Now ARMs Are Making A Comeback

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When Los Angeles resident Jung Lim went shopping for a bigger house for his expanding family, his lender offered him an adjustable-rate mortgage with an interest rate about a percentage point cheaper than a fixed loan. The professor of dentistry figures the money he’ll save makes up for the extra risk.

At the height of the real estate boom, ARMs accounted for about a third of all mortgages issued. Home buyers gravitated to this type of loan on the presumption that the value of their properties would keep rising and the debt could be refinanced before their interest rates were adjusted upward. Some loans had interest-only periods or very low initial teaser rates that subsequently spiked.

Now ARMs are making a comeback.

In the last week of June, the dollar value of ARM applications accounted for 16 percent of mortgage requests, the highest share since July 2008, according to the Mortgage Bankers Association. Helping whet appetite for the loans is the more than 1 percentage-point jump in the average 30-year fixed-rate mortgage since May.

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