First Time Home Buyers
The 5/1 ARM is pulling away from the 30 Year Fixed. This is a big change in loan options versus a year ago.
The data is from Freddie Mac’s weekly survey of 125 participating banks and the results show that the 5/1 ARM is getting pretty low relative to its 30 Year Fixed counterpart.
What a difference a year makes:
- In April 2009, the two products had the same mortgage rate
- 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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