UrbanTurf Reader Asks: Is the 5/1 Adjustable Rate Mortgage Worth It?

by UrbanTurf Staff

UrbanTurf Reader Asks: Is the 5/1 Adjustable Rate Mortgage Worth It?: Figure 1

In this installment of UrbanTurf Reader Asks, a reader wonders if a 5/1 adjustable rate mortgage makes more sense than a long-term conventional loan if he plans on sellling in 5 to 7 years.

I'm 32 and considering buying my first home. I've been told I should consider a 5/1 ARM (adjustable rate mortgage), since this will get me better rates than a conventional 30-year mortgage for the first five years. I know that the rate (currently around 3 percent) will go up noticeably in the sixth year to something that will be much higher than if I were to go the 30-year mortgage route, and it will continue to adjust higher for each year thereafter. But given my age, I'm almost certain I won't stay in the unit longer than 5 to 7 years.

Does the UrbanTurf audience think that the lower rate I'd get for the first five years of a 5/1 ARM is worth the risk that I don't move after five years and my rate goes higher than a conventional 30-year mortgage?

Post your neighborhood suggestions in the comments section. If you would like to submit a question for UrbanTurf Reader Asks, send an email to .(JavaScript must be enabled to view this email address).

This article originally published at https://dc.urbanturf.com/articles/blog/urbanturf_reader_asks_is_the_5_1_adjustable_rate_mortgage_worth_it/4335


  1. JD said at 2:19 pm on Thursday October 13, 2011:
    I'm closing soon on a place in DC and had this same issue. In deciding between a 7/1 ARM at 3.375% (I figure the extra 2 years gave a little more flexibility than a 5/1); versus a 30 year fixed at 4%. Even though it is likely we will move in the 5 to 7 year period; we figure the security and piece of mind was worth the extra $125 per month during the first 7 years. So, we choose the 30 year fixed rate. What happens if real estate prices drop and we don't want to sell at a loss? What happens if we can't find a buyer? What if we decide to stay? What if we decide to hold the property for investment purposes? Maybe prices will increase so much; we can refinance to take some equity out (or just borrow against the home's value) to use for another downpayment and then rent the current place out. There so many things that can occur in the next 5 to 7 years either in your personal life or in the economy that can change your plans. So for me, at least, I felt the security of the 30 year fixed rate was well worth the additional monthly payments in the short-term.
  1. Elizabeth said at 2:40 am on Thursday October 13, 2011:
    While I can understand the risk of the 5/1 ARM, it was the best choice for me. The rate (2 years ago) was unbelievable - 3.75% - and I was able to lock into a rate and deal that my adjustable rate can only go up (or down) 1% per year. I figured out that as long as I sold before the 8th year, I would be saving over the 30 year fixed. I'll admit that I'm considering refinancing to a lower 30 year rate and keeping the properly beyond 8 years, but as an investment property. If the rate hadn't dropped as much as it has, I probably wouldn't be considering it.
  1. Rob said at 4:04 am on Thursday October 13, 2011:
    Forget the question of which mortgage to get. If you're almost certain you'll move within 5-7 years, you shouldn't buy at all. The costs of buying and selling are about 10% of the price, so the value needs to go up at least that much for you to avoid losing money. And property values are unlikely to go up by that much within only 5-7 years.
  1. mona said at 10:35 pm on Wednesday October 12, 2011:
    First thing I would look at isn't the interest rate but your habits. Do you have a job that would for sure having you moving in 5 or < years? Do you have a bit of the wanderlust and just like moving sometimes? Are you looking at this first house as an investment to do your time in then sell and move to bigger place, maybe get married and have kids and move to bigger place. If you find that you are someone who tends to get some where and stay then a 5/1 ARM may not be for you. Rates could be way higher 5 yrs from now and if you can't with some reasonable assurance that you won't be there in 5 yrs then it is a bit of a crap shoot to be playing with a lot of money. Remember alot of people who are facing foreclosure now took a bit of a risk with ARMS when things were crazy and they saw prices going up and they just wanted to get in the game. When the market let go and those rates adjusted some folks got hurt bad. The of course some did real well cause rates dropped even low. That isn't likely to happen this time.
  1. AP said at 9:58 pm on Wednesday October 12, 2011:
    I thought a 5/1 adjustable rate mortgage could go up or down depending on where interest rates are when it's time for the mortgage to adjust. I think chances are that in five years interest rates will be higher than they are now so your payment will go up. But if for some reason rates go down, your payment will actually go down as well. It just depends on where we are in the cycle. If you are fairly certain you will be selling your home in the next five to seven years, I don't think a 5/1 mortgage is such a bad idea because you will have lower payments in the short-term. Who knows where rates will be in five years. I mean look at rates now...nobody ever thought they would get this low. People who got 5/1 mortgages five years ago are probably thrilled right now!
  1. ted said at 8:50 pm on Wednesday October 12, 2011:
    The 5/1 can be a risky option. If you didn't sell in five years, the rate would go up to at least 7 percent, so you would have to calculate how long you could pay the increasing rate to make it worth not going with the conventional option.
  1. srt said at 9:07 pm on Wednesday October 12, 2011:
    The rates are so low on 30 year loans that a 5-1 doesn't make sense to me, even if you were going to likely only be there 5 years.

