Fewer house hunters are waiting for rates to drop before buying — if you’re looking now, an adjustable-rate mortgage could be the answer

Record mortgage rates and elevated home prices aren't stopping an increasing number of prospective homebuyers. 

Even though rates have hit a 30-year peak in 2023 and home prices reached a record high in September, 38% of house hunters say they're not willing to wait for a more favorable environment to buy a home, according to Bank of America's new Homebuyers Insight Report.

That's up from 15% just six months ago.

"Even in the current interest rate environment, there are clear benefits to purchasing a home and beginning to build equity," Matt Vernon, head of consumer lending at Bank of America, said in a statement.

According to the December 4 survey, close to a third of buyers said they'd give up perks like a brand-new property, living near family and access to public transportation if it meant they could close a deal. 

If you're among those who don't want to wait to buy, CNBC Select has some advice that could help cushion the financial blow.

One option in this tough market is an adjustable-rate mortgage, or ARM. It typically starts at a fixed rate for the first five to ten years of the loan term and then adjusts based on numerous factors, including the interest rate environment and the terms of the loan. 

In a 5/1 adjustable-rate mortgage, the loan has a fixed rate for the first five years and then an adjusted rate each year thereafter. The average rate for 5/1 ARM is now 6.06%, according to Freddie Mac, compared to 7.22% for a 30-year fixed mortgage. 

So, if you were to take out a mortgage right now, your rate would likely be lower with an ARM. It could even decline after the five-year mark: The averages for both 15-year and 30-year fixed-rate mortgages have dropped for the past five weeks, according to Freddie Mac.

Of course, there's always the risk that rates will increase when your ARM rate starts to adjust, so there is some risk involved.

If you decide that an adjustable-rate mortgage is for you, Chase Bank is among CNBC's top picks. In addition to conventional mortgages, Chase offers FHA loans, VA loans and jumbo loans.

Chase provides first-time homebuyers with services like home advisors and educational courses and there are discounts available for existing customers. And a Chase DreaMaker mortgage has down payment options as low as 3% for qualified borrowers.

Another great option is Ally Bank, which offers conventional loans, jumbo loans and HomeReady loans, which also have flexible lending requirements and down payment options as low as 3%.  

Plus, Ally Bank doesn't charge lenders fees and applicants can receive pre-approval within minutes. 

Want to buy a home in this volatile home market? An adjustable-rate mortgage could allow you to borrow at a lower interest rate than a traditional fixed-rate mortgage and even secure a more favorable rate later if rates fall.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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