Adjustable Rate Mortgages (ARMs) Are Making A Comeback

That is according to an article from The Wall Street Journal.  The article, “Adjustable Mortgages Make Return,” states:

“We’re seeing a shift back to ARMs,” says Mike McPartland, head of investment finance for North America at Citi Private Bank, a unit of Citigroup Inc. My opinion is, it’s going to continue.”

Banks are betting rates will rise high enough for them to offset any interest they give up in the first few years. Borrowers are betting rates will either stay relatively low, or that they will sell their homes before their interest adjusts higher.

Anytime you get something in life you are giving something up.  In this case you get a much lower interest rate but you give up the guarantee of your rate not changing.  Who is right, the banks or the borrowers?  Only hindsight will tell us but I think you need to be very, very careful.  I am a big fan of the 30 year fixed in this market as it allows you to use your mortgage as a financial tool to increase your net worth.