For some homeowners, electing to take an adjustable rate mortgage over a fixed rate one can be matter of budgeting. ARMs tend to carry lower mortgage rates and, therefore, lower monthly mortgage payment as compared to a comparable fixed rate loan.
Relative to fixed rate mortgages, current ARM pricing is excellent. Freddie Mac’s weekly Primary Mortgage Market Survey puts the 5-year ARM mortgage rate lower than the 30-year fixed rate mortgage rate by 1.02 percent.
On a $250,000 home loan, a 1.02 differential yields a payment savings of $149 per month.
ARMs are not for everyone, of course. Over time their rates can change and that can frighten people. An ARM can finish its respective 30-year lifespan with a mortgage rate as much as 6 percentage points higher from where it started. Some homeowners won’t like this.
Other homeowners, however, won’t mind it. For this group, the ARM can be a terrific fit. Especially with the huge, relative discount in today’s pricing.
A few scenarios that should warrant consideration of a 5-year ARM include homeowners that are:
- Buying a new home with the 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; comfortable with longer-term rate and payment uncertainty
In addition, homeowners with existing ARMs due for adjustment may want to refinance into a new ARM, if only to push the first adjustment date farther into the future.
Before choosing to go with an ARM, speak with me about how adjustable rate mortgages work, and their near- and long-term risks.
The more things change, the more things remain the same. One of the things that stays constant amidst change is that we will always need a place to call home. And, the place we call home can change numerous times during our lifetime depending on our current needs. For example, starter homes become too small as our families start to grow. And, before we know it, our family home may become too large when our kids have grown and head off on their own. There are job transfers, changes in family status and numerous other reasons that cause us to change the place we call home.
