SAN DIEGO (KGTV) — Recent data shows more people are shopping for houses as talks of interest rates going down continue, but is an adjustable-rate mortgage or a fixed rate the way to go?
Thomas Boles, president and owner of Telesis Tax & Financial in Mission Valley, said while an adjustable-rate mortgage may seem appealing, there's much more to consider if you are looking to buy a house.
"This is not going out and buying you know some clothes or a car or something like that. This is a longer-term asset," Boles said.
An adjustable-rate mortgage — also called ARM — typically offers a lower interest rate compared to a fixed rate. But because it is a variable-rate mortgage, the interest rate will adjust periodically based on the market, as opposed to a set fixed rate.
Right now, a 10-year ARM rate is 6.5% to 6.6%. The rate has the possibility of going up or down based on the market.
"It really is a starting point for many buyers that don't have the capital to put up front the full amount for like a 30-year fixed," Boles said.
Compare that to a 30-year fixed rate of 6.3% to 6.4%. But that will also require a good credit score and a down payment of at least 25%.
Boles said there are a number of questions a potential homebuyer needs to consider when looking at rates.
"Look at what is the goal. How long do you plan on being in the area, then understanding you can refinance. But every time you refinance any time you take money out of real estate or a loan there are fees incurred with that, then there are the mortgage costs," Boles said.
As well as property taxes and repairs. But right now, data shows many people are looking at buying.
According to the Mortgage Bankers Association, mortgage applications have increased with ARM applications going up by 25%, which is the highest level since 2022.
Boles said while there's an effort from the Feds to lower the interest rates, he cautions home buyers about the impact of inflation and not being able to keep up with the mortgage.
"Defaulting on a home loan is just brutal. That's seven years that you're not going to get back because it's going to go on your credit report," Boles said.
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