DC Real Estate Guides

Short guides to navigating the DC-area real estate market

We've collected all our helpful guides for buying, selling and renting in and around Washington, DC in one place. Visit guides.urbanturf.com or start browsing below!

Northern Virginia

Profiles of 14 neighborhoods across Northern Virginia

Looking to Give People A Reason to Stay Past 6pm
Happily Straddling the Line Between City and Suburb
Columbia Pike
Arlington’s Neglected Stepchild is Getting a Makeover
Crystal City
Turning Lemons into Lemonade
Lyon Village
Developing An Air of Exclusivity?
Hitting Its Growth Spurt
An Urban Village Hitting Its Stride
Del Ray
Virginia’s Small Town Near the Big City
Eisenhower Avenue
The Vibrancy Might Take a Few Years
The Quiet Neighborhood By the Beltway
Old Town
Mayberry By The Potomac
132 Commerical-Free Acres
Downtown Falls Church
Staying the Same in the Midst of Change
Tysons Corner
Radical Change Could Be On The Way

See more Northern Virginia »


Profiles of 14 neighborhoods in suburban Maryland

Small-Town Living in the State Capital
Bedroom Community Gets Buzzing Cache
Cabin John
In With The New While Maintaining the Old
Chevy Chase
Affluence, Green Lawns and Pricey Homes
Downtown Silver Spring
Experiencing a Resurgence After a Bumpy History
A Suburb on Steroids
Rockville Town Square
Despite the Dynamism, Still Somewhat Generic
Takoma Park
More Than a Little Bit Quirky
A Foodie Magnet on the Verge of Change
Capitol Heights
Kudzu, Front Porches and Crime
Glass Half Full or Half Empty?
Mount Rainier
Artists, Affordable Homes and A Silo Full of Corn
National Harbor
A Development Rises Next to the Potomac
Riverdale Park
A Town Looking For Its Identity

See more Maryland »

Northwest DC

30+ neighborhood profiles for the city's biggest quadrant

16th Street Heights
DC's Sleeper Neighborhood
Where (Almost) Everyone Knows Your Name
AU Park
One of DC’s Last Frontiers Before the Suburbs
DC’s Northern Neighborhood on the Cusp
DC’s 535 House Neighborhood
Cathedral Heights
Do You Know Where That Is?
Chevy Chase DC
Not to Be Confused With the Other Chevy Chase
Cleveland Park
Coming Back After A Rough Year
Columbia Heights
DC’s Most Diverse Neighborhood, But For How Long?
An Island of Serenity East of the Park
Dupont Circle
The Best of DC (For a Price)
Foggy Bottom & West End
Where the Institutional Meets the International
Forest Hills
Ambassadors and Adventurous Architecture
Foxhall Village
350 Homes Just West of Georgetown
Friendship Heights
A Shopping Mecca With a Few Places to Live
History, Hoyas and H&M
Glover Park
One of DC’s Preppier and More Family-Friendly Neighborhoods
A Posh View From Embassy Row
LeDroit Park
A Quiet Enclave in the Middle of the City
Logan Circle
Trendy Now, But Not By Accident
Mount Pleasant
Sought-After Homes Surround Main Street in Transition
Mount Vernon Triangle
From Seedy to Sought-After
The Long, Skinny Neighborhood at the City’s Northwest Edge
Park View
It’s Not Petworth
Penn Quarter/Chinatown
DC’s Go-Go-Go Neighborhood
Getting a Vibrancy of Its Own
The Duke’s Former Stomping Ground
Shepherd Park
DC’s Garden of Diversity
Spring Valley
A Suburb With a DC Zip Code
Not To Be Confused With Takoma Park
Not Quite Like Its Neighbors
U Street Corridor
The Difference a Decade Makes
Woodley Park
Deceptively Residential
Adams Morgan
No Longer DC’s Hippest Neighborhood, But Still Loved by Residents

See more Northwest DC »

Southwest DC

The little quadrant that could

Southwest Waterfront
A Neighborhood Where A Change Is Gonna Come

See more Southwest DC »

Northeast DC

Profiles of 10 neighborhoods in NE

New Development Could Shake Up Pastoral Peace
A Little Bit of Country Just Inside the District’s Borders
Not to Be Confused With Bloomingdale
Fort Totten
Five Years Could Make a Big Difference
H Street
A Place To Party, and To Settle Down
The Northeast Neighborhood That Few Know About
Michigan Park
A Newsletter-On-Your-Doorstep Community
Evolving from a Brand to a Neighborhood
Ripe for Investment Right About Now
The Difference 5 Years Makes
Big Houses, A Dusty Commercial Strip and Potential

See more Northeast DC »

Southeast DC

6 neighborhoods from Capitol Hill to East of the River

Capitol Riverfront
Still Growing
Hill East
Capitol Hill’s Lesser Known Neighbor
Congress Heights
Gradually Rising
Notable for Its Neighborliness
Historic Anacostia
Future Promise Breeds Cautious Optimism
Eastern Market
A More European Way of Living

See more Southeast DC »