First Person: I Would Never Get an Adjustable Rate Mortgage

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Mortgage rates are on the rise. After enjoying historically-low rates, consumers are now faced with percentages that are going up. What is a homebuyer to do? Jump in? Hope that rates go back down? I am very happy with the fact that I refinanced last year because the opportunity to get an immensely low fixed loan may be over. The rates are still very good compared to what they have been in the past, but now that rates are rising, consumers are starting to give more consideration to the adjustable rate mortgage. I can understand that people will sometimes try anything to get a house, but I would never consider an ARM.

An unmeasured risk

A mortgage is hard enough to pay on a monthly basis. Perhaps I just don't have enough adventure in my life, but if I want excitement I will ride a rollercoaster at the local amusement park. I would rather not have an interest rate that is also a rollercoaster ride. Why would you risk having a house payment that is partially based on an uncertain and fluctuating number? The market is hard enough to deal with when it comes to investments that go up and down.

The right amount of optimism

Certainly one has to possess a certain amount of optimism in order to take out any sort of mortgage. After all, the family that takes out a 30-year mortgage essentially believes that they will maintain jobs and income for three decades. However, I worry that people take an ARM because they believe something positive will happen in the future, particularly if it is an ARM with a rate that changes automatically after a few years. I felt reasonably confident when I took out my mortgage, but I would feel less secure about projecting a needed income bump in several years.

Certain situations

The one situation where I could see taking out an ARM is if there was a low "teaser" rate that automatically bumped up after a certain number of years. If I was fairly certain that I could pay off the entire loan in that period of time, it might be tempting. Still, it probably wouldn't be that tempting. Unfortunately, I suspect that people are signing up for ARMs because it gets them in the door. It is sort of like cable companies and credit cards that offer a low introductory rate.

This promotional rate strategy may be acceptable for a one-year cable package, but not for a 30-year loan. I know how nice it is to own a home, but I hope people are careful in the near future. When people panic, they tend to make questionable financial decisions.

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