According to t Sunnyvale APR calculator, the APR for a 5/1 ARM seems more costly than a 30-year fixed. But the problem in these Sunnyvale APR calculator lie on using today’s index to get to the fully indexed rate and assuming that rate will remain flat (very much unlikely) for the final twenty-five years of the loan.
Given that the Fed raised short-term rates this past June 29th and it is expected that it will do it once again in August, it is quite likely that the index in five years could be closer to 7.78% than 5.67%.
If you add the 2.60% margin to 7.78%, we get an interest rate of 10.38% with a monthly payment of $5,678 for the final 25 years of the loan. And when calculating the APR, it would be 9.47%
By all means this is much less advantageous to borrowers that the 6.972% APR on a fixed rate loan.
To conclude, Sunnyvale APR calculator on an ARM loan is very inaccurate because its calculation is based largely on today’s index. It cannot be guaranteed this index will remain flat. In fact as I mentioned above, today’s indexes are almost certain to rise into the future. So you cannot rely on getting an accurate APR with an ARM loan.
It should also be noted that this article talks about the accuracy of Sunnyvale APR calculator not about good or bad ARM loans. That is a personal decision that will be resolved with your mortgage consultant because there are NO bad loans available. ONLY bad loan officers that want to make a quick buck and put their clients into loans that don’t fit their financial needs with no way out but to refinance again.