Thinking of 5, 7 or 10 year ARM

[moda0306]

I feel like I'd like to make a bet on my prediction that rates will stay low for years, or that at the very least, if they do rise, it will be as a result of new-found prosperity and/or inflation working its way back into the economy, and my home price will be some cushion to higher rates.

I'm still not maxing out my retirement accounts, so I feel like worsening my cash-flow by doing a 15-20 year mortgage is not the right choice.

What I'm seeing now is 4.2% on 30 year mortgages, but between 3% and 3.5% on 5-10 year ARMS.

I literally could improve my cash-flow by about $1,900 per year, after taxes, by going with a 5-year ARM vs refinancing to a 4.2% 30 year fixed... and honestly I think after year 5 I'd still be paying lower than 4.2%, or at least lower than the 5% (+ .5% mortgage insurance) I'm paying now...

Maybe something like a 10 year ARM, where I'd still save about .7% over a traditional 30-year, would be more appropriate so I get plenty of years of paydown (and savings that can be diverted to principal) as a cushion to rate adjustments.

I know most of you avoid debt like the plague, and try to stay away from ARMs, but let me know if you see deep flaws in my logic.... I just don't like paying a whole .7%-1.2% more to protect myself from what I really don't think is going to happen.

[MediumTex]

A 10 year ARM sounds pretty good to me.

Very few people stay in a house for more than 10 years anyway, so that's another thing to think about.

[Storm]

Go for the ARM, worst case scenario you can just rent for a few years if the rates skyrocket to 10% (yeah, like that's ever gonna happen..)

[stone]

Moda in the UK fixed rate mortgages are rare. Almost all mortgages are 30year variable rate mortgages. There is much hand wringing about how feckless we are as a nation in having variable rate mortgages. I guess it is a bit like mixer faucets. In the UK we have seperate hot and cold faucets so as to save £1.50 when installing the sink. It causes bafflement for foreigners.
We got a 30year, 90% variable rate mortgage but it was a current acount offset mortgage so we were able to quickly offset it all and so not pay interest (our house is little and the location is great for us but very far from classy).