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Difference Between ARM and Fixed Rate Mortgages |
With adjustable-rate mortgages, the interest rate can fluctuate at specific intervals -- often one year, five years or seven years. If interest rates continue to rise, as the Federal Reserve has hinted, so will borrowers' monthly payments. When home prices
are rising, buyers can often refinance to lower their costs. But appreciation is flattening and some economists believe prices could even decline, which could leave borrowers stuck paying a rate they can't afford.
There are a number of reasons that the popularity of these instruments is falling. Most notably, the spread between adjustable and fixed-rate mortgages is narrowing: A 30-year fixed rate stands at 6.34 percent, while the rate is 5.93 percent for a 5-year ARM, according to Freddie Mac. In the past few years, the difference was typically a full point or higher. |
