This was the last year of the mortgage meltdown. According to Freddie Mac, mortgages in 2008 were available for 6.03%. Excluding tax and insurance, the monthly cost for a $200,000 home loan was $1,200. After 2008, mortgage rates began a steady decline.
2016
Until 2021, 2016 saw the all-time lowest mortgage rate in the USA. The typical mortgage in 2016 was priced at 3.65%, according to Freddie Mac. That means a mortgage of $200,000 had a monthly cost, for principal and interest, of $915. That is more than $500 less per month than the long-term average.
Note, however, that mortgage rates had actually fallen lower in 2012. In November of that year, the average mortgage rate hit 3.31%. But since some of 2012 was higher, the whole year averaged 3.65% for a 30-year mortgage.
2019
Contrary to what many experts predicted, mortgage rates dropped in 2019. In 2018, economists forecasted that mortgage rates would rise to 5.5%. However, mortgage rates went from 4.54% in 2018 to 3.94% the following year.
The monthly cost for a home loan of $200,000 at that rate was $948. When compared with the 8% long-term average, that would be a savings of just over $500 per month.
Mortgage rates will probably make a downward turn this year — but not in July. Instead, rates are likely to creep upward this summer or stay about the same.
Forecasting mortgage rates is always an iffy proposition, and that’s especially the case for July because of uncertainty about the trajectory of the inflation rate and what the Federal Reserve will do about it.
The Fed has a goal of reducing the inflation rate to 2%. The central bank made progress in 2022, but inflation’s downward movement stalled in early 2023. The core personal consumption expenditures price index (the Fed’s favored inflation measurement) has been stuck at 4.6% to 4.7% in 2023.
Without decisive improvement on the inflation front, the Fed is likely to raise the short-term federal funds rate at the end of its July 25-26 meeting. Mortgage rates often rise in the run-up to Fed rate increases. That’s the most likely course for mortgage rates in July.
How the forecast could go off course
Someday, inflation will decrease, the Fed will ease off on its rate increases, and mortgage rates will drop. But the Fed’s monetary policymakers don’t seem to think that will happen this summer. In their June summary of economic projections, they signaled that they expect to raise the federal funds rate another half a percentage point this year. That probably would take the form of two more rate increases of a quarter of a percentage point each.
An unmistakable downturn in the inflation rate could cause the Fed to rethink its expectation of two rate hikes. It’s possible, but not probable, that this month the Fed will see signs of decreasing inflation. That seems more likely to happen in August or September and not in July.
What other forecasters say
Fannie Mae predicts that the Fed will continue raising rates “until it is abundantly clear that inflation pressures from the labor market have eased.” But in Fannie’s estimation, it’s scarcely clear that this evidence will show up soon enough to avoid a recession. Fannie expects mortgage rates to rise slightly from July through September, then drop in the final quarter of 2023 as the economy cools.
By contrast, Freddie Mac predicts that the economy will avoid recession as inflation cools and that mortgage rates will remain above 6% all year.
What happened in June
At the end of May, I predicted that mortgage rates could rise through the first half of June, then level off or fall in the second half. That’s not what happened. Instead, mortgage rates fell from one week to the next, with the 30-year mortgage averaging 7.02% in the week ending June 1 and 6.66% in the week ending June 29.
Two major factors gave mortgage rates room to fall: the deal to resolve the debt ceiling standoff early in the month and the Fed’s rate hike pause in the middle of the month. At a minimum, both developments relieved upward pressure on mortgage rates, and they might have even pushed rates lower.
Holden Lewis writes for NerdWallet. Email: [email protected]. Twitter: @HoldenL.
While inflation is cooling, interest rates remain high, which puts a damper on Americans’ plans to buy a home or refinance their existing mortgages. The natural question many homeowners are asking themselves in this economic climate: Should I buy a home now at high rates and refinance later, or should I wait for rates to fall? We posed the question to several real estate and mortgage professionals and educators, and their answers may surprise you.
If you’re considering buying a new home or refinancing your current one it helps to know what rate you may qualify for. Find out here now!
