It has been almost 3 years since I wrote Why I Chose an ARM Mortgage. With the current sub-prime lending collapse and talk of a Government bailout, now is a good time to revisit that decision.
My main reason for taking the ARM in the first place was to keep as much cash-flow as possible. My rationalization for an ARM was that I was properly mitigating risk by putting 20% down. The gamble was that the neighborhood would continue to appreciate at 10-20% a year.
The ARM I took has a fixed rate for 5 years, with pre-payment penalties for the first 3 years. From March 2008 - March 2010 I can refinance without penalty and without the ARM interest rate raising. Needless to say, I am watching from the edge of my seat.
I am not out of the woods yet, but it looks like I could get very lucky. Bernake may be dropping rates just in time for me to refinance. Mortgage companies are exploring extending ARM mortgages into fixed rates. There is also the possibility of some sort of Government bailout, but that is sure to be full of all kinds of devilish details.
So, would I choose an ARM Mortgage again? It is a tough call. We have a serious problem with how we perceive and use debt in this country, and adjustable rate mortgages are the epitome of that “we’ll take care of it later” attitude.
My generation has never really experienced a world of interest rates above 10% and high unemployment. We have only seen property values go up. We are in for a rude awakening.
