the 30-year, fixed-rate mortgage with one difference — rates adjust after an initial fixed period of usually five or seven years.”
Related: Adjustable versus fixed-rate loans
In certain scenarios, Washington home buyers and mortgage shoppers could benefit from using an adjustable mortgage instead of the more popular fixed-rate home loan. On average, ARM loans tend to start out with lower interest rate than their fixed counterparts. So there’s a potential for savings.
For instance, when this article was published in March 2020, the average mortgage rates in the weekly survey conducted by Freddie Mac were as follows:
- 30-year fixed: 3.29%
- 15-year fixed: 2.79%
- 5/1 ARM loan: 3.19%
Granted, rates can vary from one borrower to the next due to a number of factors. But the big picture here is that adjustable mortgage products give borrowers a chance to secure a lower rate (and save money) during the first few years of the loan. That’s why ARM loans tend to rise in popularity as interest rates climb.
Know Your Financing Options
Homeowners and home buyers in Washington State have a lot of options when it comes to mortgage financing. Choosing between an adjustable or a fixed-rate loan is just one of the choices you’ll encounter, as you move through the process.
This is why it’s so important to speak to a knowledgeable loan officer about your mortgage options. Our experts can explain the different types of mortgage products and help you choose one that meets your particular needs.
Need Answers to Your Mortgage-Related Questions?
If you have questions about ARMs or any other type of mortgage, we have the answers. Sammamish Mortgage has been helping borrowers across the state of Washington for about 28 years, and we can help you as well. We provide various mortgage programs to borrowers in Washington, Oregon, Idaho, and Colorado. Please contact us with your mortgage-related questions, or to receive a rate quote.