Although they got a pretty bad name following the real estate crash in 2008, adjustable rate loans are making a comeback for buyers who want super-low rates and feel that 5 percent is just too high for their needs[1]. Historically, buyers who invest in properties using adjustable rate mortgages (ARMs) have tried to sell or refinance before the adjustable rate kicks in. Now, with property values uncertain, it is becoming more important to plan to sell if you do not want your interest rate to rise. The FHA has accommodated this concern by creating an adjustable rate loan with lower reset caps to help ease borrowers into higher payments.

While these mortgages appear now, as they have in the past, like an insanely good deal if you do not plan to stay in your home for more than a few years, the real estate market has changed and homeowners cannot necessarily plan on selling when they please. The Wall Street Journal’s “Smart Money” points out that with an ARM, “you run the very real risk that interest rates could rise sharply and drive up your monthly payments, [and] you are also placing a bet that you will actually be able to sell your house when you want to move”[2].

Critics of ARMs believe that lenders are being unrealistic in promoting these mortgages because in today’s market, the strategic default is becoming an acceptable “business decision” and borrowers are still trying to get loans any way they can in a market that is increasingly inflexible with them. Do you think that ARMs are a good idea? Should they even be around?

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[1] http://www.kansascity.com/2011/03/10/2713432/adjustable-rate-mortgages-the.html

[2] http://www.smartmoney.com/personal-finance/real-estate/fixed-rate-or-adjustable-9679/