10/1 ARM vs 30-year fixed

[avv7c0]

Let me preface this by saying that I will be reviewing this with an expert before I commit to anything, but I wanted to get some initial feedback here until I get a chance to do that. You know, for curiosity purposes.

My wife and I are planning to begin construction on our new home very soon. A couple of options that have been presented to us are an ARM with a fixed rate of 2.5% (!!!) for 10 years, adjustable after that. Alternately, we can do a ~4% APR 30-year fixed. Both of us have stable, reliable jobs and a decent household income ($132k) that will continue to increase over those 10 years for the ARM. Both of us have good credit, with no credit card debt. If things remain the same, we'd certainly qualify for a refinance in 10 years, but will rates remain as low as they are now? Since we are only getting a loan for about about 1/3 - 1/2 of what we COULD qualify form, we're planning to treat the loan as a 15-year vs. a 30-year, by paying what the 15-year monthly payment would be. So barring a disaster, we should only owe 5 additional years on the house by the time the ARM runs out.

Like millions of Americans, I'm now very hesitant to consider an ARM after what everyone has been through, but it sure seems like a solid deal. Thoughts?

[webhopper]

Why not get a rate quote on a 15 yr fixed as well?  Wouldn't hurt... Its possible that you would end up somewhere a point less than the 30 yr fixed.

[avv7c0]

We will, but I'm trying to insulate us somewhat against the unknown, even at the cost of a little bit of interest. I'd rather keep the required payment low and then pay it off as fast as we are able, as long as we are able. But maybe that doesn't make sense... first time homebuyer, so all of this is pretty new.

[SuzyStellar]

just a thought...you want to keep the payment low and pay it off fast for as long as you are able, but with an arm you never know after the turning point if the payment will be low or if you will be able to afford it.  insulate yourself from the unknown arm around the corner, it's a lot safer...just a thought.