WA homebuyers increasingly turn to riskier adjustable-rate mortgages
With persisting high mortgage rates and home prices, more Washington homebuyers – especially in King County – are turning to a riskier type of loan that was last popular leading up to the 2008 financial crisis.
Adjustable-rate mortgages, loans that start with a lower fixed interest rate than other mortgages for several years before eventually moving with the market, are gaining popularity across the United States as economic conditions tighten.
Over the last few years, Washington’s share of adjustable-rate mortgages has increasingly outpaced the nation’s. In 2025, adjustable-rate mortgages made up almost a quarter of all home loans in Washington, according to the real estate data company Cotality. That’s the state’s highest share since 2007. In King County, the share was even higher at 36%.
The trend may continue upward, as the war in Iran has helped reverse a trend of dampening mortgage rates.
At the end of February, 30-year fixed mortgage rates fell below 6% for the first time since pandemic-era lows. But they’ve since risen to 6.22%, according to Freddie Mac, due to inflationary pressures and tensions in the Middle East pushing up energy prices.
The upswing could persist. Mortgage rates are influenced by a variety of factors, including bond market movements, inflation expectations and economic conditions – all of which have been impacted by the war. Wall Street investors no longer foresee any Federal Reserve rate cuts, which indirectly influence mortgage rates.
However, borrowers are still betting on mortgage rates falling in the distant future. The fixed rate period of an adjustable-rate mortgage lasts for three to 10 years before the rate adjusts.
That initial rate is typically 0.5% to 1% lower than a conventional loan’s fixed rate. After that, the rate can increase or decrease, although there are caps for how much a rate can rise.
The starting discount has enticed more buyers as mortgage rates remain above 6%. The difference between a 6% interest rate and a 6.5% interest rate on a $750,000 loan is $244 a month.
Tim Lucas, a former Seattle-area loan officer turned mortgage research analyst, said more people are betting on rates falling in the future, when they might refinance, or planning on selling before the fixed rate period ends.
Lucas gave the example of a homebuyer choosing between a higher conventional fixed-rate mortgage and a seven-year adjustable-rate mortgage.
“It’s kind of a low-risk proposition to just take an adjustable-rate mortgage and then kick the can down the road for seven years,” he said. “You may not even be in the home for seven years.”
Adjustable-rate mortgages might leave a sour taste in some mouths because of their role in the 2008 financial crisis. But today’s adjustable-rate mortgages are different – and much safer, Lucas said.
In the years leading up to the financial crisis, mortgage rates were similarly high. But lenders offered adjustable-rate mortgages with extraordinarily low teaser rates that only lasted two or three years. Lenders approved practically anyone for these loans, even if they were considered high-risk borrowers.
By 2004, adjustable-rate mortgages made up half of home loans in Washington.
When those initial fixed periods ended and rates went up, borrowers couldn’t afford the new payments – leading to mass foreclosures. Adjustable-rate mortgages plummeted following the housing market crash and lower interest rates.
But times have changed. Lenders are now required to verify that a borrower can repay the loan at higher, non-teaser rates. Initial fixed rates also aren’t as low compared with conventional fixed loans.
“These are very different products (given) to very different people compared to the financial crisis,” Lucas said.
Popularity grows in King County
When Rebecca Kane, 39, was shopping for loans to buy her $1.1 million Ballard town house in November, mortgage rates for a 30-year fixed loan were over 6.5%, she said.
But her lender told her she could save hundreds of dollars a month with an adjustable-rate mortgage – an option many of their clients had opted for recently. Kane agreed and will now pay a 6% rate for seven years before the adjustable period kicks in.
“A lot of people are hedging their bets – us included,” she said.
King County has long had a higher share of adjustable-rate mortgages, driven by high home prices. But that gap widened in 2025, when the county recorded its largest lead over the statewide average.
Joe Tafolla, founder and lead mortgage broker of Seattle’s Mortgage Broker, a mortgage consulting firm, said he’s seen an influx of clients interested in adjustable-rate mortgages over the last year.
“For the longest part of my career, we just didn’t see people going for (adjustable-rate mortgages). I think post-2008 stuff really burned people on it,” he said.
Plus, interest rates were relatively low for many years following the financial crisis, making adjustable-rate mortgages less worth the risk. After 2009, mortgage rates averaged around 4% up until 2022, when inflation pushed them back up to mid-2000s levels.
Another reason King County has such a high share of adjustable-rate mortgages is that the median home price is close to $1 million, Lucas said.
Typically, federally backed mortgage companies Fannie Mae and Freddie Mac will purchase home loans from lenders, which allows banks to resupply their cash and make new mortgages. But those federal agencies do not back loans above a certain amount ($1,063,750 in King County), placing more risk on the lender.
Many of King County’s borrowers need a special type of loan with a higher interest rate called a jumbo loan. Adjustable-rate mortgages are more common with jumbo loans, Lucas said, because they offer more manageable upfront rates.
“These are stellar borrowers who, in theory, are somebody with a high-paying job and credit,” Lucas said. “I think it’s actually a good sign because these are not the typical first-time homebuyers who got stuck in the financial crisis.”