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Adjustable-Rate Mortgages Return with a More Conservative Look

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By Jeff Collins

(MCT)—With one daughter in college and another in high school, Guy Hempel and Cherina Rossi face years of tuition payments.

So the Fountain Valley, Calif., couple are betting on their house to help pay for their daughters’ education.

Last month they refinanced into a new adjustable-rate mortgage, or ARM, which means they’ll pay $700 a month less than they would have under a traditional 30-year, fixed-rate mortgage.

Their house payments will remain fixed for five years, and by the time those payments could adjust upward, the couple will be ready to move. “By that time, we’ll be empty-nesters and won’t need a big family home,” Rossi said.

The change, said her husband, also means “we’re saving perhaps 30 percent a month that we can put to their education.”

Rossi and Hempel are part of a small but growing number of homeowners moving away from the traditional, fixed mortgages that dominated the market in the wake of the housing crash — a crash that was fueled, in part, by people borrowing with risky, adjustable home loans.

ARMs all but disappeared following the financial meltdown. But they’re making a comeback.

Nationwide, adjustable mortgages made up 7.4 percent of all U.S. mortgage applications as of mid-November, up from 0.9 percent in January 2009 and 3.8 percent a year ago, Mortgage Bankers Association figures show.

Loan brokers say last summer’s jump in rates for the 30-year fixed mortgage sparked much of the renewed interest in ARMs. The rates for a 30-year fixed shot up from 3.35 percent in May to 4.58 percent in August.

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