As reported by Freddie Mac, a conforming 5-year ARM is priced a half-percent lower than a comparable 30-year fixed.

Earlier this year, the pricing was reversed.

It’s uncommon for fixed rate mortgages to be cheaper than comparable ARMs because, with fixed rate mortgages, lenders commit to a particular interest rate over long period of time. There is a lot of risk that comes with doing that.

By contrast, an adjustable rate mortgage is designed so that after a certain number of years, the mortgage rate changes to reflect the current market conditions. 

In theory, ARMs are less risky for lenders than are fixed rate mortgages and, therefore, we would expect them to have lower mortgage rates.  That wasn’t the case for the 6 months ending in early-May, however.  When fixed rate mortgages were scraping the 4.500 percent marker in January, 5-year ARMs weren’t struggling to stay sub-5.

The same goes for late-April’s mortgage rate dip.

Historically, there’s been a trade-off between ARMs and fixed rate mortgages.

• ARMs give lower mortgage rates with less predictability
• FRMs give higher mortgage rates with more predictability

Earlier this year, market conditions rendered fixed rate loans the best of both worlds — lower rates and predictability.  Today, we’re back to “normal”.

No matter how long you plan to live in your home, talk to your loan officer about your adjustable rate options, if only to know your options.  Given today’s interest rate disparity and how it can affect your monthly mortgage obligation, you may find the unpredictable nature of an ARM to be acceptable risk.

If you’re like most U.S. consumers, more than half of it goes to housing and transportation costs.

According to the government’s most recent Consumer Expenditure Survey, spending patterns are little changed from years prior. 

More money is spent on entertainment and less money is spent on dining out.  Beyond that, the figures are somewhat static.

Meanwhile, using on the survey’s industry-by-industry breakdown, we can see how monthly housing payments and daily commuting costs impact a household’s budget.

For the budget-conscious, going out less often and bargain-shopping can help pad the bottom line, but not as much as living in a less expensive home or moving closer to work.

Even a refinance into lower rates can make a difference.