Why you should love this winter's record-low mortgage rates

Yellow house with dollar sign on it

There's one big reason to love today's mortgage rates.

That's right, one. As in one percentage point.

Average 15- and 30-year fixed-rate home loans are about a percentage point cheaper today than they were this time last year.

Today's average fixed-rate loans cost a bit more than 4%.

Last February, 30-year rates surged above 5% before falling throughout the rest of the year and ending 2011 at record lows.

Our most recent survey will show you the average price for home loans this week.

Then see how much cheaper financing is in your area by searching our extensive database of the best rates from hundreds of lenders.

Depending on your location and credit score, you may be able to beat the average.

In most big cities, lenders are offering financing for as little as 3.625% with no points and application fees of less than $2,000.

The principal and interest payments on such a home loan would be $456 a month for every $100,000 borrowed.

Use our mortgage calculator to see what your payments would be for any fixed-rate loan.

Take a chance on an ARM?

If these historically cheap rates don't impress you, there is a way to pay even less: Take out an adjustable-rate mortgage.

The average rate on a 5/1 ARM -- those are home loans where the interest rate is fixed for the first five years and then changes once a year after that -- is about 3%. But you can find ARMs that charge 2.5% or less.

Today's average ARMs will save you more than $60 for every $100,000 borrowed compared with the average fixed-rate home loan. Our adjustable-rate mortgage calculator shows you how much you can save.

Of course, that discount is only guaranteed for five years. Your initial savings could quickly vanish if your interest rate increases -- which it probably will, given how low interest rates are now.

Indeed, an ARM isn't right for everyone.

"In today's historically low interest rate environment, if the homeowner expects to remain in their home for more than three to five years, an ARM really makes little sense," says Steven A. Wolf, a certified public accountant and executive director of Capstone Advisory Group in Washington, D.C. "An ARM makes sense in situations where individuals expect to be in the location on a short-term or temporary basis."

If you plan to move in the next few years, the lower interest rate on a 5- or 7-year ARM could save you thousands of dollars in interest payments. But make sure to get an ARM with a term that's fixed for at least as long as you plan to stay in the home.

"The obvious risk is that as the rate adjusts, it can go up to a point where it may become unaffordable if the home buyer decides not to move or cannot move," says Matt Perillie, senior loan office at Campbell Mortgage in West Haven, Conn.

Greg Meyer, community relations manager with Meriwest Credit Union in San Jose, Calif., says when adjustable loans reset, they can increase by 2% in a year.

"That would cause the payment to increase pretty dramatically. I think this is a good argument for a fixed-rate loan," he says.

If your ARM increased from 2.88% to 4.88% -- and then to 6.88% -- your monthly principal and interest payment would jump from $415 to $530 to $657 for every $100,000 borrowed.

Could you still comfortably afford the payments if this happened?

If not, an ARM is a risk you shouldn’t take, especially when you can score interest rates for 4% or less that last for the life of your loan.

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