Clark Howard Suggests 5/1 ARMs for Refinancing

Yesterday morning on CNN, “Money Expert” Clark Howard recommended that home owners who are considering selling their home in the next five years investigate refinancing into a 5/1 adjustable rate mortgage.  Why would he suggest such a “risky” product? Interest rates for adjustable rate mortgages are extremely low right now and if you’re not going to have the home for more than 5 years, you could save a significant amount of money.

What is crucial when selecting your mortgage is considering what your financial goals are. If you’re not certain that you’ll be selling your home in 5 years and you do not want to risk the adjustment that will take place in 61 months,  you might want to consider the 7/1 ARM, which will “buy” you two more years of a fixed period for a slightly higher rate. If having an adjustable rate mortgage is going to keep you up worrying at nights, than a fixed product, like the 30 year or 15 year is probably a better option for you. If an adjustable rate mortgage is suitable for your financial scenario, the savings can really add up.

Personally, if you’re considering an adjustable rate mortgage, I would recommend seriously considering the next longest term just to “buy” some wiggle room.  I was honestly a little surprised that Clark Howard was pushing a 5/1 ARM when the 7/1 is currently just a little higher.  Whatever choice is made, it belongs to the home owner and it is their responsibility to understand the risk, rewards and terms of what ever mortgage product they select.

If you have questions about mortgages for homes located anywhere in Washington, please contact me.  By the way, if your mortgage originator is no longer in the business (many have found new careers with the higher standards now required), I’m happy to adopt your mortgage – no refinance or transaction is required – your mortgage does need to be on a home located in Washington.