30 year fixed or 5/6 ARM in current market May 2024 market conditions
Looking to purchase my first home and was initially going to go the traditional fixed rate mortgage without buying down points with the assumption rates will go down in the next year or 2 and I will just refinance. I was getting interest rates that were slightly over 7% for a fixed, and I recently learned about the 5/6 ARM through my local credit bureau who I had financed my car through many years back. They came in a 6.375%, no loan origination fee, etc. and said I can refinance at anytime with no prepayment penalties, seems almost too good to be true. Is there anything I'm missing? If I will refinance before the 5 year fixed period expires, without any penalties, I'm having a hard time understanding why I'd want to go forward with a fixed rate currently. Any thoughts on the below? This quote is as of May 2024.
Jim,
Take the 5/6 ARM its fixed for 5 years and rates will drop prior to the 5 years allowing you to refinance and lock into a 20 or 30 year fixed rate. Average home owner refinances their mortgage within 3-5 years so a 30 year fixed at these rates is just a bad decision with rates expected to trend down. FED cannot avoid cutting rates they dropped in December and January and a CPI index report crushed everything that was really all hedged data.
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I think you are correct in your thinking - a lot of lenders right now are pricing 30-year fixed rate and 5-year ARMs essentially the same, with only the slightest benefit to the ARM option - generally because there is a very low probability priced in that rates will be higher in 5 years. If you are getting significantly lower on the ARM option - probably a good bet
