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Thu May 12, 2022, 08:36 AM

Adjustable Loans Form Largest Share of US Mortgages Since 2008


US homebuyers are increasingly turning to adjustable-rate mortgages as overall borrowing costs soar.

ARMs -- which carry variable interest rates that reset based on the market at predetermined times -- accounted for 10.8% of total home-loan applications in the week ended May 6, data from the Mortgage Bankers Association showed Wednesday. Thatís up from 3.1% of activity at the start of the year and is the largest share since 2008.

Loan costs have increased steeply amid Federal Reserve actions to tame the worst bout of inflation in 40 years. The average contract interest for 30-year fixed-rate mortgages rose last week to a nearly 13-year high of 5.53%, MBA data show.

Thatís made 5/1 ARMs, averaging 4.47%, look comparatively cheap for borrowers trying to lower their monthly payments. Such mortgages have a fixed interest rate for the first five years before resetting annually for the remaining life of the loan. Borrowers risk the potential of higher payments in the future in return for lower introductory rates.

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