Economic data indicating more glimmers of recovery--along with the annual peak home buying season--contributed to a rise in mortgage rates last week. But overall rates remain low as investor uncertainty continues to affect the bond markets.
Average combined rates for fixed rate mortgages (FRM) and 5/1 adjustable-rate mortgages (ARMs) rose last week. HSH Associates reports the average combined rate for a 30-year FRM is 5.21%, up 3 basis points from 5.18%. Rates for a 15-year FRM rose from 4.60% to 4.64% last week, while average combined rates for a 5/1 ARM rose from 4.26% to 4.28%.
Although current mortgage rates represent an affordable range of options for buyers and homeowners looking to refinance, the time has come to move forward for finding your best deal on low mortgage rates--before mortgage rates sustain a rise in the next months, as they have long been expected to.
Considering Mortgage Loan Features for Finding Your Best Options
Conventional wisdom suggests refinancing to an FRM when mortgage rates fall, but depending on your circumstances, you would not want to ignore hybrid ARMs. The 5/1 ARM offers a lower fixed rate for the first five years of the loan. If you're planning to move within a few years, this 5/1 ARM would save you money--there's no need to pay for a fixed rate for 30 years if you don't intend to stay for much of that term.
A few things you want to look for when comparing mortgage quotes:
- APR: This is the annual cost of a mortgage loan, expressed as a percentage of the loan amount. APR includes the effect of interest, lender charges, and closing costs and is one number you can use in comparing loans. However, don't rely on the APR alone to choose a mortgage; doing so assumes you will keep the mortgage the full length of the term.
- Prepayment penalty: If you want to take advantage of low initial interest rates with the intention of refinancing to a fixed rate loan later, be sure to verify that your existing mortgage does not have a prepayment penalty. These penalties are typically assessed if a mortgage loan is refinanced before a specified date. If you do have a prepayment penalty, your refinance breakeven calculation will be different.
- ARM caps: If you're getting an ARM loan, make sure it has reasonable rate caps, or limits, in place. ARM rates move according to specific financial indexes, but they should include limits on how high mortgage rates can adjust each period and at any point in the repayment term.
Don't guess when shopping mortgage loan options; make notes of your concerns and questions, then contact mortgage lenders with questions. Consulting with a professional financial adviser can help to narrow down your options and learn about mortgage loans that you may not be aware of.
Our live database of current mortgage rates can help you find the best mortgage rates in your area.