I want to hear others opinion on this topic. It is hard to argue that if you are getting a mortgage, that you shouldn't get a FRM with rates so low. However you can get ARM for nearly 1% less. This saves some serious coin. I know you are taking risk that rates rise, but my reasoning is this:

If rates do go up by even 1-2%, the Federal government will implode and paying my mortgage will be the least of my worries as the Zombie Apocalypse will likely be upon us. Therefore if we avoid a government blowup than we are following the Japanese style depression with ZIRP for decades. Giving me ample time to refi.

What would you do? Discuss.

Go fixed rate. You'll have more peace of mind.

ARM is playing chicken with a train.

Sounds like you are being a bit sarcastic but the fed gov wouldn't implode it would just go bare bones. Banks (or whoever) will still be able to buy your house and kick you out of it. They might use deputized private security or something but paying your mortgage would still be a concern, you won't get a free house. Someone somewhere will still own it and find a way to kick you out. Then probably rent it back to you. Just because millions of other people are in the same boat wouldn't stop anything. Houses would be bought up in large chunks and we'd turn back in to a nation of renters, like Germany.

I would get a fixed one for the peace of mind because they are already really low. You really complaining about 4% or whatever you're getting??

Kwerk, but if the government went bare bones, the FSA would be rioting in the streets.

Well so what? I don't live in East St Louis or Detroit. Not the end of the world.

I don't know Kwerk. If the government went bare bones and cut off all the welfare, food stamps, etc. I don't think things would last long. At that point I wouldn't care about the house and would be taking the family to the mountains to get away from it.

**** I wouldn't even be looking to by if my wife wasn't so anxious.

How long you going to stay in the place?

Depends. How long until the Zombie Apocalypse.

I sleep better at night with a Fixed.

How you sleep best should be how you decide, IMHO. :)

Don't forget that rates can spike up very high for a short period in a crisis before dropping back sharply e.g. if one last kick of the can is attempted or some sort of save is implemented. This could concievably happen without causing armageddon. If you go for adjustable, make sure you have the reserves to cover a year at a rate well above what you can imagine them reaching and well above what can be sustained in the longer term.

I strongly advised my brother to go with a fixed in 08, I have been proven wrong thus far.

Getting an ARM with rates at historical lows just seems like a bad idea...could they still go down a bit? Sure...but seriously, how much...could they go up? It's only a matter of time as that's really the only direction left isn't it?

Or could they flatline, in which case an ARM is better.

Why not go fixed now, and if rates stay zirpy for a while, then refi to an ARM?

Also, with an arm you can choose to have a cap on interest rate increases. I am looking at buying a small property well under what I can afford (about 1x income) and could probably pay it off in the 5-7 year arm time frame. Still, I would sweat bullets until I finished paying it off completely. If you get an arm, plan to have at least twice the reserves.

Fixed. Definitely. Even if it was more than a 1% difference.

Read what Mpilar said.

Fixed for as short a term as you can handle.

Easy - Cash!

Eaglewwit, I suppose it would depend on the amount of money that you are borrowing. I've been working with my daughter on buying her first house in the Denver area. ... at this point, Denver real estate has started to turn and rent prices are moving up aggressively.
My daughter's looking at a $185K house with an 80% first (no PMI) for $138K loan. She'll also get a small second that she should be able to pay off quickly.
I looked at 3/1 (forget them; not competitive), 5/1, 7/1, 10/1 and fixed.
The ARMs were all tied to the 1 year LIBOR, currently at ~1.07%. The caps were 5/2/5; first adjustment could be as high as 5%. Lifetime cap of 5%. All annual adjustments after the first are capped at 2%.

The 5/1 had the best interest rate, which would save my daughter about $75/month vice a fixed rate loan. I wanted to put my daughter in the 5/1 ARM with a plan of doing a refi in ~3 years. Here's the problem. Over 36 months, that's only a savings of ~$2700. That entire savings would be consumed by refi costs. So I just can't see any advantage to going with an ARM.

Could fixed rates go lower? Sure. But we're close to zero bound at this point so I don't see the risk/reward as advantageous to go with an ARM.

I went into this exercise with the desired outcome to be putting my daughter in an ARM but after factoring in refi costs, I just didn't see any advantage to taking the additional risk.
I recommend that you look at refi costs in your calculations; I think that you'll end up opting for fixed once you do that.

All the best.


Edit: for those discouraging Eaglewwit from going with an ARM, keep in mind that lifetime cap on an ARM is less than 8%. That's not a terrible interest rate with respect to the last 30 years.

Good points Ifly.