Home loan companies are in an ARMs race...competing for your business and searching for ways to make homeownership affordable.  An adjustable rate mortgage, or ARM, is one solution.  If you need a home loan, should you consider an ARM?

If you had an adjustable rate mortgage from 1993 to 2003, you couldn't be happier.  While your friends refinanced their fixed rate mortgages about six times- paying thousands in fees and signing hundreds of papers- you've always had a lower interest rate than they did.  It wasn't uncommon for your minimum payment to be reduced annually.  And you paid the principal down faster, saving thousands of dollars in interest.

Statistics show that the average Californian (is there such thing?) sells or refinances their home every five to six years.  Why would you lock in a long-term interest rate when you could get a lower rate ARM?  ARMS can have fixed-rate periods of anywhere from 6 months to 10 years and can be as much as 2% lower than a standard fixed-rate loan!       

As the interest rate of your ARM adjusts, so does your monthly payment.  If you're the type to accelerate your payments (paying more than the minimum due), you could see a decrease in your minimum payment even if the interest rate adjusts slightly higher.

But what if you don't sell or refinance and interest rates really start to climb?  What if you don't have the cash flow to accelerate payments?  Rates have been at historically low levels in recent years...it's unlikely that they will stay that way.

When considering an ARM, ask yourself, "Do I have a plan if my interest rate rises in the next few years?"  Borrowing an ARM only because you can't afford the payment of a fixed-rate loan can be a dangerous mistake.  Although most ARMs have some type of adjustment cap and/or life cap (meaning they can't change more than a specified amount), that change can still make an appreciable difference in your payment.

So, should you ARM yourself?  Find a trustworthy home loan expert and they will give you a loan that best meets your needs...for the short-term, for the long-term, and for life.