When it comes to fixed vs. adjustable rate mortgages, there really is no question as fixed-rate mortgages are the way to go! Opponents of this position will argue all the finer points of their ARM products and how the v buyer can more greatly benefit from them. That may even be a valid argument for a minuscule percentage of their clients but the vast majority of that clientele would be better suited to a fixed-rate product.
Holden Lewis of Bankrate.com reported recently that, of the 8.4 million ARM's originated between 2004-2006, 1.1 million of them will default due to payment shock from resetting. As a side note, fixed rate mortgages do not reset. Mr. Lewis also went on to report that 1 in 8 sub-prime ARM's will default due to resetting and, even more disturbing, that 1 in 3 ARM's originated between 2004-2006 with a teaser rate of less than 4% will default due to resetting. The latter aren't sub-prime borrowers with questionable credit and spending habits. They are prime borrowers with impeccable credit who are in mortgages they often don't understand.
The crux of my argument isn't even the numbers, which are staggering. It is simply "Peace of Mind". The American Dream is hard enough to achieve nowadays without the worry of your mortgage turning upside down. The war on terror, rising gas prices, the music of Nickelback...these are the horrors that the average person has to deal with constantly! This isn't even counting the day to day hardships. People need to know that, despite all of this, they can go home to their families, that they have at least that.
Qualifying potential homebuyers on a 30 year fixed-rate payment and making sure that payment works for them is responsible lending. Being confident and certain that you can afford to make the 30 year fixed-rate payment is responsible borrowing. We all could have used a lot of both in the last several years.
The final point for fixed over ARM is this: Look at what the market is doing. Many lenders have done away with their 2/28 and 3/27 products. Moving forward, both lenders and borrowers are going to be looking for fixed-rate mortgages. The ARM will have gone the way of the Dodo. Too bad it's going to take more than a million foreclosures until it finally happened.