Why An Adjustable-Rate Mortgage Is Better Than A 30-Year Fixed-Rate Mortgage
If you haven’t been paying attention, thanks to pandemic fears, the 30-year bond yield and the 10-year bond yield have reached all-time lows. And when Treasury bond yields hit all-time lows, mortgage rates follow suit.
In a strange way, I wish I still had a mortgage to refinance. In mid-2019, I locked in a 2.625% 7/1 ARM for no cost. If I could refinance the mortgage today, I probably could get 2.375% or at least 2.5% for no cost. Oh well.
For those of you smartly looking to refinance, do a cash-out refinance, or purchase a new property, I’m here to argue that an Adjustable Rate Mortgage (ARM) is better than a 30-year fixed-rate mortgage (FRM).
Why An ARM Is Better Than A FRM
You know what sells? Fear.
For decades, lenders have used fear to get homeowners or potential homeowners into 30-year fixed-rate mortgages instead of adjustable-rate mortgages.
Lenders like to tell borrowers that if they don’t get a 30-year fixed mortgage, they’ll potentially face financial hardship when their ARM resets to a higher rate.
By pushing peace of mind, especially to first-time homebuyers, lenders get to earn more money off larger loans with longer durations that charge higher mortgage interest rates.
The thing is, lenders who push 30-year fixed-rate mortgages are either focused on their bottom line, not providing you the entire truth, or are simply ignorant about economics.