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baby · 10-31-2007, 02:09 PM

I just saw that a 30 year fixed mortgage is 6.07% and a 5/1 ARM is 5.91%. What are the reasons why these rates differ by nearly .2%?<br />

banelli · 10-31-2007, 02:09 PM

ARM = adjustable rate mortgage
surely that's explanation enough

java_bean · 10-31-2007, 02:09 PM

The 30 year fixed will have the same interest rate (6.07%) for all thirty years of the mortgage. The 5/1 ARM will only have a fixed rate 5 years, and then will change (can go up) in the sixth year and every year after until thirty years. The first mortgage is riskier for the bank because they are guaranteeing the rate for all thirty years, so they charge you a higher rate of interest.

Mir · 10-31-2007, 02:09 PM

Because corrupt bankers know they can entice naive customers with lower adjustable rate and then rape them later and make huge profits when the customers rates go up. It's American corruption 101.

simsim · 10-31-2007, 02:09 PM

A fixed mortgage is a mortgage at a set rate for a set period of time. An ARM can offer a lower beginning rate because it is adjustable over the life of the loan - meaning the loan company will take 5.91 now and in 5 years the rate can and will increase to 7+... The financier of the ARM will make their money back on the back end of the loan. These loans are how so many people got into trouble lately - they were able to qualify for a larger total mortgage because the payment on the ARM was do-able, but once the ARM expires and the rate adjusts so does the payment... I don't recommend an ARM with the market being so unpredictable - many people got one assuming that they could refinance at a do-able rate before the ARM expired, but because interest rates shot up they got screwed. Practice responsible lending - banks want to make the deal - you need to make sure you can make the payment...

hoeny · 10-31-2007, 02:09 PM

A fixed rate is for the life of the loan. When you see an ARM it is usually lower to sucker in the people who don't qualify for a fixed rate. As time goes on depending 0n the market for housing development the US government may decided to lower the rates or make them higher which in turn the mortgage companies, banks, credit unions and so on adjust it for themselves to make a profit. In other words the ARM wont stay that low for very long.

highlander · 10-31-2007, 02:09 PM

A fixed interest rate remains the same through the entire loan, and an adjustable rate has a "float" where your interest rate can change dramatically, unless you are careful. If you take an ARM, make sure you get a cap and a ceiling, so you can still make your payments. A cap says they can't increase your interest by more than a certain percentage during any time period (ours was 2% every two years) up to a maximum ceiling that they can't charge above period(ours was 5% over the initial interest rate). The loan agent will have the same protections the other way, they will never charge less than the original interest rate. As you can see an ARM is a little riskier for the buyer, so they give you a lower beginning interest rate.

bort_saver · 10-31-2007, 02:09 PM

less risk on a fixed rate then adjustable.

Tom Ryan · 10-31-2007, 02:09 PM

Because ARM's attract people with bad credit by confusing them with this seemingly lower rate. In 5 years, your payment can nearly double though - and rise every year after. Stick with the fixed rate, or lose your home in 5 years. It's happening all throughout the country right now...

goodMOnk · 10-31-2007, 02:09 PM

With a 30 year mortgage a bank has to guess what rates are going to be for the entire term and what yield they're losing on lending that amount of money to you for a longer period of time.
With a 5 year ARM they only have to commit for 5 years and then reset the rate to whatever the current market is. Obviously this is easier to do for shorter periods and much more accurate. The rates start a bit lower since they'll be corrected in 5 years when market conditions vary.
Like the above people have all stated the ARMs that are out there now are adjusting up by quite a bit. If you are considering that type of loan make sure you can afford the payment at the maximum rate the mortgage allows for in the time you'll be in the house. If not, then it's a very risky loan to sign up for.

10-31-2007, 02:09 PM	#1
baby Greenhorn Join Date: Jul 2006 Posts: 14 Rep Power: 0	Why are fixed mortgage rates and adjustable rates different? I just saw that a 30 year fixed mortgage is 6.07% and a 5/1 ARM is 5.91%. What are the reasons why these rates differ by nearly .2%?<br />

10-31-2007, 02:09 PM	#2
banelli Greenhorn Join Date: Jul 2006 Posts: 44 Rep Power: 6	Why are fixed mortgage rates and adjustable rates different? ARM = adjustable rate mortgage surely that's explanation enough

10-31-2007, 02:09 PM	#3
java_bean Greenhorn Join Date: Jul 2006 Posts: 46 Rep Power: 6	Why are fixed mortgage rates and adjustable rates different? The 30 year fixed will have the same interest rate (6.07%) for all thirty years of the mortgage. The 5/1 ARM will only have a fixed rate 5 years, and then will change (can go up) in the sixth year and every year after until thirty years. The first mortgage is riskier for the bank because they are guaranteeing the rate for all thirty years, so they charge you a higher rate of interest.