When buyers should buy now and refinance later
Robert Johnson, a professor at Heider College of Business at Creighton University, points out that purchase price and mortgage rate are the two primary financial factors potential homebuyers consider when buying a home, but there’s a critical distinction between the two.
“What many fail to understand is that only one—mortgage rate—can be renegotiated,” says Johnson. “Once a home is purchased, you can’t renegotiate the purchase price. What this means, in my opinion, is that if you find a home you believe is priced attractively, I would be more apt to pull the trigger than if mortgage rates are attractive and home prices seem high. In financial terms, you have optionality for the remainder of your mortgage to renegotiate terms. You don’t have that option with a purchase price.”
As the saying goes, “Marry the home, but date the rate.”
Additionally, you may experience other unique benefits if you buy a home in the current climate. “Buyers who are in the market while interest rates are high may have certain advantages that they otherwise wouldn’t, such as less competition and more negotiating power,” states Afifa Saburi, senior researcher at Veterans United Home Loans. “While they still have the option to refinance, potentially more than once throughout their 15- or 30-year mortgage term, they also have the opportunity to build equity and wealth.”
As with many financial questions, the answer may not be cut and dried, as it will depend on your financial situation and forces outside your control. For example, it’s hard to consider mortgage rates in a financial decision when it’s unclear which direction they will move.
Regarding whether to buy now and refinance later or adopt a wait-and-see approach to , economist Peter C. Earle from the American Institute for Economic Research says it’s hard to predict. “Typically, the rule of thumb is that one wouldn’t finance unless the new mortgage rate to lock in is at least 0.75% to 1% lower than the established rate,” says Earle.
“The Fed has jawboned exhaustively about their intention to keep rates at present levels once their hiking campaign is over, but if the U.S. enters a recession, it’s not at all clear that they won’t drop rates. That’s been their playbook since the Greenspan era,” said Earle, referring to Alan Greenspan, the former chairman of the Federal Reserve of the United States.
Not sure what purchase rate you would qualify for? Explore your rates and options here now to learn more.
When buyers should wait until rates drop back down
No matter when you buy a home, the decision should be based on sound financials, namely, whether you can afford the payments and how long you plan on staying in the home long-term.
Brian Wittman, owner and CEO of SILT Real Estate and Investments, cautions: “I don’t believe in the philosophy that buying now and refinancing later is the best course of action. We’re still not sure of the direction of the housing market, including both property values and interest rates. The problem with this particular philosophy is that buying now and hoping that interest rates go down to make your payment better is bad financial planning. If you can’t really afford the payment now, you’ll be overpaying while you wait and hope for interest rates to drop.”
For existing homeowners, the decision to buy now and refinance later, or wait until mortgage rates fall, may come down to your existing home’s mortgage rate. “In general, I’d suggest not selling or refinancing your home if the rates are higher than your existing mortgage, especially if you want to purchase a new house,” advises Michael Gifford, CEO and co-founder at Splitero.
Check your mortgage refinancing rates here to learn more.
The bottom line
If you’ve decided to take out a mortgage now, but have concerns about locking yourself into a high rate, consider getting a mortgage with a float-down option. This feature allows you to lock in your interest rate while also allowing you to take advantage of a lower rate within a specific period.
Not sure whether to buy a home now and refinance it later, or wait for mortgage rates to drop? It may help to know there are other alternatives worth considering. One option is to make improvements to your home using funds from a home equity loan or home equity line of credit (HELOC). Tapping into your home equity to upgrade your property may increase its value.
LOS ANGELES (AP) — The average long-term U.S. mortgage rate fell for the third time in as many weeks, a welcome boost for homebuyers facing a housing market that’s been held back this year by a tight inventory of homes for sale.
Mortgage buyer Freddie Mac said Thursday that the average rate on the benchmark 30-year home loan fell to 6.67% from 6.69% last week. A year ago, the rate averaged 5.81%.
The average rate on 15-year fixed-rate mortgages, popular with those refinancing their homes, also fell this week, slipping to 6.03% from 6.10% last week. A year ago, it averaged 4.92%, Freddie Mac said.
“Mortgage rates slid down again this week but remain elevated compared to this time last year,” said Sam Khater, Freddie Mac’s chief economist.
