Industry News

Adjustable-rate mortgages a risky bet

Economist warns of unaffordable loans, depressed prices in Golden State

Adjustable-rate mortgages are gaining popularity among homeowners, and recently accounted for about one-third of new loan applications in the country – the highest level in a decade – according to an announcement by the University of Southern California Lusk Center for Real Estate. Adjustable-rate mortgages (ARMs) feature fixed rates for far shorter periods than the standard 30-year fixed mortgages. Typically, adjustable-rate mortgages feature fixed rates for periods of one year, three years or five years, but other ARMs are available. While ARMs typically have lower starting rates than fixed-rate mortgages, the rate can quickly exceed that of fixed-rate mortgages in an environment of rising interest rates. And this growth trend in ARMs could create troubles for Southern California homeowners in the long run, said Raphael Bostic of the USC Lusk Center. "If interest rates increase, some buyers may not be able to afford higher payments and may have to sell their ho...