10-31-2007, 02:09 PM	#4
Mir Greenhorn Join Date: Jul 2006 Posts: 3 Rep Power: 0	Why are fixed mortgage rates and adjustable rates different? Because corrupt bankers know they can entice naive customers with lower adjustable rate and then rape them later and make huge profits when the customers rates go up. It's American corruption 101.

10-31-2007, 02:09 PM	#5
simsim Greenhorn Join Date: Jul 2006 Posts: 16 Rep Power: 0	Why are fixed mortgage rates and adjustable rates different? A fixed mortgage is a mortgage at a set rate for a set period of time. An ARM can offer a lower beginning rate because it is adjustable over the life of the loan - meaning the loan company will take 5.91 now and in 5 years the rate can and will increase to 7+... The financier of the ARM will make their money back on the back end of the loan. These loans are how so many people got into trouble lately - they were able to qualify for a larger total mortgage because the payment on the ARM was do-able, but once the ARM expires and the rate adjusts so does the payment... I don't recommend an ARM with the market being so unpredictable - many people got one assuming that they could refinance at a do-able rate before the ARM expired, but because interest rates shot up they got screwed. Practice responsible lending - banks want to make the deal - you need to make sure you can make the payment...

10-31-2007, 02:09 PM	#6
hoeny Greenhorn Join Date: Jul 2006 Posts: 7 Rep Power: 0	Why are fixed mortgage rates and adjustable rates different? A fixed rate is for the life of the loan. When you see an ARM it is usually lower to sucker in the people who don't qualify for a fixed rate. As time goes on depending 0n the market for housing development the US government may decided to lower the rates or make them higher which in turn the mortgage companies, banks, credit unions and so on adjust it for themselves to make a profit. In other words the ARM wont stay that low for very long.

10-31-2007, 02:09 PM	#7
highlander Greenhorn Join Date: Jul 2006 Posts: 32 Rep Power: 6	Why are fixed mortgage rates and adjustable rates different? A fixed interest rate remains the same through the entire loan, and an adjustable rate has a "float" where your interest rate can change dramatically, unless you are careful. If you take an ARM, make sure you get a cap and a ceiling, so you can still make your payments. A cap says they can't increase your interest by more than a certain percentage during any time period (ours was 2% every two years) up to a maximum ceiling that they can't charge above period(ours was 5% over the initial interest rate). The loan agent will have the same protections the other way, they will never charge less than the original interest rate. As you can see an ARM is a little riskier for the buyer, so they give you a lower beginning interest rate.

10-31-2007, 02:09 PM	#8
bort_saver Greenhorn Join Date: Jul 2006 Posts: 26 Rep Power: 6	Why are fixed mortgage rates and adjustable rates different? less risk on a fixed rate then adjustable.

10-31-2007, 02:09 PM	#9
Tom Ryan Greenhorn Join Date: Jul 2006 Posts: 17 Rep Power: 0	Why are fixed mortgage rates and adjustable rates different? Because ARM's attract people with bad credit by confusing them with this seemingly lower rate. In 5 years, your payment can nearly double though - and rise every year after. Stick with the fixed rate, or lose your home in 5 years. It's happening all throughout the country right now...

10-31-2007, 02:09 PM	#10
goodMOnk Greenhorn Join Date: Jul 2006 Posts: 18 Rep Power: 0	Why are fixed mortgage rates and adjustable rates different? With a 30 year mortgage a bank has to guess what rates are going to be for the entire term and what yield they're losing on lending that amount of money to you for a longer period of time. With a 5 year ARM they only have to commit for 5 years and then reset the rate to whatever the current market is. Obviously this is easier to do for shorter periods and much more accurate. The rates start a bit lower since they'll be corrected in 5 years when market conditions vary. Like the above people have all stated the ARMs that are out there now are adjusting up by quite a bit. If you are considering that type of loan make sure you can afford the payment at the maximum rate the mortgage allows for in the time you'll be in the house. If not, then it's a very risky loan to sign up for.

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