Which Is Better: Fixed Rate Mortgage Or Adjustable Rate Mortgage?

People often assume that because adjustable-rate mortgages “share risk” between mortgage lender and mortgage lendee, they will be rewarded with a lower mortgage rate than if they chose a comparable fixed-rate mortgage.

The chart at the left proves that thinking false.

Three separate times since mid-September, 5-year ARMs priced worse than a similar 30-year, fixed rate mortgage.  It’s atypical, but it does happen from time to time.

And it’s also why locking mortgage rates is like running a Peyton Manning offense — you can’t call a play until you’ve stepped to the line and studied what’s on the other side of the ball.

Before settling on a specific mortgage plan, remember that mortgage markets change daily and mortgage rates change every 3 hours, 11 minutes.  A 5-year ARM may look cheaper in the morning, but by the afternoon, it could be losing out to the 30-year fixed and — all things equal — it’s better to take that fixed-rate mortgage at a lower rate if it’s available.

Jeannette Neerpat
Helping You Find Your Way Home!