5/1 adjustable-rate mortgage falls to new record low

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Mortgage rates across the board are hovering around historic lows, but the 5/1 adjustable-rate mortgage (ARM) has been on a downward trajectory for all of 2021 so far.

This week, it set a new record low average at 2.79 percent in Bankrate’s weekly survey.

If you’re thinking about taking out a new mortgage or refinancing your existing loan, this low rate could make a 5/1 ARM more attractive, but keep in mind, there are some definite drawbacks to adjustable-rate loans compared to their fixed-rate counterparts.

A 5/1 ARM will only keep this steady, record low interest rate for five years. After that initial period, the rate will adjust annually based on prevailing market conditions. While it’s true that you’ll have five years of super-low interest, it’s hard to say what will be going on in the mortgage market when it’s time for the rate to start adjusting. It can be harder to plan your household budget with an adjustable-rate mortgage, because your monthly payments won’t stay consistent after the initial rate period.

Because of that variability, ARMs are usually best suited for people who aren’t planning to stay in their home for very long, or are prepared to refinance once the adjustments begin.

Also, because interest rates have been so low on all kinds of mortgages lately, ARMs have been less popular with borrowers overall. Fixed-rate mortgages have been more competitive with adjustable-rate offerings since the start of the pandemic.

Experts are predicting this trend of low rates will begin to reverse before too long, so if you’re thinking about refinancing or taking out a new mortgage, it’s best to start your research soon.

“Things could start to heat up as inflation expectations are rising as President Biden gets started with a new administration and additional stimulus is on the immediate horizon,” said James Sahnger, a mortgage planner at C2 Financial Corporation in Jupiter, Florida. “Janet Yellen is urging Congress to ‘act big’ and ‘big’ will absolutely impact the country and rates going forward. If you haven’t refinanced yet, it’s time to get going.”

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Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.
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