With the latest drop, the average rate on a 30-year mortgage is now at its lowest level since the last week of May, when it was at 6.57%. The average climbed to 6.79%, its highest level so far this year, in the first week of June.
A decline in mortgage rates can save homebuyers hundreds of dollars a month in borrowing costs on a home loan. That can make a big difference at a time when a historic-low level of homes on the market is spurring bidding wars that are helping keep prices from falling sharply after soaring in recent years.
The average rate on a 30-year home loan is still more than double what it was two years ago, when the ultra-low rates spurred a wave of home sales and refinancing. The far higher rates now are contributing to the low level of available homes by discouraging homeowners who locked in those lower borrowing costs two years ago from selling.
The dearth of properties on the market is also a key reason sales of previously occupied U.S. homes fell for the third month in a row in May, the National Association of Realtors said Thursday.
Low mortgage rates helped fuel the housing market for much of the past decade, easing the way for borrowers to finance ever-higher home prices. That trend began to reverse a little over a year ago, when the Federal Reserve began to hike its key short-term rate in a bid to slow the economy to lower inflation.
Global demand for U.S. Treasurys, which lenders use as a guide to pricing loans, investors’ expectations for future inflation and what the Fed does with interest rates influence rates on home loans.
All told, the Fed raised its benchmark rate 10 times, starting in March 2022. But the central bank opted to forgo another increase at its meeting of policymakers last week. Still, the Fed warned that it could raise interest rates two more times this year in its battle against inflation.
That open-ended approach has heightened uncertainty about the Fed’s next moves, which could lead to more volatile moves for mortgage rates.
“With the potential for additional rate hikes ahead, mortgage rates will remain elevated throughout the remainder of the year,” said Jiayi Xu, an economist at Realtor.com.
A new survey from Zillow found the “mortgage rate tipping point” at which homeowners are likely to sell their homes. According to the survey, homeowners with a mortgage rate above 5% are almost twice as likely to say they plan on selling their home in the next three years than those paying a rate below 5%.
As the Fed continues to raise the federal funds rate in an attempt to combat inflation, consumers are facing higher commercial interest rates, especially mortgage rates. As of August 2, the average 30-year mortgage rate is 6.81%, compared to 6.78% last week and 5.54% a year ago. This is lower than the long-term average of 7.74%. Additionally, the average interest rate for a 15-year fixed mortgage is 6.11%, up from 6.06% a week ago and up from 4.75% last year.
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The survey found that about 80% of mortgage holders reported having a rate of less than 5%, 90% reported having a rate of less than 6%, and almost a third reported having a rate of less than 3%. Homeowners who already have a relatively low interest rate are hesitant to sell their home and remortgage at a higher rate.
This reluctance to sell can have an impact on the housing supply. As homeowners are “locked-in” to their current mortgages, “it results in a shortage of housing options, resale supply, homeowner mobility, and places upward pressure on housing prices” according to Zillow. In fact, a survey from Redfin reported that mortgage payments in March hit a high of $2,563, up from $1,988 the previous year. Zillow also reports that current monthly mortgage payments are more than twice as much as they were in 2020 and 13% higher than a year ago.
Orphe Divounguy, a senior economist at Zillow Home Loans said in the company’s press release: “We expect mortgage rates may notch down slightly as inflation comes under control, but they are unlikely to return to 5% in the near future. Over time, homeowners will likely accept higher rates as the new normal, but until then, the market could remain challenging for home shoppers, who will see fewer options and higher prices.”
However, as inflation cools down and more mortgages drop into the 5% range, housing inventory could go up. Zillow found that 23% of homeowners are considering selling their home in the next three years or currently have their home listed for sale. This is much higher than last year, when only 15% of homeowners reported the same. Nearly 40% of homeowners considering selling their home in the next three years have mortgage rates above 5%.
The share of refinances in mortgage origination volume dipped below 50% for the first time in 15 months in March, according to Black Knight‘s new monthly data report, the Originations Market Monitor. With interest rates continuing to tick up, the purchase mortgage market is where most lenders will focus operations over the next year.
