A couple I know recently purchased a home costing $400,000. They weighed their options and felt that the best way to finance this is with an adjustable rate mortgage (ARM).

ARMs have taken a lot of criticisms for the mortgage crisis. With these loans like these, borrowers pay out at a low initial rate for a fixed period of time. After that, mortgages will defer to higher rates. Critics say they lure borrowers into purchases that they can’t really afford.

How To Refinance
Should I Refinance?

However this couple got an initial interest rate on their FHA-insured ARM of just 3.75% for the first five years. After that, it resets once a year and cannot go up by more than one percentage point annually. It has a five point lifetime cap, so the rate can never exceed 8.75%.

With this kind of rate they figured the their initial savings would keep them afloat for at least 10 years. They’ll just be paying a little mor than $1,500 a month with thousand more with taxes and mortgage insurance. Should I Refinance Home

When you consider all these factors you can see that ARMs in general are not bad. Knowing your limitations is the first step in decision making. Let ARM adjust to your own capability and not the other way around.

Related posts:

1. Mark-to-Market and Mortgages

2. Disadvantages of Reverse Mortgages

3. Are reverse mortgages different than home equity loans?

4. Refinance Your Loan! Here are Some Ways – Part I

5. Should I Refinance? – FHA Mortgage as an option