Understanding ARMS and the value they bring

[Stephen Rinaldi]

I have to imagine the recent trend of lenders attempting to incite business will continue, this will likely manifest itself in more adjustable rate mortagages (ARMs) becoming available.  Currently I'm seeing along of incentives to take 3/1 7/1 and 10/6 ARMs.  The first number is how long the rate is fixed for and the second is how often it adjusts 1=1yr and 6= months.  The logic is that these ARMS are usually a much better rate then the fixed equivalent.  Here is an example based on today's rates"

30yr= 6%   10/6= 5.375%   3/1= 4.99%

There are alot of factors to consider when taking on an ARM, first is length of ownership and second is loan amount. From there I like look at the client and talk out worst case scenarios and if they would have a way out. The misconception is that ARMs always adjust negative, its market dependent so in some cases it can adjust positively. Also these loans dont usually have prepayment penatalies, so you can refi or pay off at any time.

The truth is you should weigh out all options when making a purchase, and make the best strategic decision for YOU.  Right now that 10/6 at 5.25-5.375% is attractive to many buyers... 10 years is alot of time to be fixed.