My perspective from the States. Those ARMs you hear about are essentially the same thing as variable mortgages in Canada. They range from 3 months to 10 years. Yes, there were some exotic products like interest only and optional payments, but the vast majority of mortgages are plain old fixed rates at 15 and 30 year rates.
With the massive amount of money being printed world-wide, you will see higher inflation. To what extent and when is unknown.
A year ago in March 2008, I refinanced into a 30 year 6 1/8 fixed rate thinking that was low. One year later, I could refinance into sub 5% 30 fixed PLUS the mortgage deduction!
If anyone tells you they know what will happen in a year, I just wouldn't believe it. Noone can predict with any degree of accuracy what rates will be in 12 to 18 months. Noone including the rate makers like Carney and Bernake. They can have educated guesses and targets but it is just that...a guess based on the market conditions at the time.
So the bird in the hand metaphor is apt in this case. If you can afford the PITA at a 5 year fixed then do so and pay down as your terms allow would be my advice.
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