As talks of interest rates going down continue, potential homebuyers are having to decide between adjustable rate mortgages or a fixed rate.

Experts report an increase in homebuyers entering the market, with many considering adjustable rate mortgages (ARMs) due to discussions about potential interest rate drops. Thomas Bowles, a financial expert, explains that ARMs typically offer lower initial rates than fixed rate mortgages, but these rates can change over time based on market conditions, introducing uncertainty for borrowers.

Bowles advises potential buyers to carefully evaluate their long-term goals, credit scores, and the costs associated with refinancing, property taxes, and repairs. Recent data from the Mortgage Bankers Association shows a notable rise in ARM applications, reaching their highest level since 2022. Experts caution buyers to consider the impact of inflation and the serious consequences of defaulting on a home loan.

What experts say homebuyers should consider

Recent data shows more people are shopping for houses as talks continue about interest rates dropping. But is the adjustable rate mortgage or the fixed rate the way to go? We checked in with experts. This is not going out and buying, you know, some clothes or a car or something like that. This is a long-term asset. Thomas Bowles is the president and owner of Telus' Tax and Financial Mission Valley. He says while an adjustable rate mortgage may seem appealing, there's much more to consider if you are looking to buy a house. 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 percent, with the possibility of the rate 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 a 30-year fixed. Compare that to a 30-year fixed rate of 6.3 percent to 6.4 percent. But that will also require a good credit score and a down payment of at least 25 percent. Thomas says there are a number of questions a potential homebuyer needs to consider when looking at rates. Also look at what is the goal, how long do you plan on being in the area, and then understanding that you can refinance, but knowing that every time you refinance, any time you take any type of real estate mortgage or loan out, there are fees incurred with that, there are the mortgage costs. 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 percent, which is the highest level since 2022. Thomas says while there's an effort from the feds to lower the interest rates, he cautions homebuyers 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. Marie Cornell, ABC 10 News.

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