5/1 ARM A Good Idea?
A: According to The Money Store, the current rate on a Jumbo 5/1 ARM is 5.25%. Not bad. If you do not see yourself in the same apartment 5 years from now, I think it is a great idea to take out this mortgage product which might expire at a time when interest rates are actually lower than today's quote!
Taking out a ARM mortgage product can be a very wise move if used correctly and in the right environment. When I say 'used correctly' I am reffering to the notion that you know for sure that you will be moving come time the ARM expires. That way if rates have increased dramatically from the time you took out the loan, you will not be affected. When I say 'in the right environment' I am reffering to the notion that interest rates are expected to FALL come time when your ARM expires. This way, come expiration rates will actual be LOWER than when you first took out the loan.
The only problem with this idea is the unknown. No one knows what will happen over the course of the next 3-5 years that might affect interest rates. The economy could all of a sudden heat up, the stock market could get too high, a natural disaster might slow the economy, or worse, an un-natural disaster might occur unexpectedly. You should always be aware that interest rates and how the Fed controls them is a constantly changing dynamic.
When analyzing the data now, it seems very possible that interest rates will hover around levels slightly higher than we are today for a few years. Then, a cooling economy (which is debated but predicted by the bond markets) would cause the Fed to start a new rate-easing campaign whose aggressiveness or life is yet to be known.
I wouldnt lock in a 30YR Fixed rate if you think you will upgrade or move out in 5 years or so. Go for a 5YR or 7YR ARM product (add on 1-2 years to the loan product if you are not sure) and that should put you in a good position to re-finance when the loan expires.
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