Saving Money With a 5/1 ARM? It’s Happening Now!



Did you know that the interest rate on a 30-year fixed mortgage has increased by over three percentage points in the past 18 months? This number is causing many potential buyers to take a wait-it-out approach to real estate.

What if you don’t want to wait for the economic tides to turn? More buyers are investigating adjustable-rate mortgages to score a lower interest rate and finance their dream homes.

The Scoop on Adjustable-Rate Mortgages

Adjustable-rate mortgages (ARMs) have a variable interest rate, causing monthly mortgage payments to change periodically. If this volatility scares you, you’re not alone. Until recently, ARMs made up merely 2-3% of home loans.

Using a 5/1 ARM To Save Money

If using an ARM to save money on your mortgage over time sounds like an oxymoron, we have news for you! Currently, 5/1 ARMs are available at a discount, and this piece of inside information can work in your financial favor at the mortgage desk.

What type of discount are we talking about? As of the start of summer, the interest rate on a 5/1 ARM was approximately 4.4%. We’re looking at 1.5 percentage points lower than a 30-year fixed mortgage!

Crunching the Numbers

The best way to see the financial impact of an ARM is to check out a real-world example. Let’s say that you need a mortgage for $500,000. Here is a glimpse at your possible monthly payments:

  • 30-year fixed mortgage with a 6% interest rate: $2,997.75
  • 5/1 ARM with a 4.5% interest rate during the five-year fixed period: $2,533.43

If you go with a 5/1 ARM in this situation, you’ll save a hefty $464.32 per month for five years. That’s a total savings of $27,859.20 during the fixed period!

Here are a few more financial advantages worth noting:

  • If you select a 5/1 ARM, you’ll pay off your principal faster than if you chose a 30-year fixed mortgage.
  • To see the biggest bang for your buck, select a 5/1 ARM with a 4.5% interest rate, but make payments as though you’ve chosen a 30-year fixed mortgage with a 6% interest rate. The extra money attached to your payment will be applied to your principal, knocking your debt down faster than you thought possible.

Contact Us Today!

Do you want access to the best loan rates in the industry? Contact us at MortgageDepot today to learn how to put an ARM to work for you!

Connect with one of our loan consultants for more information.