Q:

How do five-year mortgage rates compare to 30-year mortgage rates?

A:

Quick Answer

Five-year mortgage rates and 30-year fixed-rate mortgages are similar in terms of payment stability. The five-year mortgage rate qualifies borrowers for lower interest rates for the initial five years, as explained by MortgageCalculator.org.

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Full Answer

There are three types of five-year rate mortgages: the 5/1 hybrid adjustable rate mortgage, the 5/1 hybrid interest-only mortgage, and the payment-option five-year adjustable rate mortgage, advises MortgageCalculator.org. Compared to the 30-year fixed rate mortgage, the three types of loans offer a lower interest rate for the first five years. The interest rate is also lower for the sixth year of payment, while the seventh-year interest payments for the three types of five-year mortgages are higher than those of the 30-year mortgage.

Thirty-year fixed rate mortgages may also involve additional costs and fees that make them more expensive than their five-year counterparts, as stated by MortgageCalculator.org. These costs include points, which are lump-sum fees that the lender adds to the loan balance or charges to the borrower at the time of closing. The loan may also require a balloon payment after the 15th year of the loan. The 30-year fixed rate mortgage may impose penalties in the event that borrower wishes to pay off the loan before the due date.

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