Time for the return of ARMs? No, no, no!


In a piece on the surge in mortgage rates over the past couple weeks, BankRate.com gets this brilliant bit of wisdom:

There's another option: "We might even be back to looking at adjustable-rate mortgages," says Bob Moulton, president of Americana Mortgage, based in Manhasset, N.Y. He says some borrowers should consider the 5/1 hybrid ARM, in which the initial rate is fixed for five years and then is adjusted annually.

Have we learned absolutely nothing from this mortgage meltdown? People got into trouble buying homes with artificially low adjustable-rate mortgages and now with rates still under 6%, the president of a mortgage company is suggesting that borrowers make a bet that mortgage rates will remain low.

How likely is that? I'd say it's incredibly unlikely.

The chart above, courtesy of Mortgage-X.comshows just how low mortgage rates still are by any long-term historical standard. When you add in the enormous amount of money that is being flushed into the system, many experts anticipate that inflation will ensue over the next few years and mortgage rates could head much, much higher.

The relatively small gap-up in interest rates we've seen of late seems more likely to be a sign of things to come, then a brief jump before we head back to 4.75% -- So why would you take out an adjustable-rate mortgage?

The bottom line is that fixed-rate mortgages are more conservative, easier to understand, and far, far less likely to get you into trouble. Stick with them.