patrick.net

If you're reasonably well-off and could pay cash if you wanted to, but want to deploy the money elsewhere, why not take an ARM? The rates are very low compared to 30-year fixed and you can make lower payments. A fairly leveraged mortgage can serve as an asset-protection device.

For the less well-heeled, you can mitigate the risk of an ARM significantly with a 5/5 ARM or even a 15/15 ARM from some credit unions. That's not nearly as risky to the average consumer as the more typical 3/1, 5/1, or 7/1.

Traditional ARMs were never as risky as the bizarre alternative types of loans that were common during the boom. The media doesn't do subtlety on these things, as there were numerous kinds of "adjustable rates" back then. Not all of them are traditional ARMs, but they still got called "adjustable rate mortgages" by the media.

This is kind of like my beef with the word "subprime." Subprime also has a technical meaning, but the media used it for anything that wasn't traditional prime, so now a lot of people who don't know better use it that way too.

The traditional ARM was around during the boom -- 3/1, 5/1, 7/1, 10/1, and so on. However, there were also teaser rates and interest only periods made by private banks that were more widely available that technically had an adjustable rate, but were not traditional ARMs. These might include a 1% or 2% rate for the first two years, interest only for the first 10 years, negative amortization for a period of time (the "Option ARM"), etc.

The article says that banks are increasingly offering interest only periods, and if that's the case, we should be somewhat wary of that, especially if they are being used as affordability products, as opposed to money-management devices by the rich. However, being skeptical of ARMs per se is sort of silly.