Distinguish Regret from Actual Loss

No matter which mortgage you choose, you can't know its true cost until after the fact, but you can forecast likely costs and benefits under a variety of reasonable (or even unreasonable) eventual outcomes. Only after you make these calculations can you decide which choice looks best. Gut reactions like, "We don't want the risk of an ARM" cost you plenty. Run the pertinent numbers, then choose.

All mortgages present risk in an economic sense—either out-of-pocket or opportunity costs. You gain when you vanquish emotions and focus on the figures. You may discover that some type of ARM saves you money and helps you qualify for a larger loan. Or if you're an investor, the ARM might help your property yield a positive cash flow.

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