Since December 2019, millions of homeowners have been able to save hundreds of dollars a month in mortgage payments by refinancing to record-low mortgage rates, often in the 2% range. Thanks to the Fed’s intervention to lower the cost of borrowing, many homeowners shaved 125 basis points or more on their mortgages over the past year. That was a boon for mortgage lenders, the vast majority of which rode the refi wave to historic origination volume and record profits in 2020.
But the strengthening U.S. economy and acceleration of COVID-19 vaccines has pushed interest rates back up dramatically over the last quarter. By mid-January, mortgage rates began to rebound from historic lows, and by the end of March, Black Knight estimated the average 30-year mortgage rate sat near 3.34%. That was up 60 basis points from February, though still down 20 basis points from the same time last year.
In March, the share of refinancings fell to 48%, forcing many lenders to quickly pivot away from refis and toward the purchase market.
“Recent – and sharp – upward movements in interest rates have shifted the mortgage originations landscape very quickly,” said Scott Happ, Black Knight’s president of secondary marketing technologies. “The wave of refinance activity of the last year and some months has suddenly given way to a purchase-heavy mix. The implications of this shift touch nearly every area of mortgage lending, which in turn has implications for the wider economy.”
How outsourcing gives lenders an advantage in 2021’s purchase market
Whether lenders want to lower costs or improve performance, outsourcing can strengthen a company’s operations regardless of the housing market.
Presented by: Computershare Loan Services
Despite refi activity in freefall, overall rate lock volume was up 2.5% in March, with purchase locks jumping 32% from February. Cash-out refinance locks also rose 4% month-over-month.
The three metropolitan areas with the greatest percentage of lock volume was the Los Angeles-Long Beach-Anaheim metro, New York-Newark-New Jersey metro and the Washington-Arlington-Alexandria metro. In the NY-NJ-PA metro in particular, rate lock data was up 11.7% month-over-month, and refis still took more than half of the origination volume.
But the top 20 metros were neck-and-neck for whether purchases or refis made up more of the lending pie.
“This marks the first time – but almost certainly not the last – that purchase loans have made up a majority share of monthly mortgage lending since December 2019,” said Happ. “We also saw credit scores pull back, a trend that’s likely to continue among refis as high-credit borrowers, who have been largely driving record volumes, exit the market.”
If these homeowners do slowly exit the market, credit availability will continue to open up for borrowers with lower credit scores and options for higher LTV products. Zillow‘s senior economist Jeff Tucker estimates this next wave of buyers will be millennials.
“More affordable, medium-sized metro areas across the Sun Belt saw significantly more people coming than going – especially from more expensive, larger cities farther north and on the coasts,” said Tucker. “The pandemic has catalyzed purchases by millennial first-time buyers, many of whom can now work from anywhere.”
On average, Black Knight estimated a typical credit score for a conforming loan was around 751 in March, six points lower than a year ago. On the other hand, credit scores averaged close to 666 for FHA loans, around four points higher year-over-year. According to the report, Black Knight said it’s seen year-to-date increases in the share of FHA and non-conforming originations, while conforming volumes – though still representing the lion’s share of March lending – are down.
At this point, it’s pretty fair to say that 2023 is shaping up to be a tough year to buy a home. Between expensive mortgages and limited inventory, buyers might continue to struggle as they have been for the past several months.
Now sometimes, housing market conditions improve in the spring and summer. But so far, we haven’t seen much movement there. And based on existing conditions and recent data, here’s what we can likely expect from the housing market in August.
1. Mortgage rates will remain high
As of late July, the average 30-year mortgage rate was 6.78%, according to Freddie Mac. It’s unlikely that mortgage loans will get less expensive to sign in August, and we could even see the average rate creep upward into the low 7% range.
Of course, there are some steps that prospective buyers can take to try to snag as competitive a mortgage rate as possible. These include boosting their credit scores and keeping their non-mortgage debt as low as possible. But for the most part, anyone looking to buy a home in August should not expect a bargain from a mortgage rate perspective.
