Is a 30-Year Fixed Mortgage Really the Best Deal?
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Ever since the mortgage market crash, ARMs have been pummeled. The 30-year fixed rate mortgage has been a lower rate, and people have been turning to them. The fear of resetting mortgage rates with their much higher payments has many people going with the traditional, straight-up variety of mortgage. But things are changing.
The new mortgage interest rate numbers are out, and ARMs have lower rates than 30-year fixed mortgages. This was bound to happen at some point, of course. The way ARMs are set up is to encourage buyers to be able to afford a mortgage at first — or get them approved for a payment. Later on, the theory goes, when they are making more money, they can afford the resetting payment. Or, they can refinance to a fixed rate mortgage if they want.
While this sort of arrangement doesn’t make a lot of sense for someone who plans to be in a home long-term, there are cases where an ARM can be a better deal than a 30-year fixed rate mortgage. The Mortgage Reports points out that, for some home buyers, an ARM is a better choice than a fixed-rate mortgage:
Right now, adjustable rate mortgages are very attractive to the right type of homeowner:
- First-time home buyer that expects to move within 7 years
- Has an existing 30-year fixed with plans to move in the next 7 years
- Active home buyer with a pattern of moving every 10 years or fewer
For people meeting the above criteria, locking in with a 30-year fixed rate mortgage may be plain overkill; an expensive insurance policy in the event you don’t move or don’t refinance within those first 7 years.
Of course, one does need to plan in advance. There were probably plenty of people that got caught in the last economic cycle, thinking they would sell or refinance their homes before the mortgage reset. Many of those folks are now in foreclosure.
It is important to carefully consider your mortgage options, and figure out how it fits in with your overall financial plan.
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