>>It doesn't necessarily escalate, it adjusts. Hence the name. In times of falling interest rates an ARM rate will drop. If rates are going up, the increase is capped per year and over the life of the loan, as you describe with yours.
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>>I understand that some borrowers like the certainty of knowing what their rate will be going all the way out. I used to be that way myself. But when I finally looked at the difference in what I was paying, and realized I was never going to pay out a loan over 30 years, or probably even come close, I switched over to ARMs and have been there ever since. This could change again, of course, if it looks like interest rates will skyrocket. In that case a fixed rate makes more sense. That has not been the case in recent years, and it hasn't been foolish at all to go that way.
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>Good summation. A fixed rate at 5.25 makes good sense. There are so many possibilities and variables though that even that sometimes may not have been the BEST option at times.

Exactly - just think of this:

?PAYMENT(100000, .0525/12, 15*12)*15*12

IOW, at 5.25% over 15 years, you actually return 44.6% more than you got. Add to that that there's a substantial charge in insurances, closing costs, this or that inspection/review/rectal scan (all of it at your expense - the seller pays only tax) you must take when you take a loan - basically, you must pay much more because you can't pay right away - means that even at this excellent rate, you pay about one and a half to get one. It's just like the way the legend says they cut cat's tail in my old neck of the plains: one centimeter a day, so it hurts less.

Which is why I didn't really get down and, ahem, do the math; I just eyeballed the saving (a singular saving - rare thing nowadays!) at about $20K in paying that mortgage in 33 months. Add a few thousand for the extra insurance we'd have to pay had we not been able to make 20% down payment. Now anyone calculate how many hours of work, at their own rate, would it take to earn this money, and what would it have bought, had I paid?