By Today’s Rates and Your Choice of a Mortgage Rate
Anyone would all want to be in the loop for the latest in mortgage rates. When rates go down as they have done the past few weeks, expect homeowners’ or homebuyers’ hopes to go up for a purchase or a refinance. Relatedly, it’s a common dilemma to choose between fixed and variable types for a mortgage rate. Which type is right for you?
Mortgage Rates Are Going Down
Markets that react to geopolitical and economic conditions in and outside of the U.S. carry mortgage rates wherever they need to be.
As of late, mortgage rates have descended closer to pre-election results levels. Freddie Mac, which has tracked prevailing rates on conventional conforming mortgages, reported that as of the week ended June 29, 30-year fixed-rate mortgages (FRM) averaged 3.88%.
Based on the historical weekly data released by Freddie Mac, 30-year FRM rates stood at 3.57% on November 10. A week after that, they climbed to 3.94% and thus began their ascent to 4.32% by the time 2016 ended.
The 30-year FRM fell a few notches at the start of 2017 with 4.20%, reached a new peak in March at 4.30%, and fell to 3.88% in late June.
Freddie Mac’s current weekly survey also covered average rates on 15-year FRMs and 5/1 hybrid adjustable-rate mortgages (ARM) that were at 3.17%.
Fixed or Variable Mortgage Rate
Fixed-rate mortgages are loans whose interest rate does not change throughout the life of the loan. Expect to shell out the same monthly mortgage payment regardless of rates becoming more volatile than usual. What’s more is the long term of FRMs stretches the amortization of the mortgage affording homeowners low payments every month. It’s easy on the budget, too.
Adjustable-rate mortgages are loans whose interest rate adjusts with prevailing market rates. Take for example, the 5-year hybrid ARM. Its starting rate is fixed and low for five years so do its monthly payments. Once the five-year period is over, the rate will adjust once a year throughout the term of the loan, bringing along with it changes in the monthly payments.
Based on the survey, the rate on FRMs especially the 30-year is typically higher than on the 5-year ARM. The length of repayment period plays a role in getting a higher rate because it presents a higher risk for the lenders not getting paid. Amortization is slower in longer-term loans so consumers rack up higher interest costs as well.
In gist, FRMs offer stability and protection from fluctuating rates. ARMs make for affordable mortgages initially but their unpredictability in the face of market forces and economic policies is a major consideration.