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$120k house mortgaged at 100% Loan to Value and 5.86% 30 yr fixed (bankrate.com) is $708. Add taxes and insurance and the cost to own exceeds your rent payment.

$120k via 5/1 ARM, 5.31% is $666 + Taxes & Insurance.

If you definitely plan to sell in 5 years, the 5/1 ARM is great, but if you may stay, the 5/1 ARM would be an awful choice.

Is your housing market appreciating well? If not, there is little chance you will make any money. After all, in 5 years, you will have paid down very little principle. When you do sell, realtor commission and closing costs will eat up 6-10% of the sale price.

Based on the numbers, I believe buying as an investment (building equity) doesn't look promising. However, you must put a price on intangibles: pride of ownership, enjoying a larger or nicer home, Honey-Do list, etcetera. Perhaps someone can present numbers that will change my opinion: Interest Only???

Jurgen