5-year adjustable-rate mortgages reach new record low in final July survey

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Five-year, adjustable-rate mortgages have never been cheaper, according to Interest.com’s most recent survey of major lenders.

The average introductory interest rate on a 5/1 ARM -- a home loan on which the initial rate remains fixed for the first five years and then changes once a year after that -- fell to 3.34%.

That breaks the previous record low of 3.35% set on June 8.

We know many borrowers don't want to even consider an ARM because so many homeowners defaulted on the irresponsible, unaffordable ARMs lenders were peddling during the housing boom.

According to a New York Federal Reserve report, ARMs accounted for 70% of all home loans in 1994. During the first half of this year, they accounted for less than 5% of the market.

But we think an increasing number of borrowers will opt for adjustable-rate loans with responsible terms as the difference in cost between ARMs and fixed-rate loans widens.

Our July 27 survey found the average interest rate for a:

30-year, fixed-rate loan rose to 4.74% from 4.68% last week. That’s pretty much exactly what these home loans cost this time last summer: The late-July survey averaged 4.71%.

15-year, fixed-rate loan rose to 3.83% from 3.82% the previous week. That’s considerably less than the average cost of 4.17% at this time last year.

30-year, fixed-rate jumbo loan (for mortgages exceeding $417,000 to $729,750, depending on the city) increased to 5.19% from 5.17% the previous week. A year ago, it was 5.43%.

Five-year, adjustable-rate loan fell to 3.34% from 3.36% the previous week. Last year at this time, the average rate was 4.07%.

Our database of interest rates can help you find the best deals in your area, including many that are less costly than the national averages.

You can use our home loan calculator to determine the monthly payments for the exact amount you want to borrow with this or any home loan.

It will also provide a month-by-month amortization schedule that shows how much you've reduced your debt and how much you still owe.

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