New Mortgage Data Show Adjustable Rate Mortgages Unnecessary for Most Subprime Borrowers

Mortgage rate data from FreeRateSearch.com shows little difference between fixed and adjustable subprime mortgage rates.

Milwaukee, WI (PRWEB) May 31, 2007 -- Consumers holding adjustable rate loans may be tempted to refinance with another adjustable rate loan for a smaller payment, but the savings are not worth the risk, warns mortgage rate search engine http://www.FreeRateSearch.com. With an estimated $1 trillion dollars in adjustable rate mortgage (ARM) debt resetting in 2007, and about $650 million of that in subprime loans, many homeowners are at risk of refinancing into another risky ARM unless they know all the options available to them.

According to data released today by FreeRateSearch.com, the gap between the best subprime ARM and 30-year fixed rate loan is too small to justify the additional risk of the ARM. FreeRateSearch.com is a free website that allows consumers to search and compare multiple mortgage loan programs anonymously, and get custom rate quotes for any type of credit.

FreeRateSearch.com offers the following example* for a subprime loan customer:

Comparison of Best 2 Year ARM vs. Best 30 Year Fixed

Best 2-year ARM: 7.550% rate, $1,756.60 payment

Best 30-year Fixed-Rate Loan: 7.89% rate, $1,815.28 payment

The difference in payment between best 2-year ARM and fixed rate loan is only $58.58 per month, but the risk associated with the adjustable rate loan is significantly higher.

Borrowers can easily end up with a significantly higher rate and payment if they don't know all the different loans available to them. The highest 2-year ARM rate in the FreeRateSearch.com database for the above borrower, for example, is 9.20%, with a $2047.64 payment.

"If you are in a dangerous ARM because you didn't know a decent fixed rate loan was available, don't let it happen again," warns Detweiler. "Rates are still attractive, even if your credit isn't perfect, and now is the time to lock in a fixed rate loan. Using FreeRateSearch.com you have access to more information than the average loan officer, so you can find the best rate and make sure you don't end up with another bad loan."

*This scenario is for a $250,000 refinance loan amount on a home valued at $300,000 with a 615 credit score (all three bureaus) and fully documented income of $5,000 calculated May 30, 2007. Rates may change daily and are quoted at par, and payment includes only principal and interest.

Note to reporters and editors: Additional current and historical data is available from FreeRateSearch.com.

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