ING Direct 4.50% ARM

With millions of borrowers defaulting on deceptive adjustable-rate mortgages, we certainly understand why no one wants an ARM right now.

But ING Direct has an intriguing offer that’s worth considering — a 5/1 adjustable-rate mortgage with an introductory rate of 4.5%.

Although you’ll find lenders advertising 4.5% fixed-rate mortgages, you can only get that rate by paying two or three points, which adds thousands of dollars to the cost of the loan.

The “Orange Mortgage” charges no points and very few closing costs, usually only a title search and an appraisal. You also get a free 60-day lock if you’re buying a home (30 days if you’re refinancing).

After five years the interest rate adjusts annually to reflect prevailing market rates or you can pay $750 to modify your loan and lock in the going rate for another five years.

That’s a attractive alternative and helps to make the ING mortgage a safer loan than the awful subprime and option ARMs wrecking the housing market.

You get to keep the introductory rate for up to 10 years, far longer than the two or three years subprime ARMs typically offered.

Even if you allow the interest rate to change, it can only reset once a year (not every six months) and it can never go higher than 10.5% (not 12% or more).

The big drawback is that you’ll need a down payment of at least 25% to buy a home, or 25% equity to refinance.

So while you can borrow up to $500,000, you’d need well over $100,000 in cash or equity to do so. That was substantial coin before the stock market and home prices tanked.

But with that much equity, you are highly unlikely to ever be upside-down on this loan.