Adjustable-Rate Mortgages(ARMs) have been pretty much non-existent over the past few months as applicants that can qualify for conventional loans due to lower rates sought out fixed-rate mortgages instead. Recently the common 5/1 ARM (where borrowers sign on for the first five years at a fixed rate and then an adjusted rate once a year) interest rate saw a decrease for the first time since the beginning of summer. ARM rates came in at 3.01 which was two-hundredths (basis points) of a percentage point less than a 30-year fixed-rate mortgage.
ARM mortgages are usually a good choice for home buyers or owners that plan to move before the fixed-rate period changes or refinance in that time.
At the beginning of the pandemic ARM mortgages took an unusual turn as being the more expensive option over fixed-rate mortgages. Low-interest rates traditionally drive demand for loans, but it is still a little too soon to say that the recent lower price of an ARM loan is going to increase demand. In fact, some financial experts believe some lenders may still pull back on their ARM loan products with a current switch in determining systems from Libor to other determinants.
So should loan applicants look into ARM options now that the interest rates are lower than a fixed-rate mortgage again?
The answer is: it depends. If you know you are planning to change your housing or financing plans in that first fixed-rate term, it may be worth looking into. However, since so many fixed-rate loans are still so cheap and offer a little more guarantee in stability and financial security, in most cases it is still a smarter choice to choose the fixed-rate mortgage. This is true on another level: the fact that industry determinant index for ARM loan parameters are changing slowly over the coming months and no one knows exactly what that will look like when they finally officially change over to a new system.
The best way to be certain of what you are signing on to, for right now anyway, is to stay with a fixed-rate loan option if you can qualify. So says the financial industry analysts.
For more information on the best loan options for you and available mortgages in Portland and Southwest Washington, please contact me right away. I am dedicated to helping you connect with the mortgage officer and finding the right home.