With home mortgage interest rates as low as they are currently, many people are wondering if an adjustable rate mortgage (ARM) has any benefit or use any more. After all, the ARM’s are what many people are still trying to get out of (see how to refinance your ARM Mortgage).

What does a fixed rate 30 year mortgage payment look like right now?

Let’s take an example of a $200,000 home purchase, with 20% down payment at today’s current mortgage rates.

Purchase Price - $200,000
Down payment – $40,000
Amount financed – $160,000
30 year fixed rate - 3.75%

Monthly payment and interest (PI) -$741

What does a 5yr ARM with a 30 year amortization mortgage payment look like?

Using the same numbers from the above example, with a 5/1 ARM mortgage. This will assume that interest rates continue to stay low over the five year period.

Purchase Price – $200,000
Down payment - $40,000
Amount financed – $160,000
30 year fixed rate – 2.00%

Monthly payment and interest (PI) - $591

That is a difference of $150 per month or a whopping 20% less per month, a sale on the mortgage money in effect. Over the course of five years, that amounts to a total savings of $9,000. Not a small sum by any means in interest savings.

Who should consider this?

While an adjustable rate mortgage is probably not a wise choice for anyone who intends to stay in their home very long term, or for
someone who can barely afford the payments at that rate and is stretching to get into the house, for those that have excess payment capacity in their monthly budget, or are expecting significant raises in their future, or may perhaps get a job transfer and have to move, this may be a prudent financial choice even if it does fly against the current mainstream wisdom.