Current Mortgage Rates

Thursday, November 20, 2008



When is it suitable to choose an ARM? It's best to go for an adjustable rate loan when you meet any of the circumstances given below:
  1. You wish to get a loan at low initial rate.
  2. You want to make your savings bigger through low initial payments, such that you can invest the savings for a better return.
  3. Wish to occupy the property for a short term of 3 to 5 years and then shift to a different location.
  4. You feel that you can carry on with frequent payment rises as the interest rates go up.
The best time to get an ARM is when interest rates are on the decline. Despite the risk, an ARM can be beneficial to certain borrowers. While most advisors will tell you that a fixed-mortgage is the way to go in every situation, there are times when you should consider an adjustable rate.

1. The borrower needs extra cash for a while: A lower initial fixed rate gives you more money in your pocket early in your loan term. For example, a one-year ARM with a 30-year term and a rate which adjusts once a year on the anniversary of the loan date comes with zero points and an initial rate of 5.625%. Let's compare that to a 30-year fixed rate mortgage with no points and a fixed rate of 7.625%. If you take out a $240,000 mortgage, the 30-year fixed rate payment would be $1,698.70 each month. The one-year ARM would have a monthly payment of $1,381.58. That's a difference of $317 a month. You could use that extra $317 to pay off your credit cards, make improvements to the home or save for retirement. But you want to make sure that you will maintain a lifestyle that can afford for your payment to increase. You don't want to find that you cannot afford a higher mortgage payment when the rate adjusts upwards.

2. Buy more home: Because of the lower initial interest rate, you can qualify for a larger mortgage amount and a more expensive home. Many home buyers secure a one-year ARM with the purpose of refinancing them later. The low rate allows a more costly home, but a low mortgage payment. But remember that refinancing comes with closing costs. Do the math to see if you are really saving any money.

3. It all depends on the future: If you plan to move or upgrade in the next few years, an ARM is a wise decision. You can benefit from a lower rate mortgage and simply sell the home and buy another before the rate adjusts. For example, if you plan to move in three years, why not go in for a five-year adjustable mortgage. You get a lower rate that won't adjust while you own the home, as long as you sell during the initial rate period.

Make sure that the loan comes with no prepayment penalties. Make sure that you do some math. If interest rates go up drastically in those three years, when you buy a new home, you will be facing the higher interest rates. This could mean that you are unable to really upgrade to a larger or more expensive home.



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Current Mortgage Rates*

Loan Type
National Average
30-yr. fixed6.12%
30-yr. fixed jumbo7.88%
15-yr. fixed5.75%
15-yr. fixed jumbo7.62%
7/1 ARM6.38%
5/1 ARM6.00%
3/1 ARM5.88%
1-yr. ARM6.62%
1-yr. LIBOR ARM6.12%
10/1 ARM7.88%
40-yr. fixed7.38%
*Mortgage Rates Updated: 11/19/2008