Morgage Interest Rates
Fixed or Adjustable Rate Mortgage?
Adjustable-rate mortgages (ARMs) can be very
tempting to home buyers because of their low initial cost, yet they carry a
great deal of uncertainty.
Fixed-rate mortgages (FRM) offer rate and
payment security, but they can be more expensive in past real estate markets. But todays fixed rate mortgages are relatively cheap.
Other factors in deciding between a fixed or adjustable rate mortgage:
1. How long do you plan on staying in the home?
If you're only going to be living in the house a few years, it would make
sense to take the lower-rate ARM, especially if you can get a reasonably
priced 3/1 or 5/1 ARM. Your payment and rate will be low and you can
build up more savings for a bigger home down the road. Plus, you'll never
be exposed to huge rate adjustments because you'll be moving out before
the adjustable rate period begins.
2. How frequently does the ARM adjust, and when is the adjustment made?
After the initial fixed period, most ARMs adjust every year on the
anniversary of the mortgage. The new rate is actually set about 45 days
before the anniversary, based on the specified index. But some adjust as
frequently as every month. If that's too much volatility for you, go with
a Fixed Interest Rate.
3. What's the interest rate environment like?
When rates are relatively high, ARMs make sense because their lower
initial rates allow borrowers to still reap the benefits of
homeownership. The chances are fairly good that rates will fall down the
road too, meaning borrowers will have a decent chance of getting lower
payments even if they don't refinance. When rates are relatively low,
however, Fixed Rates make more sense.
Todays Morgage Interest Rates
- 30 year fixed rate mortgages start at 5.25%
- 15 year fixed rate mortgages start at 5.125%
- 3/1 adjustable rate mortgages start at 5.0%
- 5/1 adjustable rate mortgages start at 5.0%
- 7/1 adjustable rate mortgages start at 5.25%
