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Buying a Home with an ARM Adjustable Rate Mortgage
Getting a home with an adjustable rate can be risky in this 2011 economy because current interest rates are already so low as it is. An ARM (Adjustable Rate Mortgage) is one that changes throughout the years along with the current interest rates. So if rates go up or down your interest rate will change accordingly which will make your monthly mortgage payment increase or decrease for the next year.
You can get a 3, 5, 7 or 10 year ARM rate which means your interest rate will be fixed for the first 3, 5, 7 or 10 years and then start changing each year after. The lowest starting interest rate will be the 3 year ARM rate because it's the most risky. Assume it's 4% compared to the 5.5% fixed rate mortgage which makes it look attractive. Your mortgage payment will stay at 4% for the first 3 years and then change once for the next entire year. Usually there's a 2% cap on the amount it can change each year.
Now go to the bottom of this page to the mortgage calculator and plug in your mortgage amount and interest rate. Then add 2% to the interest rate and see what your mortgage payment could possibly go up to. On the flip side, do you really think interest rates will go from 4% to 2%? Don't you think it has much better chances of going up?
If interest rates were in the 15-17% range I'd still say they were risky but I wouldn't say they were a bad idea because they'd have a good chance of going down. That being said, I think an adjustable rate mortgage in this 2011 economy is a very bad idea. You can get a fixed rate in the low 5% range that will be fixed for as long as you have the mortgage.
TRUST ME when I say interest rates WILL go up and mortgage prices WILL go up. NO ONE can predict when but we all know is eventually they will because people need jobs and people need places to live. Experts (keyword "experts") argue everyday saying "2011 is the year real estate will recover", "No way, don't buy a home for another 2 years because things will only get worse". They are experts on the subject and still argueing about it which means NO ONE knows. They're basing it on history and facts of the past which could be very convincing but could also be wrong.
The FACT is that real estate is as low as it's ever been and interest rates are the lowest they've ever been too so how could it be a bad time to buy a home? I don't see how they can get much cheaper than they are. Even if real estate goes down another 20% you still got a great deal that's very affordable for the next 30 years of your life. If you continue to wait it out for the exact rock bottom you may miss it and end up paying much more than you want to.
Knowledge and the use of a mortgage calculator will save you thousands of dollars. | 
