Most borrowers have always been accustomed to getting 30-year fixed mortgage loans. Even when not practical, many still want the 30-year fixed rate.
But for anyone moving/selling within 4 to 7 years, some thought should be given to a more short-term mortgage such as the 5/1 ARM or the 7/1 ARM.
What is the 5/1 ARM?
The 5/1 ARM is a mortgage carrying a fixed interest rate for the 1st 5 years of the loan. After the initial five years, the interest rate can change every year – up or down. So, what’s the big advantage? The interest rate for the 5/1 ARM is much lower than the 30-year fixed rate. For anyone NOT planning on being in the property after 5 years, the savings can be tremendous.
What is a 7/1 ARM?
The 7/1 ARM is a mortgage carrying a fixed interest rate for the 1st 7 years of the loan. After the initial seven years, the interest rate can change every year – up or down. So, what’s the big advantage? The interest rate for the 7/1 ARM is much lower than the 30-year fixed rate – but slightly higher than the 5/1 ARM. For anyone NOT planning on being in the property after 7 years, the savings can be tremendous.
You might want to know there is also a 3/1 ARM where the rate stays at the same fixed level for the 1st three years of the loan.
Rates for the 3/1 ARM as of July 22, 2009 are under 4.00% for qualified borrowers. Yes, that low. Call for details.
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