Is it true that 5/1 ARM is always better rate than 30 year fixed? I had heard in some cases 30 Year fixed was as good or even better.

It is "possible" that a 30 year could be priced better than a 5/1 ARM since the method that determines pricing for each is different. Currently that is not the case as a 5/1 is lower, but it's not impossible for it to occur. A 5/1 should price over a full point lower than a 30 year fixed right now.

There was a short period of time where the secondary market had no appetite for ARMs. During that time the ARM rates were not attractive. Generally speaking, ARM rates will be lower than the fixed.

At this time in the markey it is not unlikely to see a 30 year fixed that is very close to the 5/1 arm rate. You will pay more money in fees for the same rate as the 5/1 arm for the 30 year fixed. If you only plan on keeping the house for a few years the 5/1 is a great loan.

Generally rates on confirming products including ARMs and Fixed rates follow demand of the secondary market. Thus any scenario is hypothetically possible. For example currently some investors offer better rates on 5/1ARM than 3/1ARM even though you'd think that shorter term would have to offer lower rate or 10/1 ARM pricing is worse than 30 Years fixed etc.

ARMs in general are usually priced lower than Fixed rates. Where a 5/1 may become expensive is in the 6th year. Most have a maximum 1st time adjustment cap of 2%. Although, some can be as high as 5%. Most lifetime caps are 5% to 6%, with rate adjustments every 12 months, after the 5th year. .... Happy funding, Rudi