Re: 3 year arm mortgage anxiety
My husband re-financed our house last year and did the 3-year arm thing. It saved us TONS each month and we have since paid all of our credit card bills off (we are debt free excluding the house and car payments). The idea of going to the three-year arm absolutely freaked me out and I still don't understand it. However, I have trusted my husband thus far financially and he has not let me down (don't get me wrong, we would not have done the 3-year arm had I sincerely not wanted to -- I just trust him in this regard).
From what little I understand, it works something like this ---- you get an absolutely TERRIFIC intrest rate that is locked for the first three years (our house payment literrally went down by like $200.00 a month). After three-years, if the feds have upped the interest rate (and this is where I get confused), the interest rate on your mortgage will go up a small amount. However, there are caps each year (like ours cannot go up more than 2% in one year and it absolutely NEVER will go higher than 6% of what the arm rate was --- like if your 3 year arm is 3.2%, it will NEVER be higher than 9.2%) It's not like if suddenly the interst rate climbed to 18% that in the 4th year of your mortgage your interest rate will be at 18%.
And no, you do not have to refinance at the end of the three years. I will tell you this ---- the reason my husband felt it was a good idea (and I do have to agree with him) is that we are planning on moving within the next three years. The only "glitch" will be if we are unsuccessful in selling our house. However, my husband has crunched the numbers and we can go well into the 6th year of our loan and still have saved money in the long haul! I think the bottom line is it can be smart if you feel strongly that you will not be where your at in the next couple of years and you feel like you can easily sell your house.
I hope this helps