It’s A Good Time To Look At Adjustable Rate Mortgages

Comments(0) By Mike Miller •April 16th, 2010

Comparing the 30-year fixed to the 5-year ARM Apr 2009-Apr 2010

Each week, government-led Freddie Mac publishes a weekly mortgage rate survey based on data from 125 banks across the country. According to this week’s results, the relative rate of a 5-year ARM in California is extremely low versus its 30-year fixed-rate cousin.

Consider this comparison:

In April 2009, the two products ran neck-and-neck with respect to rates
In April 2010, the two products are split by 0.99 percent

On a $200,000 home loan, that’s a difference of $117 per month to a mortgage payment.

Adjustable-rate mortgages aren’t suitable for everyone, but they can be a terrific fit given your individual circumstance. For example, any one of the following scenarios could warrant a 5-year ARM:

Buying a home with an intent to sell within 5 years
Currently financed with a 30-year fixed mortgage with plans to sell within 5 years
Interested in low payments and comfortable with longer-term interest rate and payment uncertainty

Additionally, homeowners with existing ARMs may want to refinance into a brand-new ARM, if only to extend the initial change date on the current note.

Before opting an ARM or a fixed, speak with your loan officer about how adjustable-rate mortgages work, and what longer-term risks may exist. The savings may be tempting, but there’s more to consider than just the payment.

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Filed Under: mortgage rates