Monday, February 21, 2011

Adjustable Rate Mortgages - Bad News?

We have all heard the bad press about adjustable rate mortgages (ARMs). "They suck you in with their low initial rates, but ultimately the rates go up".  Many folks have been taught that the 30-year fixed rate mortgage is 'best' because your monthly mortgage will remain constant (ie fixed) for the duration of the mortgage. This conservative thinking is certainly safer, particularly for folks just starting out as homeowners. All that said,  ARMs may be the right choice for some folks. The current rate for a 30 year fixed mortgage is 5.00% with the 3/1 ARM at 3.50%.

As an example, when I bought in Eastham, I knew that I was going to be selling my New York home in a few years and moving to Eastham. For us, the low 3/1 ARM rate made sense since we could simply pay-off the Eastham loan before the rates went up. Interestingly, at the end of my 3 year hold period, my rates floated down.

The Wall Street Journal's MarketWatch website had a very interesting article on this choice

No comments: