About Government Refinance and Home Purchase Programs

Information and Updates on Government Mortgage Programs
Filed under Government Mortgage Financing Programs News

When the housing bubble burst in 2007 the reputation of adjustable rate mortgages (ARMs) took a beating. The problem then was too many borrowers who were intending to sell their homes in 5-10 years before their rate began adjusting suddenly found themselves underwater and unable to sell. ARMs were vilified as the problem. But that was not really fair. The reality is that when housing prices are stable people normally don’t keep a mortgage all that long. The current average is 4-7 years in a mortgage before a refinance or before the home is sold. With that in mind an ARM can be a good option for many borrowers.

Paying a premium for a 30 year fixed

A 30 year fixed mortgage is a tremendous product and is the mainstay of the mortgage lending industry for good reason. It is stable and it keeps payments reasonably low. However, people in 30 year fixed mortgages are paying a premium to have their rate fixed for that long. For families that plan to sell a home in less than 10 years, paying for 30 years of a fixed rate is probably leaving money on the table. Rates on 5, 7, or 10 year ARM’s tend to be more than a full percentage point lower than rates on 30 year fixed mortgages. Over the course of 5-10 years that can mean a lot of money in interest payments. For instance on a $200,000 mortgage the interest payments on a 30 year fixed mortgage could be about $1700 more per year than the interest payments on an ARM prior to the rate adjusting period.

The right type of loan for the situation

For families who are confident they will stay put in a home for more than 10 years a 30 or 15 year fixed mortgage is the way to go. However for families that tend to be on the move and don’t fully expect to own their home that long, a 5-10 year ARM is often a a less expensive option. This is true both for refinances and for home purchases.

Contact us in the sidebar today to learn more about both the government-backed ARM and fixed rate options for refinances and home purchases.

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