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There are ARMs that are not bad. I got an ARM 10 years ago. It was fixed for 2 years and after that, it is adjusted annually. It is a set percentage above LIBOR. It cannot change more than 2% at one time (up or down) and it cannot go higher than 5% above the original rate. It is currently at 4% and has gone down every single year since it has been adjusting. There are no "gotchas" of a balloon payment at the end of a certain time period or anything. Even if mortgage rates skyrocketed now, they would have to continue to skyrocket for 5 years before I would hit the max at this point. Yes, there is a danger that it could go up to 13% max, but it really isn't likely that we'll see the LIBOR go up that high over the next 10 years. It is a pretty safe ARM. I'd have been paying 8% for the last 10 years had I gotten a traditional mortgage and I'd be unable to re-fi at this point because the house could never appraise for high enough in this economy. Mine is a very low risk ARM and has served me well.
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