Fixed-Rate Loans Hold 92 Percent of US Mortgage Market Share

Fixed-rate mortgages account for roughly 92 percent of all US loans. Adjustable-rate products make up the remaining 8 percent. GN auto markets/housing data highlights this split. The fixed option dominates due to rate predictability.

Borrowers choosing ARMs often have short-term plans. They intend to sell or move before rates adjust. Some use these loans for property flipping. Investors may also use ARMs to offset rising rents.

ARM pricing relies on benchmark indices

The initial fixed period lasts three to ten years. Lenders then reset the rate based on benchmarks. SOFR is the most common index. It reflects overnight borrowing costs for banks.

Lenders add a fixed margin to the benchmark. This margin typically ranges from 2 percent to 3.5 percent. The final rate depends on credit profiles. Rate caps limit how much the payment can rise.

Short-term buyers favor introductory rates

Buyers planning to relocate within a few years may save money. They benefit from low introductory rates. They exit the loan before adjustments occur. This strategy avoids higher future payments.

Property investors also use this structure. They flip homes before the rate changes. Others rent out the property. They can raise rents to cover higher interest costs.

Common structures vary by adjustment frequency

The 5/1 ARM is a popular choice. It offers five years of fixed rates. Adjustments then happen annually. The 10/6 ARM provides ten years of stability.

Other options include the 3/1 and 7/1 ARMs. These offer shorter or longer fixed periods. The 10/1 ARM adjusts yearly after a decade. Borrowers must weigh these options carefully.