Did Adjustable-Rate Mortgages Just Get the Fed's Green Light?

For years, financial advisors have told mortgage borrowers to lock in low fixed-rate mortgages. But now that those fixed rates have started to rise, some borrowers are tempted by the lower rates available on adjustable-rate mortgages. Are ARMs a smart move, or will borrowers get burned?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at adjustable-rate mortgages and whether they make sense right now. Dan notes that in the past, fears of rising rates and the rock-bottom fixed-mortgage rates that were available made locking in long-term fixed mortgages a no-brainer. But now, Dan points out that ARMs are much cheaper, with interest rates 1.25 percentage points lower for ARMs than for 30-year fixed mortgages at JPMorgan Chase (NYSE: JPM  ) and Bank of America (NYSE: BAC  ) , while Wells Fargo (NYSE: WFC  ) charges 1.125 percentage points less and US Bancorp (NYSE: USB  ) giving ARM borrowers savings of 1.5 percentage points. Dan concludes that each homeowner has to decide based on personal situation, but with the average homeowners staying in a home about seven years, getting lower rates on adjustable-rate mortgages might be worth the risk.

Should you invest in mortgage lenders?
If you're tired of paying interest month after month to your bank, the best revenge is owning bank stocks and reaping profits for yourself. Yet many investors have been terrified about investing in big banking stocks after the crash. Still, in a sea of mismanaged and dangerous peers, one notable standout rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2776172, ~/Articles/ArticleHandler.aspx, 10/25/2016 1:13:01 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 3 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:00 PM
BAC $16.77 Up +0.10 +0.60%
Bank of America CAPS Rating: ****
JPM $68.87 Up +0.38 +0.55%
JPMorgan Chase CAPS Rating: ****
USB $44.02 Up +0.17 +0.39%
US Bancorp CAPS Rating: ****
WFC $45.52 Up +0.43 +0.95%
Wells Fargo CAPS Rating: ****