The 5-Year ARM : Cheaper Than It’s Ever Been

As the Refi Boom continue, not all rates are falling equally.

Adjustable-rate mortgages are leading the charge.

Use The Recovering Economy To Your Advantage

To understand why the 5-year ARM is so cheap, think like Wall Street for a minute. Specifically, an investor in mortgage bonds.

Mortgage bonds are designed to make periodic interest payments to their investors over some number of years, and then, when the bond matures, they makes a lump-sum payment and the bond is “done”.

A trait that makes mortgage bonds unique, however, is that the aforementioned payments are made in U.S. dollars. Therefore, as the U.S. dollar’s value changes over time, so does the value of owning a mortgage-backed bond.

Click here to for an ARM rate quote.

This is where inflation enters the conversation. Simplified, inflation is when a currency loses its purchasing power and, earlier this year, inflation concerns were mounting in the economy. They’ve since retreated, but unevenly.

Inflation is still expected, but not in the next several years.

As a result,  mortgage rates for “short-term” products such as the 5-year ARM are falling faster than rates for longer-term products including the 30-year fixed. The 30-year is more susceptible to changes in inflation rates.

ARMs Are 310% More “Cheap” Than Normal

Since the Refi Boom began in April 2011, mortgage rates for all products have dropped. The 5-year ARM, though, outperforms its peers.

According to Freddie Mac’s weekly mortgage rate survey, the average 5-year ARM rate is down 53 basis points since early-April, or 0.53%. By comparison, the 30-year fixed rate mortgage and the 15-year fixed rate mortgage are down 36 basis points and 47 basis points, respectively.

Before the Refi Boom began, ARMs were already discounted and cheap as compared to their fixed-rate counterparts. Today, those discounts have grown to be historic.

• “Normal” savings with 5-year ARM versus 30-year fixed  : 0.42 percent
• Today’s savings with 5-year ARM versus 30-year fixed: 1.30 percent

The gap in rates is changing the way that homeowners view ARMs.

Click here to for an ARM rate quote.

Is The 5-Year ARM Right For You?

With an ARM, on a loan size of $ 300,000 mortgage, you’ll save $ 223 monthly. That’s huge.

But just because the 5-year ARM is cheaper, that doesn’t make it right. ARMs carry interest rate adjustment risk and may be unavailable in certain circumstances. Have the conversation with your lender.

Or, to see what rates look like, click here to for a rate quote.