ARM loans: a risk worth taking?

Part 1: Mortgage selection in post-crisis market

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Editor's note: This is Part 1 of a two-part series. Read Part 2 here. One of the most critical decisions mortgage shoppers must make is the type of mortgage that best meets their needs. The importance of the decision has been heightened by a post-crisis market in which price differences between all categories of mortgages are unusually large. The decision process can be divided into three parts: The first is whether to select an adjustable-rate mortgage (ARM) or a fixed-rate mortgage (FRM). All ARMs today are 30 years, and in this article we compare them to a 30-year FRM. The second part of the decision process, for those who elect the FRM over the ARMs, is to select the term of the FRM. The third part is to decide whether or not to take an interest-only payment option. Parts two and three are the subject of next week's article. FRMs offer borrowers interest rate and payment stability. This is particularly advantageous to borrowers who are not sure how long they will have ...