Andrea Riquier – Forbes Adviser
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Current ARM Rates
Today’s current ARM rates are as follows:
- 10/1 ARM: % today vs. % last week
- 7/1 ARM: % today vs. % last week
- 5/1 ARM: % today vs. % last week
The 52-week high for a 10/1 ARM was % and the 52-week low was %.
The 52-week high for a 7/1 ARM was % and the 52-week low was %.
The 52-week high for a 5/1 ARM was % and the 52-week low was %.
What is an ARM?
ARMs are home loans whose rates can vary over the life of the loan. Unlike a fixed-rate mortgage, which carries the same interest rate over the entire term of the loan, ARMs start with a rate that is fixed for a short period of time, say five years, and then adjusts.
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For example, a 5/1 ARM has the same rate for the first five years and can be adjusted every year after that, meaning the rate can go up or down depending on the market.
How does an ARM work?
ARMs are always tied to a known benchmark – an interest rate that is widely published and easy to track – and resets on a schedule that your lender will tell you ahead of time. But since there’s no way of knowing what the economy or financial markets will do in a number of years, they can be a much riskier way to finance a home than a fixed-rate mortgage.
ARMs: Pros and Cons
ARMs often, but not always, have lower interest rates than fixed-rate mortgages. Borrowers typically pay a small premium for the peace of mind of a flat rate for many years. That’s not always the case, though — there were essentially no cost savings in choosing an ARM in years past when all interest rates were at their lowest levels — so it always pays to shop around.
The risks associated with ARMs are no longer purely hypothetical. The Federal Reserve, which sets interest rates for the entire economy, has embarked on what most analysts believe will be a multi-year cycle of rate hikes. Any ARM you shut down now will almost certainly have a higher and possibly significantly higher rate when it resets in a few years.
But an ARM can still be a very good option for you, especially if you don’t think you will be staying in your house for long. Some ARMs have initial rates that last five years, but others can be as long as seven or ten years.
ARMs vs. Fixed Rate Mortgages
Fixed-rate mortgages are often considered a more sensible option for most borrowers. Being able to lock in low interest rates for 30 years, but still have the option to refinance if you want to, should circumstances change, often makes the most financial sense. Not to mention it’s predictable, so you know exactly what your rate will be over the loan term.
But not everyone expects to stay at home for years. You may be buying a starter home with the intention of building up some equity before moving into a ‘forever home’. In that case, if an ARM has a lower interest rate, you may be able to put more of your money into that nest egg.
Alternatively, an ARM with a lower interest rate than a fixed rate mortgage may simply be more beneficial for you. As long as you’re comfortable with the idea of selling your home or otherwise moving forward before the ARM’s initial rates reset — or take the chance that you can afford the new, higher payments — that could be a reasonable choice too. .
How to get the best ARM speed
Multiple studies have shown that borrowers who shop around get better rates and terms than those who settle for the first option they find. If you’re not sure whether an ARM or a fixed-rate mortgage makes more sense for you, research lenders that offer both. A mortgage professional such as a broker may also be able to help you weigh your options.
Frequently Asked Questions (FAQs)
When should you consider an ARM?
You may want to consider an ARM if you don’t plan on staying in your home for a long time. Many ARMs have an initial fixed-rate period of five, seven, or ten years, which can be about as long as you expect to own the home.
Another good reason to consider an ARM is if you can’t afford the monthly payment with a fixed-rate mortgage. However, you want to make sure you have an exit strategy before the ARM moves back to a higher price. It could also be that you have owned the house for some time and need a slightly lower monthly payment for a while before you are ready to sell in a few years.
Why are ARM rates lower than fixed rates?
Except in exceptional circumstances, borrowers usually pay a little more for the peace of mind that comes with a long-term fixed-rate mortgage. ARMs are more risky, as they reset to a different (probably higher) rate once their initial phase is complete.
What Factors Affect ARM Rates?
Everything from global supply chain snafus to monetary policy decisions to bond market maneuvers can affect ARM rates. In other words, it can be difficult to predict interest rates in a few weeks, and especially in a few years. Therefore, ARMs are seen as riskier than fixed-rate mortgages.