bearishgirl – Your loan sounds similar to 5/1 Option ARMs, common the past half decade. Most of those were either based on COFI or LIBOR. A similar loan is the 5/1 Interest-only ARMs, which have all the same features as yours except no negative amortization. 5/1 ARMs and IO ARMS are still advertised (I don;t know anyone who has received one recently, though).
I once had a 5/1 IO ARM on a rental property. I was spooked by high short-term rates in 2006-2007 and refi’d into a 6.25% fixed rate in 2007 (and again in 2009 to less than 5%). If I held my original loan the current rate would be less than 3.5% (12-month LIBOR + 2.25%).
In response to the theory that the next wave of loan resets would lead to massive defaults (I disagree with that theory), I have been tracking resets of loans originated in the 2004-2006 timeframe for 11 months so far here …
