Adjustable rate mortgages are as safe as you want them to be. Key point to remember is that you, as consumer, always have a choice.
Compare your choices, they are really simple:
1)Fixed rates â€“ always the same payment, standard amortization (30, 15 years). This is a smart choice if you can afford fully amortized payment and higher interest rate. Gives you comfort of knowing that your payment will always be the same.
2) Adjustable mortgage. This rate is lower then fixed one, but it is only locked for the short initial period, usually 2-5 years. After that rate becomes adjustable, and changes usually upward following one of the Indexes.
Now why would you want to have that risk? Well, there is couple of things to consider. ---First of all your initial rate is lower than traditional fixed rate. So you are saving money every month, making lower payments.
-Average time family stays in the same house in US is less then 5 years. What that means is that most likely you will sell your house and move to a bigger better one. Thatâ€™s of course hard to predict, but statistic speaks for itself. Why do you need a fixed 30 year mortgage if you are selling the house in 5 years? Get a 7 year adjustable and pay less every month.
-with adjustable mortgages you can get products like Interest Only loans, or even Negative Amortization loans, both are giving an option to pay even less every month. This may be a good idea for investor how will rather use money saved on every payment to invest in high yield assets, or commission paid employee whose monthly income fluctuates and having an option of paying less is more attractive.
Best idea is to consult with mortgage professional, CPA and your financial planner to capture the whole picture of your financial situation and choose the product that fits you the best.