Nearly Half of Homeowners Regret Their Adjustable-Rate Mortgage

A new survey from U.S. News & World Report found that nearly half of homeowners with adjustable-rate mortgages regret the decision.

This is based on a nationwide survey of more than 1,200 respondents that took place between December 14th and 20th, 2022, via a company called PureSpectrum.

Only respondents with an adjustable-rate mortgage (ARM) were included in the study.

Perhaps the biggest takeaway was that 43% of the survey respondents regret choosing an ARM.

As for why, the most common response “was that their interest rate adjusted to a higher rate than expected.”

Homeowners Took Out Adjustable-Rate Mortgages Because They Wanted a Lower Payment

ARM top concerns

The survey also asked these homeowners why they opted for an adjustable-rate mortgage versus a more popular option, such as the 30-year fixed mortgage.

As expected, the top response was to obtain “a lower monthly payment.” This is basically the sole reason anyone would consider an ARM.

If it doesn’t save you money via a lower interest rate, there’s essentially no point in choosing one over the safety and stability of a fixed-rate product.

Interestingly, another 37% of respondents said they believe interest rates will be lower once their rate adjusts.

That’s a timely take because mortgage rates have doubled over the past year, and there’s a decent expectation that they fall back down to earth this year.

In fact, my 2023 mortgage rate predictions post has the 30-year fixed falling to the low-5% range by the second half of the year.

So they folks could be right to go with an ARM for the short term and look out for a refinance opportunity in the near future.

The big question is whether today’s ARMs are providing enough of a discount to take that chance.

At the moment, spreads between popular ARM products like the 5/1 ARM and 30-year fixed aren’t all that wide.

This means an ARM won’t save you a whole lot. In other times, the difference in rate can be more than 1%, which obviously could lead to some big savings for the first 60 months.

The 5/1 ARM Is the Most Popular Type of Adjustable-Rate Mortgage

most popular ARMs

Speaking of the 5/1 ARM, it happens to be the most popular type of adjustable-rate mortgage, followed by the similar 5/6 ARM.

The difference between the two products is that the former adjusts once annually after the first five…

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