real estate investing

Tuesday, August 02, 2005

Morgage Interest Rates



Fixed or Adjustable Rate Mortgage?

Adjustable-rate mortgages (ARMs) can be verytempting to home buyers because of their low initial cost, yet they carry agreat deal of uncertainty.

Fixed-rate mortgages (FRM) offer rate andpayment security, but they can be more expensive in past real estate markets. But todays fixed rate mortgages are relatively cheap.

Other factors in deciding between a fixed or adjustable rate mortgage:

1. How long do you plan on staying in the home?If you're only going to be living in the house a few years, it would makesense to take the lower-rate ARM, especially if you can get a reasonablypriced 3/1 or 5/1 ARM. Your payment and rate will be low and you canbuild up more savings for a bigger home down the road. Plus, you'll neverbe exposed to huge rate adjustments because you'll be moving out beforethe adjustable rate period begins.

2. How frequently does the ARM adjust, and when is the adjustment made?After the initial fixed period, most ARMs adjust every year on theanniversary of the mortgage. The new rate is actually set about 45 daysbefore the anniversary, based on the specified index. But some adjust asfrequently as every month. If that's too much volatility for you, go witha Fixed Interest Rate.

3. What's the interest rate environment like?When rates are relatively high, ARMs make sense because their lowerinitial rates allow borrowers to still reap the benefits ofhomeownership. The chances are fairly good that rates will fall down theroad too, meaning borrowers will have a decent chance of getting lowerpayments even if they don't refinance. When rates are relatively low,however, Fixed Rates make more sense.

Todays Morgage Interest Rates

30 year fixed rate mortgages start at 5.25%

15 year fixed rate mortgages start at 5.125%

3/1 adjustable rate mortgages start at 5.0%

5/1 adjustable rate mortgages start at 5.0%

7/1 adjustable rate mortgages start at 5.25% more...

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Originally Posted on 8/2/2005 4:55:14 PMContent source: http://realestates.typepad.com/realestate/2005/06/morgage_interes.html