Mortgage rates are up. And down.

Freddie Mac’s PMMS survey for this week hit and the results are interesting. 

After finding 50-year lows last week, mortgage rates ticked up .07% to 4.22% this week for the 30-year.  

The 15-year saw a similar increase, up .08% to 3.44%.  

However, the 5/1 ARM actually dipped another .01%.  The spreads between the 30 Year and the 5/1 ARM reached a whopping 1.27%. 

At a sub-4.5% 30 Year Fixed, it is hard to look at the adjustable.  There is a very valid argument that, if you know you’ll be selling, a 5/1 ARM can be a less expensive way to finance a property.  There’s also a pretty solid argument that, if you know you’ll be selling in just a few years, this may be a risky time to buy a home. 

Let’s look at a different spread:  30 Year v. 15 Year Fixed.  This has averaged just under .5% difference over the past 6 years, about .6% difference over the past 2 years, and is now at a staggering  .87%. 

Buying a home is both about a budget and a long-term plan.  After many years of sketching out home affordability using 6% or 7% figures, the prospects of securing a 15 year fixed at 3.75% or 3.625% is ridiculous. 

If we’ve been using 6% to forecast the expense of a $200,000 loan with first time home buyers in the past, that’s always been about $1,200.  Today’s 3.625% 15 Year is about $1,440.   So what does $240 buy you? 

The cumulative interest over those loans is about $60,000 for the 15 year…drum roll….over $230,000 on the 30 year.  

While the 30 Year v. 5/1 ARM comparison is drawing all of the press, that depends a bit on your appetite for risk.  If you can swing the extra $240, the 15 Year is a very interesting option.