Stay the course cap'n...
Back before the bust in real-estate, my wife and I bought our house on an adjustable-rate mortgage. When things starting going south in the housing market, all the press was screaming about "Exploding ARMs" and how terrible they were for people. As a result, there was a mad rush out of ARM loans and into fixed-rate mortgages, that were at a low, but not extraordinarily low rate, at the time. People paid millions (if not billions) of dollars in refinancing charges to banks and brokers to get out of the loans everyone said were going to blow up in their faces.
I shopped around and nearly refinanced, but pulled up short after I did the math. Paying down the principal at a fixed rate during our 3-year lock-in period, we'd still be better off for as long as 3 years beyond the lock-in, even if the ARM increased at its maximum-allowable rate every year during that time. Three years is a long time, in mortgage terms, and even if the credit markets stayed locked up, the chances of not being able to refinance into something in the span of 36 months seemed unlikely. Our first year beyond #3, the rate did, indeed, increase the maximum annual amount of 2%.
But since then, rates have plummeted through the floor. It went down 0.75% the following year, and 1.25% the year after that. This year, with US Treasury T-Bills at their lowest rates in decades, my rate went down again.
... to 3.125%.
At this rate, my loan would have to increase its maximum amount every year for the next 4 years, and then stay capped at the maximum for 6 more years in order for me to be behind on this transaction. And, in fact, that's impossible, since my mortgage should be paid off before then.
It really makes me wonder precisely how many people would still be in their homes, from the latest bust, if there hadn't been the wild, mad, "common knowledge" rush out of cheap early 2000's ARMs over the last few years. A 1% swing in the APR of the average American mortgage is about $220 per month in interest. All those people that refinanced around 6% on a fixed-rate could potentially be paying as much as $550/month less on their mortgages right now. $550/month is no small-potatoes amount!
A mortgage is an investment like anything else. It generally really does pay to take the long-run and stay pat with your decisions. I'm darned happy that I didn't succumb to the fear generated by the press over the last few years and flee my "Exploding ARM"... It may well turn out to be the best-yielding investment I've ever made. And it's a salutary lesson in not taking life lessons from the media!