5/1 ARMs usually offer better pricing than your typical 30 year fixed rate mortgage but right now they are significantly better than the 30 year fixed!
While a 30 year fixed has the same interest rate and monthly payment throughout the term of the mortgage, the 5/1 ARM offers a fixed rate for the first 5 years of your loan and then adjusts annually up or down based on market conditions for the remaining term of the loan. Normally a 5/1 ARM is about 0.5% below the 30 year fixed in terms of rate but the 5/1 ARM rate is currently about 1.5% lower than the fixed with the rate averaging in the low 3’s% range.
The benefit of a 5/1 ARM is that it’s a hybrid mortgage, which combines the features of an ARM and a fixed rate mortgage. Essentially, you are getting the best of both worlds, as your rate won’t change for a specific amount of time, plus you’re getting a lower rate. This is especially beneficial if you plan on staying in the home 5 years or less as you’ll get a lower rate and not even have to face the adjustment.
Weigh your options carefully when deciding on the mortgage product that is best for you. If you want to take advantage of the lower initial interest rate associated with an ARM, but want to have some of the security of a fixed-rate loan, a 5/1 ARM may be the best option for you.