2. Homes will remain expensive to buy
There’s not a lot of real estate inventory to choose from these days, so despite higher mortgage rates, sellers are still able to command higher prices for their properties. The National Association of Realtors (NAR) reports that in June, the median existing-home sale price was $410,200. That’s the second-highest figure on record since January 1999.
It’s also worth noting that home prices remain high even though sales are dropping. In June, existing-home sales fell almost 19% from a year prior, says the NAR. But a decline in buyer demand clearly didn’t do a whole lot to bring home prices down.
More: Check out our picks for the best mortgage lenders
3. Housing inventory will remain stagnant
At the end of June, there were an estimated 1.08 million unsold housing units on the real estate market, according to the NAR. But that only represents a 3.1-month supply of homes.
It normally takes a minimum of a four-month supply of homes to meet buyer demand in full. And it can commonly take up to a six-month supply.
As long as housing inventory remains stagnant, sellers can get away with charging higher prices. But at this point, there’s a bit of a chicken-and-egg situation happening with mortgage rates that’s likely to result in ongoing inventory challenges.
Because it’s gotten so expensive to sign a mortgage, many sellers are hesitant to do so. As such, they’re staying put. And if people aren’t willing to sell their homes, inventory won’t increase.
Should you aim to buy or sell a home in August?
It’s easy to make the case that August won’t be a good time to buy or sell a home. For buyers, it’s easy to see why — there’s not much inventory to choose from, and both homes and mortgages are expensive.
For sellers, what makes August a bad time to list a home is the struggle to find a new house to buy at a time when the market lacks inventory. And anyone who sells this summer and needs a new mortgage is apt to find that the cost of signing one is high.
That said, August could be a good time to sell a home for those who won’t need a mortgage to find a replacement home. That’s because sellers can capitalize on low inventory and the higher prices that situation tends to lead to.
“Higher interest rates continue to dampen activity in interest rate-sensitive sectors, such as housing,” said Freddie Mac chief economist Sam Khater. “However, overall US consumer confidence is unwavering, surging to a two-year high in the Conference Board’s Consumer Confidence Index for July 2023. Rising consumer confidence often leads to greater spending, which could drive more … [Read more…]
Our experts answer readers’ home-buying questions and write unbiased product reviews (here’s how we assess mortgages). In some cases, we receive a commission from our partners; however, our opinions are our own.
Mortgage rates climbed throughout the first half of July, with average 30-year mortgage rates nearing 7%. But they’re ending the month a tad lower, and they could start trending down more substantially throughout the second half of this year.
Inflation has been slowing this year, and it should continue to decelerate as the economy cools in the coming months. This will take some of the upward pressure off of mortgage rates and allow them to fall somewhat.
The Mortgage Bankers Association’s latest forecast predicts that 30-year rates will drop to 5.9% by the end of the year, and will trend down even further in 2024 and 2025.
Lower mortgage rates will provide some affordability to potential homebuyers who have been waiting to enter the market. If you’re currently waiting for rates to drop before you start shopping for homes, you should have an opportunity to jump into the market later this year.
Mortgage Rates Today
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Mortgage Calculator
Use our free mortgage calculator to see how today’s mortgage rates will affect your monthly and long-term payments.
Mortgage Calculator
$1,161 Your estimated monthly payment
Total paid$418,177
Principal paid$275,520
Interest paid$42,657
Paying a 25% higher down payment would save you $8,916.08 on interest charges
Lowering the interest rate by 1% would save you $51,562.03
Paying an additional $500 each month would reduce the loan length by 146 months
By plugging in different term lengths and interest rates, you’ll see how your monthly payment could change.
30-Year Fixed Mortgage Rates
The average 30-year fixed mortgage rate is currently 6.81%, according to Freddie Mac. This is an 3-basis-point increase from the week before.
The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.
The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you’ll have a higher rate than you would with shorter terms or adjustable rates.
15-Year Fixed Mortgage Rates
The average 15-year fixed mortgage rate is 6.11% right now, according to Freddie Mac data. This is a 5-basis-point increase from the previous week.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.
Are Mortgage Rates Going Up?
Mortgage rates started ticking up from historic lows in the second half of 2021 and increased significantly in 2022. But mortgage rates are expected to trend down this year.
