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Find and compare the best mortgage rates for a 5/1 adjustable rate mortgage.
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The average rate on a 30-year fixed-rate mortgage rose two basis points, the rate for the 15-year went up four basis points and the 5/1 ARM advanced three basis points, according to a NerdWallet survey of daily mortgage rates published Tuesday by national lenders. The average rate on the 30-year fixed is five basis points higher than one week ago. A basis point is one one-hundredth of one percent.
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A 5/1 adjustable rate mortgage (5/1 ARM) is an adjustable-rate mortgage (ARM) with an interest rate that is initially fixed for five years then adjusts each year. The "5" refers to the number of initial years with a fixed rate, and the "1" refers to how often the rate adjusts after the initial period.
The initial fixed interest rate is typically at a low introductory level. After the initial fixed period, the new, adjustable rate, which changes annually, is tied to an interest rate index that moves based on a variety of economic and financial market factors. After the introductory period, your interest rate will reset to the indexed rate and then go up if the index rises, and drop if it falls. If you don’t refinance, you’d pay off the loan in 30 years.
A 5/1 ARM makes sense if you plan to refinance your mortgage or sell your house before the introductory rate expires or if you expect the value of your house to rise quickly. If you choose an ARM, you’ll likely be able to qualify for a larger loan because of the low introductory rate. But be careful, your interest rate and monthly payment will increase after the introductory period, which can be 3, 5, 7 or even 10 years, and can climb substantially depending on the terms of your specific loan.