American homeowners are in love with fixed rate mortgages.

Homeowners Are Shortening Loan Terms, Abandoning ARMs

According to a Freddie Mac report of its own mortgage holdings, homeowners that refinance their mortgages are pouring into fixed rate products, regardless of whether their original mortgage was an ARM or a fixed-rate product.

Fixed rate mortgages accounted for 95% of all Freddie Mac-refinances in Q1 2010.

Some other interesting refinancre statistics:

• 25% of homeowners with a 30-year fixed refinanced into a shorter-term mortgage
• 58% of homeowners with a 20-year fixed refinanced into a shorter-term mortgage
• 0% of homeowners with a 15-year fixed refinanced into an ARM

And, speaking of ARMs, the most astounding fact from Freddie Mac is that just 8 percent of ARM-holders opted to refinance into a new ARM.

Considering how favorable ARM pricing has been since the start of the year, and how nearly every Freddie Mac ARM-holder's mortgage rate has adjusted lower since 2007, the tendency of ARM-holders to move into fixed rate loans says a lot about the American homeowner's psyche.

Homeowners are opting for payment predictability over payment savings.

Fear is beating frugality.

Everywhere You Look, Mortgage Money Is Cheap

Short-term uncertainty within global financial markets has created interesting choices for refinancing homeowners.

Normally, at this time of year, mortgage rates are just starting their summer pilgrimage towards 6.5 percent. This year, however, the combination of low inflation, a strengthening U.S. dollar, and nascent concerns of a global banking meltdown has pushed investors toward the mortgage-backed bond market.

ARMs are as low as they've ever been, the 15-year fixed rate money is near 4 percent and the 30-year fixed is back to all-time lows.

Everywhere you look, mortgage money is cheap.

Which Is Better -- ARM or Fixed? Here's How You Know.

So 92 percent of ARM-holders are moving into fixed-rate product.  I understand why, it just doesn't make much sense.  For two reasons, really.

First, as compared to 3 years, 5 years or 7 years ago when an ARM was first originated, the interest rate spread between ARMs and fixed product has gotten bigger.  In other words, the relative monetary benefit in choosing an ARM over a fixed rate mortgage is larger.

And, second, the logical reasons for taking an ARM over a fixed rate mortgage haven't changed.  Maybe you're moving in the next few years; or maybe you want the lowest possible payment; or maybe you're comfortable with adjusting payment risk.

If these reasons are why you picked an ARM a few years ago, it's all still relevant now.

Granted, some of the numbers are likely skewed by the Obama Refi Plan plus recent product limitations, but 92% of ARM-holders suddenly moving to a fixed?  Again, I understand it, it just strikes me as illogical.

Which Refinance Mortgage Is Right For You

Maybe the masses are right. Maybe the best thing to do is to refinance your home into a 15-year fixed rate mortgage and work on agressively paying down your principal.

Or, maybe, what's best for you -- as an individual -- is something else entirely.

You can't know the optimal path for your mortgage until you've asked some good questions and gotten some thoughtful answers.  Let's get started with that right now. and we'll look at your loan, and your options.

Mortgage rates are rock-bottom low. .

It's a common question with rate shoppers. Which is better? A fixed rate mortgage or an adjustable rate mortgage? In short, it depends. And the chart at top shows why.

ARMs And Fixed Rates Don't Move In Unison

Mortgage rates are based on the price of mortgage-backed bonds, a group of securities bought and sold on Wall Street. When bonds are in demand, mortgage rates fall and when bonds are out of demand, mortgage rates rise.

The logic applies to most conventional mortgages. However, within the class of "conventional" mortgages, there are a multitude of products including:

• 30-year fixed rate mortgage
• 15-year fixed rate mortgage
• 5-year ARM
• 7-year ARM
• 10-year ARM

On any given day, the rate of each individual mortgage type is based on whether markets are going up or down, plus additional risk factors tied to the specific loan traits.

For example, a 30-year fixed rate mortgage has a great exposure to inflation than does a 5-year ARM. As such, 30-year mortgage rates tend to be priced higher than comparable 5-year ARMs.

The 5-Year ARM Keeps Getting Better

Each week, government-backed Freddie Mac publishes a weekly mortgage rate average compiled from 125 banks across the country. Based on this week's survey results, home buyers in Cincinnati would be silly to not at least consider the 5-year ARM.

As compared to the 30-year fixed, the 5-year ARM is an absolute steal.

Consider this comparison:

• In May 2009, 5-year ARMs were better by 0.04 percent
• In May 2010, 5-year ARMs are better by 1.03 percent

On a $250,000 home loan, the ARM saves $153 per month on mortgage payments. Plus, the amount of monthly principal repayment is higher, too. You'll pay down your loan faster.

Who Is A Good Fit For The 5-Year ARM?

Adjustable-rate mortgages aren't perfect for everyone, but given your circumstance, they could be a fit. If you meet any of the following criteria, it would be silly to not at least look at today's 5-year ARM pricing:

1. You're buying a home and don't intend to live there for long
2. You're planning on moving in the next few years and your mortgage rate is higher than 4.625%
3. You're currently using an ARM and want to "restart" your initial fixed rate period

Heck, with rates this low, people with soon-to-adjust mortgages may want to take "the sure thing"; lock in at today's rates and forget about what rates might do in the future. It's one less stress in your life.

However, before taking a new ARM, make sure speak with your loan officer about how adjustable-rate mortgages work, and what the longer-term risks may be for your individual situation. The savings may be tempting, but there's more to consider than just the payment.

How To Apply For A 5-Year ARM At 3.375 Percent

To inquire about a 5-year ARM, call my office at 513-443-2020 or . We can review your situation personally.  If the ARM isn't too risky given your goals, we can then take a formal application and start working toward closing.

Most ARMs are closing in 3 weeks.

Each week, government-backed Freddie Mac publishes a weekly mortgage rate average compiled from 125 banks across the country.  Based on this week's survey results, home buyers in Cincinnati would be silly to not at least consider the 5-year ARM.

The 5-Year ARM Is A Steal-Of-A-Deal Right Now

As compared to the 30-year fixed, the 5-year ARM is an absolute steal.

Consider this comparison:

• In April 2009, the two products ran neck-and-neck with respect to interest rates
• In April 2010, the two products are split by 0.99 percent chasm

On a $300,000 home loan, that's a difference of $176 per month on a mortgage payment.

Some Folks Are A Perfect Fit For The 5-Year ARM

Now, adjustable-rate mortgages aren't suitable for everyone, but they can be a terrific fit given your individual circumstance.  For example, any of the following scenarios might warrant a 5-year ARM instead of a 30-year fixed:

1. You're buying a home and plan to sell it within the next 5 years
2. Your home is currently financed with a 30-year fixed mortgage and you have plans to sell your home within the next 5 years
3. You have an ARM now and want to get a "restart" on your starter rate

Before opting an ARM, speak with your loan officer about how adjustable-rate mortgages work, and what longer-term risks may exist.  The savings may be tempting, but there's more to consider than just the payment.

How To Apply For A 5-Year ARM At 3.875 Percent

To inquire about a 5-year ARM, call my office at 513-443-2020 or . We can review your situation and if the ARM isn't too risky for your goals, we'll move on to an official application and start working toward closing.

Most new mortgages are closing in 3 weeks.

(Post licensed and customized from the Bring the Blog blog-writing service)