Adjustable Rate Mortgages Are Still Here! Part 1

Part 1 |  Part 2: Compare ARM with Fixed Rate Mortgages

Adjustable Rate Mortgage (ARM)

- Please allow me to introduce myself…

Hello…can you see me?

Can you hear me?  You may have thought I have left the building but I am still here alive, well and kicking.

Look up; I am standing right here in front of you waiving my ARMS up in the air.

I am extending my ARM offering my hand to you to shake your hand.

Freddie Mac just released their interest rate numbers and stated current mortgage rates were at their lowest levels since May, 2009.

Freddie Mac said “The average rate for a 30-year fixed-rate mortgage was 5.12 percent, down from 5.29 percent last week. At this time last year, the average rate for 30-year fixed-rate mortgages was 6.47 percent.

They said “The average rate on a 15-year fixed-rate mortgage was 4.56 percent, down from 4.68 percent last week, according to Freddie Mac”

If you happen to read Freddie Mac’s report way down at the bottom almost forgotten was…

Rates on five-year, adjustable rate mortgages averaged 4.57 percent, down from 4.75 percent a week earlier. Rates on one-year, adjustable-rate mortgages fell to 4.69 from 4.72 percent.  If you do the math here the five year adjustable rate mortgage fell more than the 30 yr fixed.….

ARM Mortgage Rates:

If you are paying attention you will realize  ARM rates are AWESOME!!!

While Freddie Mac’s numbers have 5 year ARM rates about .60 lower than the 30 year fixed rates, here at Total Mortgage, today our rates on a 3/1 arm are @ 1.25% lower than the 30 year fixed, the 5/1 arm is @1.125% lower than the 30 year fixed and the 7/1 is @ .75 lower than the 30 year fixed for conforming loans.

What is an adjustable rate mortgage?

The following is according to the Federal Reserve.

An adjustable rate mortgage differs from a fixed-rate mortgage in many ways. Most importantly, with a fixed-rate mortgage, the interest rate stays the same during the life of the loan.

With an adjustable rate mortgage the interest rate changes periodically, usually in relation to an index and payments may go up or down accordingly.

To compare two adjustable rate mortgages, or to compare an adjustable rate mortgage with a fixed-rate mortgage, you need to know about indexes, margins, discounts, caps on rates and payments, negative amortization, payment options, and recasting (recalculating) your loan. (If any Arm program you may be interested in has negative amortization, which means the principle balance on your mortgage is going up even after making your required payments on time or is susceptible to future recasting  run away as fast as you can)

You need to consider the maximum amount your monthly payment could increase. Most importantly, you need to know what might happen to your monthly mortgage payment in relation to your future ability to afford higher payments.

Against these advantages, you have to weigh the risk that an increase in mortgage rates would lead to higher monthly payments in the future. It’s a trade-off—you get a lower initial rate with an adjustable rate mortgage in exchange for assuming more risk over the long run.

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