Saving Money With a 5/1 ARM? It’s Happening Now! - MortgageDepot
Saving Money With a 5/1 ARM? It’s Happening Now! - MortgageDepot
Abstract
Did you know that the interest rate on a 30-year fixed mortgage has increased by over three percentage points in the past 18 months? This number is causing many potential buyers to take a wait-it-out approach to real estate. What if you don't want to wait for the economic tides to turn? More buyers are investigating adjustable-rate mortgages to score a lower interest rate and finance their dream homes. The Scoop on Adjustable-Rate Mortgages Adjustable-rate mortgages have a variable interest rate, causing monthly mortgage payments to change periodically. Using a 5/1 ARM To Save Money If using an ARM to save money on your mortgage over time sounds like an oxymoron, we have news for you! Currently, 5/1 ARMs are available at a discount, and this piece of inside information can work in your financial favor at the mortgage desk. What type of discount are we talking about? As of the start of summer, the interest rate on a 5/1 ARM was approximately 4.4%. We're looking at 1.5 percentage points lower than a 30-year fixed mortgage! Crunching the Numbers The best way to see the financial impact of an ARM is to check out a real-world example. 20 during the fixed period! Here are a few more financial advantages worth noting: If you select a 5/1 ARM, you'll pay off your principal faster than if you chose a 30-year fixed mortgage. To see the biggest bang for your buck, select a 5/1 ARM with a 4.5% interest rate, but make payments as though you've chosen a 30-year fixed mortgage with a 6% interest rate.