With interest rates still at near rock-bottom levels, many homebuyers are being quite reasonable when they opt for fixed-rate mortgages. It's hard to argue with the security of locking in very low rates for up to 30 years. They're not likely to go much lower, so why would you want to choose an adjustable-rate mortgage? Well, actually, there is a good reason to do so.
Think about this: How likely are you to stay in the home you're buying for 30 years? How likely are you to still be in the same dwelling in just five or 10 years? There's a good chance that this home is not the one from which you'll be ringing in the new year of 2034. On average, Americans move about every seven years -- which means that many people move even more frequently than that. People move for new jobs, they move to bigger homes when their families grow, they move to smaller homes when they find themselves with empty nests, and so on.
If you think you're likely to move within a few years, it can make a lot of sense to opt for an adjustable-rate mortgage (ARM) instead of a fixed-rate one. As an example, a recent glance at Countrywide Financial's
Imagine that you buy a $200,000 home, putting down 20% and borrowing $160,000. If you borrow at a fixed 5.75% over 30 years with no points, your monthly payment would be around $934. With a 5/1 ARM, where your rate is fixed at 4.5% for the first five years, before being adjusted each year after that, you'd pay something like $810 monthly. If you do stay at that home for five years, you'd end up saving more than $7,000 in total mortgage payments. That's not chump change. Invested in a strong, growing company such as Microsoft
You can learn much more about the homebuying process in our spiffy Home Center, which also features information on mortgages and refinancing. And do learn more before opting for an adjustable-rate mortgage. They can deliver terrific savings, but they're not for everyone.
Our Buying or Selling a Home discussion board is also open for business 24 hours a day, and you'll find lots of smart, helpful people there answering questions and relating their experiences.
Longtime Fool contributor Selena Maranjian owns shares of Microsoft.