Some in U.S. turning to riskier adjustable-rate mortgages amid higher interest rates

June 22 (UPI) -- As interest rates rise to combat inflation, an industry report Wednesday said that more Americans are going for adjustable-rate mortgages -- which are riskier home loans because their rates aren't locked in.

The Mortgage Bankers Association said that applications for adjustable-rate mortgages, or ARMs, rose by 8% last week. Overall applications increased by more than 4%.

The increase came in the same week the Federal Reserve hiked key interest rates by three quarters of a point, the central bank's largest one-time increase since 1994. The increase followed a half-point hike last month. Both moves were aimed at controlling rising inflation, which is running at its highest level in 40 years.

The rise in ARM applications coincides with steeper mortgage rates over the past few weeks.

"Mortgage rates continued to surge last week, with the 30-year fixed mortgage rate jumping 33 basis points to 5.98%, the highest since November 2008 and the largest single-week increase since 2009," MBA Associate Vice President of Economic and Industry Forecasting Joel Kan said in a statement Wednesday.

"All other loan types also increased by at least 20 basis points, influenced by the Federal Reserve's 75-basis-point rate hike and commentary that more are coming to slow inflation. Mortgage rates are now almost double what they were a year ago, leading to a 77% drop in refinance volume over the past 12 months."

Applications to refinance declined last week by 3% and are off 77% from a year ago, the MBA said.

The ARM market started off hot earlier this year but had cooled in recent weeks. Adjustable-rate mortgages can be risky because, although they typically start off with a low interest rate, they can escalate in the future and become much more costly than fixed-rate home loans.