In the last 12 months, the Consumer Price Index rose by 3%. This is a dramatic slowdown compared to recent months, and a sign that mortgage rates will likely start falling soon.
For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.
Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.
How Do Fed Rate Hikes Affect Mortgages?
The Fed has been increasing the federal funds rate to try to slow economic growth and get inflation under control.
Mortgage rates aren’t directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed policy moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed hikes to affect the broader economy.
As inflation comes down, mortgage rates should, too. But the Fed has indicated that it’s watching for sustained signs of slowing inflation, and it’s not going to lower rates again any time soon.
This is a guest post from Mrs. Micah of Finance and Life. Look for a related post later today.
Getting an interest-only mortgage can seem like a great idea when you’re trying to buy a house and can’t afford a down payment (or if you have bad credit). Earlier this week, I read the story of a couple who are celebrating home-ownership under just such a situation. But while they’re happy, odds are that this is actually a disaster waiting to happen.
The Pros
There are two reasons an interest-only mortgage might work out for you:
Reason #1: You’re a house flipper. No down payment, lower monthly payments for ten years — since you’re flipping, you probably plan to have the house for less than a year. Why bother paying more? Using interest-only means that you can direct more capital into fixing up the place.
And since your goal is to increase the value of the house, you probably won’t have to sell it for less than the mortgage. Congrats. You have an excellent reason to take out an interest-only mortgage.
Reason #2: You plan the stay in the home for all 30 years. In the end, you’ll spend the same amount of money with an interest-only or a normal mortgage. If you plan to stay in the home, have a well-paying and steady job (perhaps you work for the government and the bureaucracy make you impossible to fire), and want to invest the money you’ll save in the beginning to take advantage of compounding, then get the mortgage if you absolutely must.
The Cons
Here are two reasons an interest-only mortgage is probably a bad idea:
Reason #1: You don’t build equity Imagine you have a $100,000, 30-year mortgage at 6.25% with the first ten years as interest-only. (The calculators listed at the end of this article can help you run the numbers for different values and rates.) While the money you pay for those first ten years — $62,500 — will have value if you stay there for the full thirty years, it will be little or no better than renting if you move earlier.
Actually, it could be much worse than renting. If you need to sell before the interest-only period is over, you’ll still owe the full value of the mortgage ($100,000 in our example). If you can sell it for more, you come out ahead. But if you sell it for less, you’ll still owe the difference. In today’s housing market, that’s particularly worrying, since the odds are high that your property value will decrease.
So if the house sells for only $95,000, you’ll owe the $5000. When selling your home, there’s always a risk that you’ll lose money anyway, but an interest-only mortgage dramatically increases it. (And these are low numbers — suppose the mortgage is $250,000 and you sell it for $225,000!)
On the other hand, by going fully-amortized during those first ten years, you could build $15,223.87 in equity. That’s more than you’ll save by paying interest-only. Under an interest-only plan, it’s only around the 25-year mark that the equities equalize. Until then, you’d be ahead with the normal mortgage.
Reason #2: The amount due will increase In this example, having an interest-only mortgage saves you $94.89/month at the beginning. That’s $11,386 in payments over the first 10 years. However, after the 10 years, your payments go up by $210/month. Now you’re paying over $100 more than the amortized rate and you have to find that extra money in your budget.
This might make financial sense, say, if you were in a secure job or field where you could be sure that you’d have the extra money within 10 years. But what if you lost your job (see #1 about having no equity)? Or what if you had more children and expenses? In the world of finance there are few guarantees — except that if you can’t pay the new rate and can’t refinance, you’ll be in trouble.
Looks like a bad deal, doesn’t it?
The Decision
Before you say an interest-only mortgage fits you, think long and hard. Consider the reasons it’s a bad idea for most people. If you’re the one in a million who actually could pull it off, then go in with eyes wide open. And best of luck to you!
Otherwise, I suggest that you avoid these like the plague. Are they better than adjustable-rate mortgages (ARMs)? I don’t know. Possibly, since you should know ahead of time what you owe and what the interest rate will be. But it’s like comparing arsenic and cyanide. You’re best off not taking either.