When an ARM is a Good Idea?
A: Taking out a short term ARM mortgage product can be a great option if you know for sure that interest rates are going lower and/or you will be selling/refinancing before the ARM expires.
NOTE: You should NEVER take out a short term ARM product to rationalize buying a property in order to get your monthly payments into the range of your own affordability. If you are thinking about doing this you should realize that you are buying a property you CANNOT AFFORD, and taking out a ARM loan to make the payments lower. Its a short term fix that leads to a longer term problem!
Check out The Money Store's ARM vs FIXED RATE Calculator and see what the difference will be between these two mortgage products! If you intend to live in your new home for the next 7-10 years, it would be wise to go with the 30 YR Fixed loan product and buy a property that fits in with your financial budget.
Something to keep in mind: An ARM product is a good idea if you know that interest rates are declining and will be lower when the ARM expires. Right now, we have 1-2 rate hikes ahead of us and then a pause. How long the pause will last is too early to tell right now. In addition, the bond markets did experience a brief inverted yield curve recently which historically speaking is an indicator of a looming recession. Should this actually occur down the road (say 1-2 years from now), the Fed will be forced to LOWER RATES to help stimulate the economy. A short term ARM would be a good option in this scenario as interest rates will most likely be lower when the ARM expires putting you in a better position to refinance!