You can expect 30-year fixed mortgage rates to be lower than 5/1 ARM rates in our current rates environment.
ARM loans will sometimes offer a lower starting rate than 30-year fixed mortgage loans. This “teaser” rate remains for three, five or seven years, so you start out with lower monthly payments for that time, which can help you save money.
For example: Let’s say you want to compare potential monthly payments on a 30-year fixed-rate mortgage versus a 5/1 ARM that’s used to buy a $350,000 home with a $50,000 down payment.
| 30-year fixed | 5/1 ARM |
Rate | 6.875% | 5.98% |
Monthly payment (principal and interest) | $1,970.79 | $1,794.80 |
Takeaway: A 5/1 ARM you could lower your monthly payments by $176 for the first five years.
An ARM may make sense if you want to:
| An ARM may not be for you if:
|
- Build your short-term savings
- Plan to sell or refinance the home before the adjustable-rate period kicks in
| - You aren’t ready to make higher monthly payments once your rate changes
- You want steady payments that won’t change
|