Is it a good time to go with a particular adjustable rate mortgage?

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With mortgage rates on the rise, is it prudent to pursue ANY type of adjustable rate mortgage (ARM) at this time? Or should home buyers be scrambling to lock in fixed rates?

In a simple world, I’d consider this question to be a slam dunk, until you factor in the various ARM options available on the market (1, 3, 5, 7, 10). The questions is essentially, is it possible to pick an ARM with a front-end period (where the rate stays fixed) that essentially “jumps” over the upcoming rate spike?

Naturally, we’re talking about rational home buyer options, NOT interest-free or 40-year loans.
For the record, the ARM options I was considering were 7/1 and 10/1. Because the first 7 (or 10) years are fixed, I would have assumed both to be a viable option. My thinking was that you’d basically be gambling that rates would be better in 7 or 10 years than they are right now. Is a decade of high rates really a possibility?

7 Comments
  1. Reply
    chinatownie
    May 3, 2011 at 1:01 am

    No. I work in real estate, and even lenders tell me that an ARM should only be a last resort.

    The economy sucks. With Greenspan gone, all logic has left the FED. The tool they have there now, does whatever Mr. President tells him to.

    The FED should never bow to political pressure. It should be about pure economics.

  2. Reply
    smgray99
    May 3, 2011 at 1:24 am

    The only time you would want an ARM is if it had a fixed period of time with no rise in rates – like 5 years – and you most definitly know without a shadow of a doubt that you are selling the house within that period. Not a good idea.

  3. Reply
    golferwhoworks
    May 3, 2011 at 2:22 am

    when rates are on the uptick then you just answered your own question

  4. Reply
    natex14
    May 3, 2011 at 3:15 am

    Right now is not a good time to get an adjustable rate. Rates are on the rise, and probably won’t come down for 5 to 7 years. I would and did, lock in something before it gets out of hand. You could end up paying 10% with good credit in the next 24 months.

  5. Reply
    lotsofloveya
    May 3, 2011 at 3:39 am

    i would have to say no, rates are going to rise for some time, i would fix a good rate then when rates come down refinace at the lower rate and lock it in. only good time for an arm is when rates are really high so you catch the downward trend.

  6. Reply
    dmb
    May 3, 2011 at 4:00 am

    It is never a good time to go with an adjustable rate mortgage. Unless you are trying to convince yourself that you can afford more than you can!

  7. Reply
    twinkles
    May 3, 2011 at 4:55 am

    You’re REALLY going to have to talk to someone who’s NOT invested in what your choice is for advice. I have consistently heard that a fixed rate mortgage is the best route..otherwise..your house payment and move up and down so that you have no garuntee about how much you’ll be having to pay each month on your mortgage. This question place is NOT the place to get an answer. You need to talk to a professional financial planner. You”ll have to pay for it but that person should be qualified to answer your questions.

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