ADJUSTABLE RATE MORTGAGES LOOKING BETTER

Don’t believe everything you hear. For a year now you have been blasted by radio ads telling you that now is the time to get out of your Adjustable Rate Mortgage. In the words of the immortal Lee Corso: “Not So Fast, My Friend!”

Now look, I am not telling you that everyone should run out and get themselves an ARM. In fact, I have been saying for some time that for many homeowners it is still a good idea to get into a fixed rate loan.

But consider this: Today a 30 Year Fixed Rate Mortgage is going to run you about 6.375%, however a 5/1 ARM (meaning a fixed rate for 5 years, then adjustable thereafter) is only 5.25%. That means that the difference in payments on a $250,000 loan is $179. In other words, over the next 5 years you can save $10,740 by choosing a loan that adjusts in 5 years.

So, what is the rule of thumb? Simple, if you are fairly sure you will be selling your home, or have a significant (meaning more than 2-3% per year) increase in your income in the next 5 years you may be wise to consider a loan with an Adjustable Rate.

But beware. If I were to make a prediction I would think that in 5 years we will have rates that are higher than today. My suspicion is that while the economy will have improved greatly, lending institutions will still be trying to recover from losses that they are currently suffering.

As always, if you want to talk specifics, drop me a line at jayhart@cottonwoodmtg.com and we can run the numbers.