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If you're considering an ARM, you'll want to check out HSH's comprehensive Guide to Adjustable Rate Mortgages.

If you're considering an ARM, you'll want to check out HSH's comprehensive Guide to Adjustable Rate Mortgages.

Should I take and ARM or a fixed-rate mortgage?

Q: I am torn between choosing between an arm and a fixed rate. I have a jumbo loan and if I pay a certain amount for 7 years I could bring my balance down to less than $417,000 and then refi at the conventional loan rate which is lower than the jumbo rate. I am just afraid that in 7 years the rate would be a lot higher than it is now and I'll be in the same position.

A: Today's ultra-cheap ARMs can be attractive, but fixed interest rates for jumbos are now at record low levels. Since we are at rock bottom right now, it's a good bet that interest rates will be higher in the future. If they are, refinancing might not be a possibility, and you could be stuck with a sharp rise in monthly payment. Even if you can refinance, interest rates will almost certainly be above -- and perhaps well above -- the rate you will have been be paying on your loan for the last seven years. Seven years is a long time, and if you really plan on being in your home for longer than that, a fixed-rate loan is probably the way to go, even if the savings from an ARM are compelling.

Ask the expert
Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
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