40% of Americans Say They Would Get An Adjustable-Rate Mortgage

Jul 26, 2023

6-minute read

Share:

A happy young couple sitting on a yellow sofa.
  • 32.7% of people listed monthly costs as their top priority when choosing a loan type.
  • Realists were 43.8% more likely to hesitate to get an ARM than optimists due to the potential for higher interest rates.

In September 2022, adjustable-rate mortgages (ARMs) made up around 9% of all new home loan applications to lenders, according to the Mortgage Bankers Association (MBA). Although this percentage shows a slight decrease in ARM applications since the last report in July, Google trends have shown an increase in searches for adjustable-rate mortgages as interest rates have risen over the last several months, with searches for this term peaking in the month of June.

With interest rates unlikely to drop anytime soon and home prices still higher, adjustable-rate mortgages offer another option for prospective home buyers to explore in this housing market.

In a new survey by Rocket Mortgage®, over 2,000 Americans were presented with the vague concept of an ARM – a mortgage with a lower introductory interest rate that begins to adjust with the market after a set period of time. 43.1% of people said they would be interested in the concept and 30.3% said they were unsure.

Of those who are currently in the market for a home, 65.4% of first-time home buyers and 62.9% of experienced home buyers said they would consider getting a mortgage with an adjustable rate. Comparably, only 37.8% of current homeowners who are not actively searching for a house said they would be open to considering this option. But how familiar are these borrowers with this type of financing and how does it impact their willingness to get an ARM?

Almost Half Of First-Time Home Buyers Don’t Understand Adjustable-Rate Mortgages

Although more than a third of Americans said they would consider getting an adjustable-rate mortgage, these same groups showed signs that they lack a clear understanding of what the loan option truly entails. This includes a lack of understanding of both the potential benefits and drawbacks.

When presented with a list, 38.3% of all respondents were unable to correctly identify the definition of an ARM. This number was higher when looking specifically at first-time home buyers, 48.6% of whom could not identify the correct definition. Comparably, over half (52.6%) of repeat home buyers could not identify it.

Despite a low level of awareness among those who are actively searching for a home, 68.4% of current homeowners and 73.3% of previous homeowners were able to correctly identify the definition of an ARM. This may point to the fact that experienced homeowners are more familiar with their loan financing options than prospective buyers.

The lack of knowledge surrounding ARMs is further evidenced by the specific pros and cons Americans associate with adjustable rates. When asked why someone might hesitate to g