When is a 5-year adjustable rate mortgage a good idea?

When is a 5-year adjustable rate mortgage a good idea?

When you're me.

The conventional wisdom is that when the market is good, you should just get a 30-year fixed rate mortgage to take advantage of the low interest rates by locking them in. When we bought our house, the market was good. Not great, but good. Nevertheless, since we were buying just as I was going into the first year of 3 years of law school, we opted for the 5-year ARM. Adjustable rate mortgages give you a fixed rate for the first few years, and then they vary each year after that. The rate is lower for the initial period. We figured we'd probably sell our house once I was out of law school for two years, so the 5-year ARM worked for us and got us a lower rate.

Little did we know. I did a dual-degree program and took 4 years to finish school, and then we went to Alaska for 2 years. So our mortgage rate is adjusting this year, and we're nowhere close to selling our house.

I got the Notice of Intent to Change the Interest Rate on Adjustable Rate Mortgage from our bank today. Scary stuff, right? Our rate is gonna go up like everyone fears, right?

I laughed out loud. Our rate is tied to the 1 Year US Treasury Security Weekly Average. Our initial ARM rate was 5.375%. The new rate for this next year is 3.25%.

What can I say? Sometimes you step in shit and come out smelling like roses.

Our new mortgage payment is a fiver short of $300. (That's down from $350.) We'll keep paying the $400 we always pay, of course, but now that'll be more money going towards our principal.

Hooray for the economy being in the crapper!

(As you probably surmised, Samara and I returned safely from Fairbanks. The flights were uneventful, we took most of the day off from work on Friday, Dillingham has turned green, I went hiking with Anthony, and then today we had dinner with Erin, Anthony and Saramay. Shaping up to be a good weekend so far, except for a little rain.)