Every Thursday morning, our LiveWork Denver team gathers for our weekly meetings. Last week we were talking about interest rates and how they have impacted what many buyers can afford. Now, it could have been easy to dwell in the despair of the rising rates and how it’s impacting folks we’re working with, but that’s not who we are. We know the power of creative thinking paired with perseverance! So, we began thinking outside the box, which led us to discussing adjustable rate mortgages.
If you’re like me, you might initially be wondering, isn't that risky and unpredictable? But with a little more examination, we came to agree that sometimes adjustable mortgage rates can be a great option.
With a 5- or 7-year adjustable rate mortgage (ARM), you are locked into a rate for a certain number of years (i.e. 5 or 7), and after that you transition into an adjustable rate. In a situation where you plan to stay in your home for longer than that timeframe, perhaps a fixed rate is advantageous. Refinancing within the timeframe is also a possibility for an ARM. If you will only hold the property for a short amount of time or will eventually refinance, an ARM could save you hundreds each month and thousands over the years. Current adjustable rates with FirstBank are still in the low 4s compared to about 5 percent for a fixed rate.
Here’s an example with real numbers.
Let’s say you purchase a home for $600,000 and put 5% for your down payment ($30,000). If you get a fixed rate of 5%, your monthly payment would be $3,580.72.
Now, let’s say you purchase that same $600,000 house with the same down payment, but choose a 5-year ARM with a rate of 4.125%. Your monthly payment would be $3,283.34.
Using the 5-year ARM would save you $297.38 each month or $3,568.56 each year. If you held your property for the full 5 years and then either sold or refinanced it, you would save $17,842.80.
Again, this might not be a great choice for some, but it’s one way we are creatively thinking and helping people to get into homeownership.
To learn more about adjustable mortgage rates, financing strategies, and other ways to leverage the power of creative thinking paired with perseverance, reach out and let’s schedule time to connect!