That’s $74,702 less total interest than on a 30-year, but $483 more per month.
15-year mortgages vs. 5/1 ARMs
Like 15-year mortgages, 5/1 ARMs (adjustable rate mortgages) initially feature lower interest rates than popular 30-year loans. However, 15-year and 5/1 ARM work very differently. With a 5/1 ARM, your rate will be fixed for the first five years of the 30-year loan term but reset annually after that.
The initial interest rate can increase considerably after the initial fixed-rate period. So if you’re looking for predictable monthly payments, a 15-year fixed-rate mortgage would be the obvious choice over a 5/1 ARM. But it’s not a total gambit. There are rules that restrict how much your rate can increase and fall throughout the life of your 5/1 ARM.
Finally, a 5/1 ARM could be worth considering if you’re planning to live in your home for a short period. For example, if you purchase a fixer-upper the advantage of a 5/1 ARM’s lower payments could give you leeway to invest money on renovations. If you plan it right, you could move right before your payments shift to the adjustable rate.