ARMs Are Much Less Expensive Than Fixed Rate Mortgages Lately
The interest rate differential between a 30-year fixed rate mortgage and a 5-year adjustable-rate mortgage is growing.
An economic recession is expected to damage the economy over the near-term and so mortgage rates tied to that same time frame are falling.
This includes ARMs with initial fixed periods of 1-5 years.
Meanwhile, the cumulative impact of Fed Funds Rate cuts and the stimulus package are expected to stoke U.S. inflation over the longer-term.
Therefore, mortgage rates tied to longer-term maturities are rising. This includes the 30-year fixed rate mortgage.
The spread between the 30-year fixed rate and the 5-year ARM had been as wide as 1.250% this week before settling closer to 1.000%.
This past summer, the two products had carried identical rates on occasion.
(Image courtesy: Bankrate.com)
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