Adjustable Rate Mortgages Make Comeback With 4.5% Intro Rates

Adjustable rate mortgages are experiencing a resurgence with 5/1 ARM rates dropping to 4.5%, creating a 1.4 percentage point advantage over fixed-rate loans and attracting buyers who expect rates to continue falling.

The Math

On a $400,000 mortgage, a 4.5% ARM saves $380 per month compared to a 5.87% fixed rate during the initial 5-year period, totaling $22,800 in savings before the first adjustment.

Risk Considerations

Financial advisors caution that ARMs carry rate adjustment risk after the fixed period. However, many buyers plan to refinance into a fixed rate within 2-3 years if rates continue declining.

• 5/1 ARM rates at 4.5%
• 1.4 point advantage over 30-year fixed
• $380/month savings on $400K mortgage
• Best for buyers planning to refinance