Mortgage Payments Don't Have to Cost an ARM and a Leg


LOS ANGELES -- Okay, we couldn't resist the opportunity for a pun in the headline. Putting levity aside, we will look at how an ARM (adjustable rate mortgage) can be of benefit to today's refinance or home purchase candidate.

With the gradual rise in mortgage rates for 15 year, 20 year, 30 year fixed interest rates many U.S. homeowners are opting for the flexible ARM (adjustable-rate mortgage) when buying or refinancing properties. Let's take a look at why, and how it can possibly benefit you:

As a contrast to the traditional fixed-rate mortgage, adjustable-rate mortgages typically begin their gestation with a lower interest rate, and slowly the rate will rise as time passes in the duration of the loan. Compare this to fixed interest rates, which lock rate for anywhere from 15 years to 30 years.

The Mortgage Bankers Association, or commonly known to mortgage companies as MBA, in Washington, D.C. says that ARMs are the popular choice of late, evidenced by more than a third of home lending's applications in recent weeks. The MBA also indicates that the share of adjustable rate mortgages will likely increase as the Federal Reserve continues to push up interest rates in forthcoming summer months.

Based on the above, it's no wonder homeowners look to the ARM loan to help keep monthly mortgage payments low in the short term light. There is, however, always one fact to consider: Because rates on their loans will most definitely move upwards with the swing of the mortgage market rate hikes, there is possibility that by adjusting the rate monthly some homeowners risk paying higher payments in the future.

The good news is that there are a wide variety of adjustable rate mortgage options available in the marketplace.

Right now the most popular are hybrid ARMs. These types of adjustable programs guarantee the borrower a fixed rate for the first three, five or seven years, depending on whether a 3/1, 5/1 or 7/1 ARM is chosen, respectfully. The rates then adjust annually in harmony with Treasury rate fluctuations.

Interest rates for hybrid 5-1 ARMs currently is on average 5.66 percent country wide. The 7-1 ARM carries an average rate of 5.90 percent. As the rates begin their adjustments over time increases can be 2 percentage points a year or more. When fully fully adjusted, rates on ARMs would both approach 12 percent.

To get an ARM mortgage quote online now simply visit our secure mortgage quote page.

Article by Stockton Marquette
Economic Analyst and Mortgage Industry Advisor/Forecasts.


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