Wells Fargo Home Mortgage quotes lower interest rates on today's 30-Year fixed-rate mortgages and on Five-Year adjustable rate mortgages (ARMs)
A conforming 30-Year Fixed-Rate loan is available today at 4.875% APR, with one point and an APR of 5.065%. The monthly principal and interest on a $175,000 loan at this rate would be $926.12.
Mortgage rates also dropped on 5-Year ARMs, to 3.875% with one point and an APR of 3.564%. The monthly principal and interest on a $175,000 loan at this interest rate would be $822.92.
Mortgage rates remain at historic low rates this week.
The difference of over $100 per month in principal and interest payments is the reason some homebuyers or homeowners who are refinancing are tempted by ARMs. Some financial experts point to ARMs as part of the problem for homeowners who are now facing foreclosure, since when their mortgage rates increased after the initial adjustable rate period, these consumers were unable to make the higher payments. But ARMs are not always a bad loan product.
ARMs work very well under specific circumstances, particularly when the homeowners are certain that they will be selling their home before the initial interest rate period ends. They also work best for borrowers making a down payment of at least 20% or homeowners with at least 20% equity in their property, since these borrowers have an extra cushion of value in their home which will protect them if home values drop again.
In addition, ARMs can be a good product for financially savvy consumers who carefully study the loan product and make sure they know the maximum interest rate they could pay (and the size of their monthly payments) when the loan adjusts. If the borrowers can easily pay that additional money, then they can save on their interest payments during the first period of their loan, knowing that their payments could rise in the future.
Even better would be to make monthly mortgage payments as if the loan was fixed at the higher rate, designating the additional payment amount to pay down the principal on the loan. That strategy could save thousands in interest over the entire term of the mortgage.
Written by Michele Lerner
HULIQ.com
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