Need some advice on ARM loans

[Lacey Burns]

Hi there BP family, 

I heard on a recent podcast episode from the guest (David seemed to concur) not to mess around with ARM loans. Can anybody offer insight into that? Whose had any experience at all with them and was it good/bad!? This is what the bank I'm working with on a property says they do so not sure if I should steer clear or not.

Thank you!

Lacey 

[Nikhil Agarwal]

To present an alternate view:

You can get a 10/1 ARM where the rate is fixed for the first 10 years and floats after that. These tend to have lower starting rates than say a 30-year fixed mortgage. At the 10-year mark, you likely have a decent bit of equity built up (some from the appreciation of the property and the rest from principal paydown) that you'll want to refinance. Hence, not sure totally staying away from ARMs is a great idea.

Certainly if the rates go up a lot and stay up, this wouldn't be a great strategy but it's highly unlikely anyone can predict what the rates will be 10 years from now. Your best bet would be to look at the forward curves for the 10 year treasury bonds and make an educated guess based on the same.