Maybe an ARM is historically a cheaper choice, but over the last 5 years they seemed pretty risky to me. I remember the rate difference between a 5/1 ARM and a 30-year fixed was pretty low when I bought my house in 2005. It's pretty tiny right now.
I just don't think the tiny interest savings are worth the risk of a spike in rates.
One of the big advantages of a 30-year fixed mortgage is that it turns your biggest expense into a giant inflation hedge. If rates actually plummet, you can refinance. I think its crazy to give that up for less than .5%
It just seems funny that Greenspan was encouraging everyone to get more creative with their home financing at the very time they should have been getting less creative.
Originally Posted by brewer12345
Actually, he is correct. ARMs and hybrid ARMs (5/1, etc.) generally provide lower all-in costs vs. 30 year fixed loans. What happened is that people went nuts with their mortgages. For those with a smidge of discipline and common sense (a depressingly small portion of the Merkin population), ARMS are in fact a better choice.