With recessionary fears causing longer-term interest rates to hover near or below short-term rates, the advantage that typically comes with adjustable-rate mortgages has shrunk — or entirely disappeared — at some lenders.
That's still lower than the average 3.9% on traditional 30-year fixed mortgages, although the spread has shrunk.If you've been considering a mortgage with an adjustable rate, your reasons for going that route might be disappearing.
"Normally I would say that if you only plan to own the house for, say, five years, maybe you could do a five-year ARM if rates are lower than a fixed rate — which they usually are," said Ed Snyder, a certified financial planner and cofounder of Oaktree Financial Advisors in Carmel, Indiana. The average introductory interest rate on a five-year ARM is 3.35%, down slightly from 3.43% a week ago, according to the Mortgage Bankers Association. That remains lower than the average rate on a traditional 30-year mortgage of 3.9% for loan balances of $484,350 or less and 3.88% for those above that , although the spread has shrunk.
If you do find an ARM that looks better than a fixed-rate mortgage, there are some aspects of the loan you should understand. For starters, the initial rate is only fixed for a set number of years .
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