Are adjustable rate mortgages a good deal?

Many lenders have pushed adjustable rate mortgages during the past few years. I've been asked if they are a good deal. Let's look at a little recent history.

During the early 80s home interest rates went through the roof; I think at one time they hit somewhere around 17%. It was almost impossible to sell a house in those days. Those who needed to buy, or who wanted to buy, found that they could get lower payments with an adjustable rate mortgage. The rates were so high that there was a distinct possibility that we had hit the ceiling and that rates would begin to come down; something from which adjustable rate mortgages could benefit.

Rates started to descend and those with adjustable rate mortgages saw their payments decrease almost yearly. It was a great time for adjustable rate mortgages.

Alas, we are in a different time and under a whole new set of rates. We now have "artificially" low rates. That means the government has pushed rates down in an attempt to get the economy back on track. Because of a whole lot of reasons that might take a book-length explanation, there is a big risk that rates could shoot up, even against the manipulations of the Federal Government. That could cause folks with adjustable rate notes to suffer; perhaps even lose their houses if the loans don't have a cap that keeps payments from going into the stratosphere.

Now for the answer to the question: are adjustable rate mortgages a good deal? For most borrowers the answer is a big fat NO. There is simply too much risk for the little bit that borrowers gain. And since rates are so low, generally under 6% as of this writing for prime borrowers, there's not much chance that adjustments will be to the downside; more than likely, they will be to the upside.