By Annamaria Andriotis | The Wall Street Journal
One of the cheapest—and most popular—ways to finance a mansion is also the riskiest. But some borrowers just can’t say no to a 2.5% interest rate.
These are adjustable-rate mortgages with very short fixed-rate periods that last just one year and then change annually based on market conditions. Popular during the housing boom, these so-called 1/1 ARMs helped push borrowers into foreclosure. Their risks remain the same since then: When rates rise, 1/1 borrowers are likely to feel the impact before borrowers with longer-term fixed rates.
But borrowers are undeterred. During the first eight months of the year, 75%, or 5,656, of private jumbo ARMs that were originated for home purchases had a fixed rate period of just one year, according to data compiled for The Wall Street Journal by Lender Processing Services, LPS +0.04% a mortgage data-tracking firm.
