Good bye to Adjustable Rate Mortgages?

The Feds have changed the rules for adjustable rate mortgages making it harder for buyers to qualify and probably forecasting the end of ARMs.

They've instituted an ability to repay rule, effective January 2014, requiring lenders to evaluate whether a borrower can repay if the loan adjusts upwards.  Unlike fixed rate mortgages which have the same interest rate and payment over the life of the loan, ARMs fluctuate with interest rates, usually being pegged to LIBOR, a world wide reference rate computed in London.

Instead of qualifying buyers with an ARM's low introductory rate, the lender will be required to use the loans loan's "fully indexed rate" or LIBOR plus the lender's margin.  This will make it harder for some buyers to qualify,  but once they do it's less likely they'll be forced out of their home if (really when) interest rates rise.

One thing for sure, interest rates will eventually go up,  it's just a matter of when and how far--how can I be so sure, easy, they can't go much lower unless we start paying banks to hold our money....

So why bother with an ARM?  An ARM with a low introductory rate might make sense if you know you will be moving around the end of the introductory period; otherwise a fixed rate mortgage is likely to be a better deal for the long term.