I’ve mentioned in previous posts that interest rates on 30 Year Fixed mortgages have been better and more competitive than any other loan products, namely Adjustable Rate Mortgages (ARMs). This has been the trend for the past 6 months or so. It is counter-intuitive for the interest rate on a conservative, stable 30 Year Fixed to be lower than on a loan program that you’re assuming more risk on, where the interest rate is fixed only for a limited number of years. Read here to see the reason why.
But now, for the first time in a long time, an ARM is starting to beat the 30 Year Fixed in rate. Last week it was by a full percentage point; this week, by about a half a percentage point.
Today’s rate quote on both a 30 Year Fixed and a 5/1 LIBOR ARM assumes the following: Conforming loan amount (max $417k), 30 day lock, no impounds, 740+ FICO and 80% LTV OR 720+ and 75% LTV.
30 Year Fixed:
5.0% 1 point (APR 5.151%)
5.5% 0 points (APR 5.563%)
(APR assumes $417k max loan; APR spread will be less for lower loan amounts due to less expensive closing costs)
5/1 LIBOR ARM: 5/2/5 caps; 2.25% margin
4.5% 1 point (APR 4.646%)
5.125% no points (APR 5.187%)
You can get a better interest rate by ~.125% in rate if your LTV ratio is 60% and below.
You may also be able to get a better interest rate if you elect to set up an impound account.
I urge you to speak with me or your mortgage professional about the risk you’re taking on with a 5/1 LIBOR. It is set at a fixed interest rate for 5 years; after that period, it will be adjustable once per year for the remaining 25 years. I’ve discussed how ARMs work and how they adjust here.
Let me know if you’d like a specific rate quote for your situation or send me an email to get on my Watch List.
