Borrowers who don't want to make a higher payment or accept the risk of a hybrid or traditional ARM, can trim the cost of the loan by buying a less expensive home or making a larger down payment to reduce the mortgage amount.
For example, the principal and interest on a $220,000 loan at 5 percent would be $1,181, and a $250,000 loan at the same rate would cost $1,342 a month. The smaller loan saves $161 a month. An even smaller loan would mean even more savings, though the tradeoff may be a less desirable home.
"People are looking more at what's affordable and what's a payment they can manage," Thompson says. "I don't see that changing just because the rates ticked up. That's something I've been seeing over the last two years."