Experience with ARMs?

[konapoppy]

We are considering a refi from a 30 year fixed to a 10/1 ARM. It may lower the rate by 1.25%.

I was always weary of ARMs, but I am not sure we will be in this house more than 10 years, and we could pay off the principal faster. Our mortgage is pretty small for the area - not a jumbo.

Any experience?

[wildrice]

I had an ARM on my first house, which I only owned for about 4 years (sold when I split with my ex). At the time we did not qualify for a conventional loan so it was our only option if we wanted to buy a house. I was wary of it at first, but really was totally fine. It turned out that had I needed to refinance in 10 years, it would have been in 2019 and probably would have gotten a better interest rate then anyway.... though obviously you can't count on that.

My ARM had stipulations in it that it could only go up by a certain amount per year, and there was a cap to how much it could ever go up. I assume that is standard, but that's something I'd definitely want to be clear on before committing to another one. IIRC the highest my ARM could ever go was still only like 7% which, obviously I didn't want to pay, but seemed like it could be handled if the worst case scenario happened (basically, if the market crashed and we were unable to refinance within several years after the ARM ended, we would have hit that rate. That combo seemed very unlikely).

[RockNVoll]

I'm in an ARM now and have used one in the past as well. They're not inherently evil, and it got us a lower rate than we would've gotten otherwise at the time. If you don't think you'll be in the house past the term of the ARM, it makes a ton of sense. Even if you're there a little past the term and the rate adjusts on you, the math might still work out given the lower rate you'd be taking advantage of for years.

A 30-year fixed is safer, but ARMs have their place.

[winecat]

I got an ARM in 2003. I think the fixed term was 5 years so during the Great Recession when interest rates dropped, so did my ARM. The interest rate could only go up by a certain amount each year and had to be within a certain % of the LIBOR index. It got so low that my interest rate was 2.5% for a couple of years and it took years for it to climb to 5%. It actually worked out pretty well! I only refinanced because the company that my mortgage got sold to was shitty and with interest rates so low, I could take out equity and still pay off my mortgage within the same number of years that I had left on my ARM.

[ohgillian]

Jul 1, 2021 19:24:42 GMT -5 RockNVoll said:

I'm in an ARM now and have used one in the past as well. They're not inherently evil, and it got us a lower rate than we would've gotten otherwise at the time. If you don't think you'll be in the house past the term of the ARM, it makes a ton of sense. Even if you're there a little past the term and the rate adjusts on you, the math might still work out given the lower rate you'd be taking advantage of for years.

A 30-year fixed is safer, but ARMs have their place.

This is my general feeling on ARMs, too. I've never been in a situation where I knew I would be there short term, but I would use one if I felt certain I would be moving. 

[orangello]

We got an ARM in Dec. 2019, and refi’d to a 30 year fixed in Sept. 2020. It worked out for us, but I was very on top of watching interest rates and making sure we refi’d before the rate reset.

[konapoppy]

Thanks for the advice! We are going with a 2.625% 10/1 ARM. We really don’t see ourselves being in the house in 10 years.