The 5/1 is coming out swinging.
The following is a comparison of today’s 5/1 and 30 Year Fixed. The rate quote assumes 80% Loan-to-Value ratio, single family home, 720+ FICO, no impounds. Quote is based on a 30-day lock, and yes, I can close in 30 days.
(Please note we can do better in rate or fees if you have 60% and less LTV and/or want an impound account). APR based on $400k loan amount.
5/1 ARM
0 points 4.625% (APR 4.690%)
1 point 4.250% (APR 4.399%)
30 Year Fixed
0 points 5.375% (APR 5.443%)
1 point 5.125% (APR 5.282%)
You can see that the spread in rate between the two programs is significant. The 5/1 with 1 point saves you ~$210/month, but remember that you are taking on more risk in the future by choosing the 5/1 (the lower rate) now. In 5 years, your loan will adjust to a new interest rate that will depend on the market at that time. I wrote about the adjustment process here.
