Which Type of ARM Is Best

No firm conclusions apply to ARMs. They come in all shapes, sizes, and combinations. There are as many models of ARMs as there are models of automobiles. Models change just as quickly, too.

Most experts say, "If you plan to own a property for just a few years, select an ARM and gain from its lower start rate." That advice sounds reasonable, but it doesn't always hold true. Sometimes, the mortgage yield curve flattens or inverts. During these times, short-term loans (ARMs) can actually cost more than longer-term loans. We experienced that situation in the early 1980s, the late 1980s, and throughout 2006-2007.

In most years, ARMs do provide short-term cost savings. The experiences of the Klars and Buchleightners show that if you shop the mortgage market, you may discover a bargain-priced adjustable that lifts your buying power while saving you thousands of dollars in interest expense. Compare a variety of ARM models; then decide which plan can best stretch your buying power, save you money, and, through low annual and lifetime caps, minimize your future risk of payment shock. (Mortgage Secrets discusses the various detailed features of ARMs in Chapter 4.)

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