Might want to look at PenFed.org with their 5/5 ARM at 2.75% where they pay up to $10,000 of the closing costs. Compare it with the 15-year 3.125% loan you are considering. I'm going to assume $100,000 loan.

15-year loan is $696.61/month.

5/5 loan starts at $408.24/month. Apply the difference of $288 to your loan each month as extra principle payments.

Starting year 6 of the loan, assume worst case that interest goes to 4.75%. Your monthly payment will increase to $504.53/month. Apply the difference (from $696.61) of $188 to your loan each month as extra principle.

Starting year 11 of the loan, assume worst case that interest goes to 6.75%. Your monthly payment will increase to %593.64/month. Since this is still lower than your 15-year payment, apply the difference of $88 to your loan each month.

Starting year 16 of the loan, assume worst case that the interest tops out at 7.75%. Your monthly payment will increase to $631.46/month. Apply the difference of $60 to your loan each month.

The loan will be paid off in 196 months (17.3 years)--only slightly longer than your 15-year mortgage. However, if you get into trouble, you don't have to make the extra payments, and you still end up with a payment that is lower than what you are considering with the 15-year mortgage, although it goes for longer.

Or you could put the difference into a special savings account each month, to be used if you needed to buy down the loan, sell quickly, etc.

The longer payment period (at a lower initial rate and significantly lower monthly payment) can provide a lot more options DEPENDING ON YOUR PARTICULAR SITUATION.

Have fun with the calculations!

Kathleen