Up in ARMs

The perils of adjustable rates

In the past year, adjustable-rate mortgages have become the most popular way for Americans to buy homes. Though they represented only 13% of the $516 billion in total mortgages outstanding at the end of last year, ARMS now make up more than 60% of new home mortgages. Their attraction for home buyers is that they offer initial rates at about 2% lower than conventional fixed-rate mortgages, currently pushing 15%. But ARMS also present a gamble that consumers, in their anxiety to make an affordable deal, do not always appreciate. Reason: ARMS are tied to the general interest-rate...

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