|30-Year Fixed Rate||2.920%||3.230%|
|20-Year Fixed Rate||2.830%||3.140%|
|15-Year Fixed Rate||2.390%||2.720%|
|10/1 ARM Rate||3.000%||3.920%|
|7/1 ARM Rate||2.930%||3.960%|
|5/1 ARM Rate||3.020%||4.060%|
|30-Year VA Rate||2.830%||3.060%|
|30-Year FHA Rate||2.820%||3.670%|
|30-Year Fixed Jumbo Rate||2.960%||3.060%|
|15-Year Fixed Jumbo Rate||2.400%||2.470%|
|7/1 ARM Jumbo Rate||2.870%||3.930%|
|5/1 ARM Jumbo Rate||2.810%||4.000%|
Rates as of December 5th, 2020 at 6:30 AM
Adjustable-rate mortgages, or ARMs, are home loans that come with a floating interest rate. In other words, the interest rate can change periodically throughout the life of the loan, unlike fixed-rate mortgages.
Since the rate on ARMs can increase or decrease, your monthly payment can, too. ARMs are structured with a fixed-rate period and a floating-rate period. During the first few years your rate is fixed, but after that period ends your rate becomes adjustable. These are typically called 5/1 or 7/1 ARMs, which signify that the first five or seven years of the loan will have a fixed rate.
The time between rate changes — called the adjustment period — will appear in the fine print, so you’ll know exactly when it may go up or down. Typically, ARM interest rates adjust annually after the initial fixed period.
There are pros and cons of both ARMs and fixed-rate mortgages. Your financial goals will dictate which one makes sense for you.
ARMs generally have lower introductory rates compared with 30-year fixed-rate mortgages. So, for someone who plans to sell their house, pay off the loan or refinance before the fixed-portion of the ARM expires (see above), then an ARM might be a cheaper option.
If you’re comparing ARM rates to shorter-term fixed-rate options, then you might find that those rates are about the same. The difference is that with ARMs you can spread the payment over 30 years, so you can get a low rate (on par with a 10-year fixed-rate mortgage) without the high monthly costs. The ARM option, in this scenario, might make sense if you don’t plan on staying in the house long-term.
A rate cap puts a limit on how much your interest rate can go up.
There are two types of caps:
Keep in mind that a drop in interest rates doesn’t mean your monthly payments will go down (or up) right away. Some lenders may hold on to some or all of the rate decline and move it over to the next adjustment period — referred to as a carryover.
For example, if your rate cap is 1 percentage point and interest rates went up by 2 percent, your lender can hold onto the “extra” 1 percent and increase your monthly payment in the future even if the index rate hasn’t gone up.
ARM loans have a few requirements which are similar to other types of mortgages.
Loan amount: Typically, homeowners can borrow up to $510,400 for a conforming ARM (limits may be higher in areas with higher home prices). You can take on a jumbo ARM which exceeds the conforming loan limit, though both these types of loans will depend on your creditworthiness.
Credit history: The higher your credit score, the more likely you’ll be approved for a loan with competitive interest rates. Lenders will also look at other factors such as your payment history, other loans and income.
Down payment: Ideally, you’ll want to put down a 20 percent down payment to avoid PMI (private mortgage insurance) but most conventional ARM loans allow as little as a 5 percent down payment. Government backed loans such as FHA or VA loans may have even lower minimum down payment requirements.
The most common types of ARMs are also known as hybrid ARMs. These have initial fixed-rate periods followed by a floating rate for the remainder of the loan. Hybrid ARMs include:
Usually, 5/1 ARMs have the lowest interest rate of the bunch. For those who think they’ll refinance or sell within five years, this could be the most cost-effective option.
Of course, it’s also a gamble. If your income or credit situation changes for the worse, you might not be able to refinance. And, if you can refinance, you might end up with a higher rate than if you would have gotten a fixed-rate loan in the first place.
Planning to sell your home could also hit speed bumps, which means you could be paying a higher adjustable rate longer than you expected. Of course, the rate could fall as well.
The only advantage to a VA or FHA ARM is that the interest rate is lower (during the initial period) than a fixed-rate VA or FHA mortgage.
If you know that you won’t keep the house longer than the initial period, you could end up saving money. If you stay with an ARM past the fixed-rate period, you run the risk of your rate rising (it could also fall if rates drop).
|Loan Type||Purchase Rates||Refinance Rates|
|The table above links out to loan-specific content to help you learn more about rates by loan type.|
|30-Year Loan||30-Year Mortgage Rates||30-Year Refinance Rates|
|20-Year Loan||20-Year Mortgage Rates||20-Year Refinance Rates|
|15-Year Loan||15-Year Mortgage Rates||15-Year Refinance Rates|
|10-Year Loan||10-Year Mortgage Rates||10-Year Refinance Rates|
|FHA Loan||FHA Mortgage Rates||FHA Refinance Rates|
|30-Year FHA Loan||30-Year FHA Loan Rates||30-Year FHA Refinance Rates|
|VA Loan||VA Mortgage Rates||VA Refinance Rates|
|ARM Loan||ARM Mortgage Rates||ARM Refinance Rates|
|5/1 ARM||5/1 ARM Rates||5/1 Refinance Rates|
|7/1 ARM||7/1 ARM Rates||7/1 Refinance Rates|
|10/1 ARM||10/1 ARM Rates||10/1 Refinance Rates|
|Jumbo Loan||Jumbo Mortgage Rates||Jumbo Refinance Rates|
|30-Year Jumbo Loan||30-Year Jumbo Loan Rates||30-Year Jumbo Refinance Rates|