Daily mortgage market insight that you'd never get from the mainstream media.« Why Now’s A Good Time To Consider An Adjustable Rate Mortgage
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At least one thing is back to normal in the mortgage markets — it’s no longer cheaper to go with a fixed rate mortgage than an ARM.
As reported by Freddie Mac, a conforming 5-year ARM is priced a half-percent lower than a comparable 30-year fixed.
Earlier this year, the pricing was reversed.
It’s uncommon for fixed rate mortgages to be cheaper than comparable ARMs because, with fixed rate mortgages, lenders commit to a particular interest rate over long period of time. There is a lot of risk that comes with doing that.
By contrast, an adjustable rate mortgage is designed so that after a certain number of years, the mortgage rate changes to reflect the current market conditions.
In theory, ARMs are less risky for lenders than are fixed rate mortgages and, therefore, we would expect them to have lower mortgage rates. That wasn’t the case for the 6 months ending in early-May, however. When fixed rate mortgages were scraping the 4.500 percent marker in January, 5-year ARMs weren’t struggling to stay sub-5.
The same goes for late-April’s mortgage rate dip.
Historically, there’s been a trade-off between ARMs and fixed rate mortgages.
- ARMs give lower mortgage rates with less predictability
- FRMs give higher mortgage rates with more predictability
Earlier this year, market conditions rendered fixed rate loans the best of both worlds — lower rates and predictability. Today, we’re back to “normal”.
No matter how long you plan to live in your home, talk to your loan officer about your adjustable rate options, if only to know your options. Given today’s interest rate disparity and how it can affect your monthly mortgage obligation, you may find the unpredictable nature of an ARM to be acceptable risk.
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Related posts:
- Making A Choice Of Mortgage Products Is Easier Today Than Most Days
- It’s A Good Time To Look At Adjustable-Rate Mortgages
- Mortgage Rates Fall For ARMs Faster Than For Fixed Rate Mortgages
- It’s A Good Time To Look At Adjustable Rate Mortgages
- Should You Refinance Your ARM, Or Let It Adjust Lower?
2 comments to “Why Now’s A Good Time To Consider An Adjustable Rate Mortgage”
I completely agree. When you buy a house, you need to be realistic about your future in the property and the costs associated with it. I recently bought my first house using a 5/1 conforming ARM. I know that I won’t be in the house longer than 5-7 years, and even if it adjusts upward to the maximum rate, I will still be able to afford it. In fact, if it does adjust to the maximum at 5 years, I will still save money with the ARM over my fixed rate option for a little over 7 years.
There are so many calculators and planning tools available that you can make an educated decision with ease. The recent crisis has labeled ARMs as a wolf in sheep’s clothing. However, they have been around for years and allow many homeowners the ability to save money when they have realistic expectations about their tenancy.