In this article by Steve Kerch, real estate editor for MarketWatch about [Adjustable-rate mortgages](http://www.marketwatch.com/news/story.asp?guid=%7B313315E3-99B2-4592-8AF3-5FF3E1E81BA1%7D&siteid=google) he says:
>Adjustable-rate mortgages have been maligned in recent years as some critics have contended
>that, in an era when fixed-rate loans were at historic lows, ARMs were only being used by
>marginal buyers who could not otherwise afford to buy houses. The implication was these
>were all risky loans that would eventually come back to haunt lenders and the housing market.
“The reality is quite a bit different. Yes, ARMs do account for a significant portion of the mortgage market — 32 % in 2005, Freddie Mac says, down only slightly from a 10-year high of 33% in 2004. But the most popular ARMs aren’t the risky ones everybody assumes.
Instead, the reason the ARM share of the market has remained so high while 30-year fixed rates have remained so low is that buyers have been flocking to hybrid ARMs, adjustable loans that don’t adjust right away but have a fixed-rate period for a number of years. The biggest among those hybrids is the 5/1 loan, which means the borrower has a fixed rate for five years before the mortgage begins to adjust every year. In fact, 5/1 ARMs accounted for 40% of all adjustable-loan applications in 2005, Freddie Mac said.”
“This idea of better matching your housing plans to the financing you put on the housing is a relatively new one, since these hybrid ARMs — you can find three-year, seven-year and 10-year versions as well — have only been around a few years. (Freddie Mac only began tracking the 5/1 hybrid rate in 2005.) But the practice makes perfect sense: Homes turn over in the U.S. every seven years on average and first-time buyers especially often plan a short stay in their “starter” home before moving up. ”
See [5/1 ARM A Good Idea? [Urban Digs]](http://www.urbandigs.com/2006/01/7yr_arm_a_good.html) for a rational discussion on the strategy of obtaining a hybrid mortgage.
These have become very popular as buyers have been forced to rethink traditional financing (aka 30-year fixed mortgages). The logic has become: if a homeowner plans to move in 5 years, why pay a premium for a 30-year fixed when the hybrid has a steady payment for the same period of time? Some say that you should select a hybrid that has a fixed term of 2 years longer than you plan on staying in the house.
