An article in last Wednesday’s U.S. News headlined a thought-provoking question: is an ARM a Good Idea in 2023? Now that mortgage rates are significantly higher than they were even only a few months ago, a question that might then have been answered with an almost automatic ‘no!’ has new relevance. Buyers daunted by the prospect of budget-challenging monthly payments may be penciling in the difference, seeing an attractive answer—but then unsure of whether the risk-reward formulations make St. Cloud ARMs a prudent choice.

The article discussed the tradeoffs which it summarized in brief:

·         If there is a fixed period, how long does it last?

·         How often does the rate adjust?

·         What is the limit to how much the rate (and monthly payment) can change?

·         But the bottom line—and its unknowable element—is described by the first point: “You need to consider where rates may be at the end of your fixed-rate period.” Since “no one can predict long-term interest rate trends” the degree of risk can’t be calculated “with complete accuracy.” That is an understatement, of course—future interest rates can’t be counted on with any accuracy at all—especially five or 10 years hence—which may be when an attractive original rate begins to be adjusted.

A worthwhile exception is worth considering for individuals who don’t plan on being in the home long—that would make the adjustable element inconsequential. That is also true of the interest-only alternative when the I-O period ends and higher interest-plus-principal payments begin (with the negative characteristic that equity gains are limited to the property’s value appreciation). Another factor that might make St. Cloud ARMs worth serious consideration would be when the buyer expects a substantial boost in their income before the adjustment kicks in.

Before serious house-hunting begins, it’s a timesaving idea to work out as many of the budgetary possibilities as possible. Choosing two or three lenders with whom to discuss today’s possibilities is a good second step – calling me, a terrific first!

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