The number of renters dedicating at least half of their income toward housing hit a record high of 11 million people in 2014, according to the annual State of the Nation’s Housing Report from the Joint Center for Housing Studies of Harvard University.

Source: Money Magazine

While renters are paying more, affordability is improving for those who own their homes. The number of cost-burdened homeowners declined in 2014 for the fourth consecutive year, according to the report, thanks to low mortgage rates.

Over 11 million spend nearly 50% of their income on rent and  21.3 million are spending 30% or more of their paycheck to cover the rent — also a record high.

Personal finance experts generally suggest budgeting around 30% of monthly income to cover housing costs.  But according to the article, that’s getting harder to do with rent prices rising faster than wages.

Last year saw the biggest surge in new renters in history, according to the report, bringing the number of people living in rental units to around 110 million people — or about 36% of households.

Middle-aged renters made up a lot of the new demand, with 40% of renters aged 30-49.

And renters are sitting on both ends of the pay scale: almost half of new renters in 2015 earned less than $25,000, while top-income households have been the fastest-growing segment of new renters for the past three years.

What’s really fascinating about this phenomenon is that housing prices are relatively affordable and interest rates are extremely low, both based on historical norms.

As many of you know, rents have climbed nationwide, while mortgage rates have fallen significantly.  According to Freddie Mac, 30-year conventional mortgage rates are the lowest they’ve been in at least three years; and rates for FHA and VA mortgage rates have averaged even lower.

For many buyers, though, the 30-year mortgage is a wasteful choice. There are more logical, “less expensive” options to finance a new home.

An adjustable-rate mortgage (ARM), for example, can be a more suitable choice for a first-time buyer; and, for a buyer who intends to move or do a home refinance within the next 10 years.

Source: The Mortgage Reports

ARMs offer lower mortgage rates than a fixed-rate loan and, sometimes, the savings is substantial.  It’s best to sit down with your mortgage lender to figure out what options are best for you.

Why an ARM?

The Adjustable Rate Loan (or ARM), isn’t something to shy away from – here’s why: the typical homeowner moves every 7 years. If you know you’re going to move, then, why pay extra for a 30-year loan?

According to Freddie Mac, 30-year mortgage rates currently average near 3.50% nationwide for borrowers willing to pay an accompanying 0.6 discount points at closing.

5-year ARMs, meanwhile, average 2.74% with only 0.5 discount points.

The majority of today’s ARMs work like this :

• For the first group of years, your mortgage rate is fixed and unchanged
• After the initial group of years, your mortgage rate adjusts once per year
• After 30 years, your loan is paid-in-full, as with any other 30-year loan

So, the key to an ARM is how it will adjust each year. Thankfully, this process is regulated for loans via Fannie Mae and Freddie Mac (i.e.; conventional loans); and loans via the FHA and the VA.

Regulation protects mortgage borrowers from having to accept huge jumps in a mortgage rate on an annual basis. Mortgage rate changes are severely limited.

For example, with a 5-year ARM, the initial mortgage rate of the loan remains fixed for a period of 5 years. After the 5 years are over, the mortgage rate changes on the loan’s “anniversary” every year for the next twenty-five years.

Buying A First Home? ARMs May Be Best.

According to the National Association of REALTORS® and its 2015 Home Buyer and Seller Generational Trends Report, the typical under-40 home buyer expects to live in their home for a period of 10 years.

The report also notes that “expected tenure is generally longer than actual tenure“, which means that homeowners tend to over-estimate the number of years they’ll spend in a house.

Indeed, the youngest group of buyers, the report says, tend to sell within five years of purchase, which makes them ideal candidates for the 5-year ARM.

Read the complete article here…..