ARMS
ARMs aren't for everyone
 This is an old article byt it is still very relevant
NEW YORK -- March 17, 2004 -- While adjustable-rate mortgages (ARMs) have become more popular in recent years, they still do not make up even 30 percent of total loan application volume. Demand for this product -- which offers a low interest rate for a period of one to 10 years before adjusting on an annual basis -- historically is highest when fixed-rate borrowing costs are steep but expected to decline. However, Federal Reserve Chief Alan Greenspan recently argued that many Americans could have saved thousands of dollars even in the low-rate environment of the past decade by choosing ARMs over fixed loans.



Even with Greenspan''s public plug for adjustables and other alternatives to fixed-rate financing, many analysts maintain that now is not at all the right time to take out an ARM. With 30-year loan costs still so close to historic bottoms, they note, borrowers can get the stability of a fixed mortgage without sacrificing the low rate.



At the same time, there is no denying that ARMs can save homeowners a significant amount of money each month, at least in the early years. To determine whether an ARM or a fixed mortgage is most appropriate for them, borrowers should consider such factors as the length of time they intend to remain in the property, their ability to handle bigger payments once the initial rate period expires, their cash flow and the prospect of prepayment penalties that could inflate the cost of refinancing an ARM.



If buyers plan to trade up in a few years, for example, a three- or five-year ARM probably would benefit them, since they most likely will move before the rate adjusts; however, if they expect to stay put for the long haul or are living on a fixed income, an ARM probably is not best product for them.