Flagstar Direct offers a 5-year ARM at 4.0%

Hundred dollar bill folded in shape of house

Flagstar Direct is offering below-average rates on 5-year, adjustable-rate mortgages.

As of June 18, Flagstar is charging just 4.0%, with no points and a low $1,200 in fees.

Mortgage rates moved up a fraction of a percentage point today, but this is still a great deal. It's more than a quarter a percentage point lower than the national average of 4.29% for five-year ARMs.

The principal and interest payments for the first five years would be $477 a month for every $100,000 you borrow.

Our mortgage calculator calculates the monthly payments for any home loan.

Flagstar Direct is the online operation of Flagstar Bank, which has 160 branches in Michigan, Indiana and Georgia, and is licensed to make home loans in all 50 states.

Some lenders offer ARMs with lower rates. But check their interest rate caps before you sign up.

The rates on some bargain-basement loans can go up as much as five percentage points when they reset for the first time.

The Flagstar Direct ARM won't do that.

Its interest rate caps are 2/2/6, which means it can't go up more than two percentage points the first time it adjusts in five years, or two percentage points each year after, and it can never go up more than six percentage points.

Of course, this kind of loan makes the most sense if you plan to sell the home before the mortgage resets. A five-year ARM like this one gives you more time than adjustable-rate mortgages that reset more quickly.

But just in case you don't sell before then introductory rate expires, you need an ARM you can still afford even if the payments go up.

Interest rates are at historic lows, and you have to assume they'll be higher a few years from now.

To qualify for this loan, you need a credit score of 700 or higher. You must also be applying for a conforming loan -- one for less than $417,000 to $729,500, depending on where you live.

Click here to compare this deal with the best mortgage rates from scores of other lenders in your area.

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