Why are fixed mortgage rates and adjustable

[Brad456]

rates different? I just saw that a 30 year fixed mortgage is 6.07% and a 5/1 ARM is 5.91%. What are the reasons why these rates differ by nearly .2%?

[Tammi D]

ARM = adjustable rate mortgagesurely that's explanation enough

[Special K]

The 30 year fixed will have the same interest rate (6.07%) for all thirty years of the mortgage. The 5/1 ARM will only have a fixed rate 5 years, and then will change (can go up) in the sixth year and every year after until thirty years. The first mortgage is riskier for the bank because they are guaranteeing the rate for all thirty years, so they charge you a higher rate of interest.

[El Zacatecas]

A fixed rate is for the life of the loan. When you see an ARM it is usually lower to sucker in the people who don't qualify for a fixed rate. As time goes on depending 0n the market for housing development the US government may decided to lower the rates or make them higher which in turn the mortgage companies, banks, credit unions and so on adjust it for themselves to make a profit. In other words the ARM wont stay that low for very long.

[mtgguy]

less risk on a fixed rate then adjustable.