I watch mortgage interest rates a lot. Over the past three weeks, they have gone down, and are really, really low right now. The 30 year fixed mortgage can be obtained for less than 4.5%. 15 year fixed mortgages are going for less than 3.75%. With interest rates this low, why would anyone want do do an ARM? Aren’t those those risky loans that caused the financial meltdown?
Adjustable Rate Mortgages can vary, but they usually have a fixed rate from 3-7 years. During these years you know exactly what the interest rate is going to be. They are usually amortized over 30 years, so they can offer a very affordable payment option. Many Utah Mortgage lenders can provide ARMS right now for LESS THAN 3%. That’s probably less than the rate of inflation and pretty much free.
But the interest rate will probably go up in five or seven years when the ARM expires, then won’t it actually be more expensive than a getting a regular 30 year fixed loan?
Maybe. But if you aren’t going to stay in the same home for more than five years, then it doesn’t really matter does it. Who cares what an interest rate might be if there is no chance you will ever be paying it.
There is also a new wave of home buyers with the attitude that they want to pay their homes off. Their definition of home ownership isn’t having a mortgage, but actually owing a home free and clear. These buyers are purchasing homes well below their means, and are paying extra with every monthly payment. For buyers with these attitudes an ARM is probably a very good idea.
Lets assume that a buyer purchases a $200,000 home with a $40,000, 20% down payment. With a great 30 year fixed mortgage interest rate of 4.375%, they would have a principle and interest mortgage payment of just $798.86. Over seven years they would end up paying $45,219 in interest. Now if they decided to cut their mortgage term in half, and get an even better 15 year fixed rate of 3.75%, they could have a payment of $1,163.56 a month. But if they decided to get a 5/1 ARM with a current interest rate of 2.875%, the monthly payment would be just $663.83 a month.
Over the course of seven years, this owner would pay only $29,694 in interest, that is if they only paid their monthly payment amount. If they added extra principle, the amount of interest they would have paid would have been significantly less. During those seven years, their 7 Year ARM would have saved them more than $16,000 over the traditional 30 year fixed mortgage.
Want to take advantage of these incredible ARM rates, it’s a great time to get shopping for Logan Real Estate.