Now that rates have risen from their all time lows, the number of adjustable rate mortgages being originated is on the rise. Often,  with housing prices on the rise, an ARM can seem like the only way to afford the same home as one that could have been purchased with a fixed rate product only a few months ago.

Since it’s likely rates will never be as low as they were in 2003, chances are that  financing a new home purchase with an adjustable loan would be following the rate trend upwards, not down. As the economy continues to heat up, it is inevitable that the indexes that adjustable rate mortgages are tied will begin to rise. The net effect will be higher rates and payments for the very same borrower who selected the adjustable rate over a fixed, as they perceived it would be more affordable.

In as little as two to three years most adjustable programs will actually have a higher payment than a fixed rate product today.  Often, this will leave many of these new homeowners with a tough choice in the upcoming years, sell their home or face an insurmountable mortgage payment.

So, when should you put yourself in the position to take an ARM? One: In a downward moving market, so purchasers can refinance their payments lower.  Two: for a home intended to be kept short term. Three: if you are in an occupation that will provide large increases in income for the next several years; allowing the income to keep pace with the increasing payments.