My Interest Only ARM – What’s the smartest thing for me to do?

I have 8 years to go on my 10 year interest only period which ends in 2016. However, in 2011, the rates becomes adjustable (2% cap, Annual adjustment). We’re planning to be here no longer than about 7 more years anyway, then we plan to sell and leave the state (We’re in Southern California)

If rates went up 2% or 3%, I could still make the payments comfortably come 2011 because I still won’t have principle kicking in.

I owe almost exactly the same on my home as what I paid for it. (Prices went up a bit after I bought in the area and have come back down in the last 12 months.) We’re saving money now to add an additional room/bedroom in 2011 if the rates are still reasonable and we don’t need to use the saved cash to off-set higher payments.

I’m not in a position right now to throw 5%, 10% or 20% into a +$ 700K jumbo loan to refinance, which is what I’d have to do. So that’s out. And not sure I want to do that anyway given that I don’t plan to be in this home 20 years.

Any advice? Suggestions about what the best thing to do would be?

Smart to sit, save what I can and not stress about changing my mortgage?

Or is there something smarter to do?

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