There is nothing ostensibly wrong with a well written adjustable rate mortgage.

People who brag about the new fixed rate mortgage they financed into are oftentimes ignorant of the fact the refinancing raises the effective rate of your mortgage payment over the stated rate. And if you have the re-fi crazies chances are your are actually making a payment on the mortgage proceeds you netted that is significantly above any of the State Rates you so carefull shopped for. [The rate you really pay on a loan for where you net only $73,000 but make payments based upon $75,000 is actually higher than the rate stated]

Things that can make an Adjustable rate mortgage less painful:

1) using LIBOR as your mortgage rate index, until use of the corresponding Chinese rate becomes more widespread

2) keeping the frequency of adjustment to an annual event

3) writing in the maximum percentage amount the rate may increase or decrease.

So say you are paying 3.50% and you know that in four months your rate could increase or decrease by as much as 2.0% depending on what LIBOR is in three months. This puts you in a much better situation than, say, the suprise "credit card" like punch in the gut you could get on any given day when you go to the mailbox.

Finally, you might want to consider being a contrarian. In the absence of significant fees, Banks often signal their belief about interest rates by the terms they are marketing. For instance, if the want you in a fixed rate mortgage, it could be they are trying to protect themselves from an anticipated decline in the absence of significant fees, of course.


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