re: Would you do 7/1 ARM or a 30-year fixed mortgage for a starter home?

I believe people have an irrational fear of ARMs because so many people got into them without understanding their max exposure to rate increases.

I'm about 5 weeks away from closing on a new construction and I'm getting a 5/5 ARM at 3.5%. My situation is a little different though because this is literally the only mortgage I can get (short sale less than two years ago).

It has a max adjustment of 2% and a lifetime cap at 6.9%. So the worst case scenario is I pay 3.5 for the first five years, 5.5 for the next and 6.9 for the rest of the life of the loan. I can live with that, but most likely I will refi into a 15 year when my wife goes back to work within the next few years.

If you understand the very worst that can happen (you can't refi/sell for some reason and the rate goes as high as it can possibly go) and you're OK with this, I say definitely go for it.