On Monday(2/23/04), Alan Greenspan, chairman of the Federal Reserve Board, touted the potential savings associated with adjustable-rate mortgage packages. Greenspan believes ARMs may offer consumers a less expensive method of financing a home than fixed-rate mortgage products if homeowners are "willing to manage their own interest-rate risks." Greenspan is referring to risks associated with increases in the amount consumers must pay each month for adjustable-rate mortgage products when interest rates increase. As support for his belief, Greenspan referred to a Fed study suggesting many homeowners could have saved tens of thousands of dollars over the last decade if they used ARMs. He also quickly pointed out those savings would not materialize if interest rates increased over that period. Consumers should consider their individual financial circumstances and needs and then weigh the benefits of both adjustable-rate and fixed-rate mortgage products when financing their home.
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