why WOULDN'T a person want to get ARM (adjustable rate mortage)?

[rnmcd]

Originally posted by: Vic

Originally posted by: rnmcdI guess it might work for me because I only want to live there about 2 years (or less)

And there is no such animal as a no-point loan. 'Tis a myth and great marketing. They're just charging you a higher interest rate and pocketing the yield spread instead of points.

edit: and don't be too cocky about wanting to live in your home short-term. If that works for you, great. But otherwise, it costs a lot more to sell and buy a new home than to refi.

I bet it would be hard to beat this:
http://home.ingdirect.com/products/products.html
The points and other costs charged by other lenders add up and many of them have higer interest rates too.

Yes, that was quite cocky of me to be so brash to say I am going to live in my home short-term. I also want to drive the next car I have for only 3 or 4 years...I am one conceited S.O.B.

 

[Klixxer]

Originally posted by: rnmcd

Originally posted by: tm37

Originally posted by: rnmcd


I don't think that interest rates will always be low but I do know that the initial rates for a ARM will always be lower than the 30-year fixed interest rate at the same time.

If you can say with any type of confidance what the rates will be in three years you have the wrong job.

I never said I knew what the rates will be in 3 years but I did say that on Oct. 9, 2007 the ARM rate WILL be lower than the 30-year fixed rate.

I am willing to take a bet on that.

 

[jamesave]

Originally posted by: Wingznut
Let's say you could get a 30-yr term for 6.0%. But instead, you opt for a 5-yr ARM at 5.25%.

Now it's 2009 and it's time to refinance. Unfortunately, rates are now 8.5% (or even significantly higher) and it sucks to be you. 😛



With our first house, we knew we (most likely) wouldn't be there for more than five years. So, we opted for the ARM. Sure enough, within five years we sold it and bought another. I plan on being here at least 20 years, so we went with a 30-yr loan.

This is an excellent choice made.

 

[Wingznut]

Originally posted by: jamesave

Originally posted by: Wingznut
Let's say you could get a 30-yr term for 6.0%. But instead, you opt for a 5-yr ARM at 5.25%.

Now it's 2009 and it's time to refinance. Unfortunately, rates are now 8.5% (or even significantly higher) and it sucks to be you. 😛



With our first house, we knew we (most likely) wouldn't be there for more than five years. So, we opted for the ARM. Sure enough, within five years we sold it and bought another. I plan on being here at least 20 years, so we went with a 30-yr loan.

This is an excellent choice made.

rnmcd, did you miss my post above? That is a perfect real-world example of why it's not always a good idea to buy an ARM.

(Going by my above example...) Even if ARM's are cheaper than 30-yr rates in 2009, they are still going to be significantly more expensive than 2004's 30-yr rate.

The gist is... If the rates are higher when the ARM runs out, you lose.

 

[Armitage]

Originally posted by: rnmcd

Originally posted by: tm37

Originally posted by: rnmcd


I don't think that interest rates will always be low but I do know that the initial rates for a ARM will always be lower than the 30-year fixed interest rate at the same time.

If you can say with any type of confidance what the rates will be in three years you have the wrong job.

I never said I knew what the rates will be in 3 years but I did say that on Oct. 9, 2007 the ARM rate WILL be lower than the 30-year fixed rate.

Can I get in on that action??
The ARM rate on Oct 9 2007 will likely be lower then the 30 fixed rate on 9 Oct 2007. But it may be considerably higher then the 30 year fixed rate on 9 Oct 2004.

So, you do well on that first three years, while I'm paying *gasp* 6% fixed on my 30. But then you go to refi, and find that you can't touch anything less then 9% even on another ARM. Sucks to be you.

 

[Vic]

Originally posted by: rnmcd

Originally posted by: Vic

Originally posted by: rnmcdI guess it might work for me because I only want to live there about 2 years (or less)

And there is no such animal as a no-point loan. 'Tis a myth and great marketing. They're just charging you a higher interest rate and pocketing the yield spread instead of points.

edit: and don't be too cocky about wanting to live in your home short-term. If that works for you, great. But otherwise, it costs a lot more to sell and buy a new home than to refi.

I bet it would be hard to beat this:
http://home.ingdirect.com/products/products.html
The points and other costs charged by other lenders add up and many of them have higer interest rates too.

Yes, that was quite cocky of me to be so brash to say I am going to live in my home short-term. I also want to drive the next car I have for only 3 or 4 years...I am one conceited S.O.B.

Their rates don't seem anything special, and the APR without closing costs infers a relatively high margin over index on the ARM.

You missed my point on the 2nd part (or perhaps I wasn't clear). Due to the current (and previously unusual) large disparity between home values and rents in most areas across the country, purchasing for the short-term is often more expensive than renting, and is certainly the most expensive option for buying (when compared to long-term purchasing). Money magazine had an excellent article on this last year.
Do what you want. I talk to people every day who think they know more than the professionals. Fine by me. I just chuckle to myself, book the deal the way they want it (provided it is legal and approvable, the way they want it not always being that way), and get rid of it. Not my mortgage, money, or future.

 

[CrazyDe1]

In Canada there's no such thing as a fixed mortgage...

 

[Vic]

Originally posted by: CrazyDe1
In Canada there's no such thing as a fixed mortgage...

The typical mortgage in Canada would be considered "Predatory Lending" in the US.

 

[element]

Originally posted by: Amused
Anyone who remembers the late 70s and early80s can tell you why.

yup, stagflation

 

[waggy]

Originally posted by: Armitage

Originally posted by: rnmcd

Originally posted by: tm37

Originally posted by: rnmcd


I don't think that interest rates will always be low but I do know that the initial rates for a ARM will always be lower than the 30-year fixed interest rate at the same time.

If you can say with any type of confidance what the rates will be in three years you have the wrong job.

I never said I knew what the rates will be in 3 years but I did say that on Oct. 9, 2007 the ARM rate WILL be lower than the 30-year fixed rate.

Can I get in on that action??
The ARM rate on Oct 9 2007 will likely be lower then the 30 fixed rate on 9 Oct 2007. But it may be considerably higher then the 30 year fixed rate on 9 Oct 2004.

So, you do well on that first three years, while I'm paying *gasp* 6% fixed on my 30. But then you go to refi, and find that you can't touch anything less then 9% even on another ARM. Sucks to be you.

heh while he has a good idea. He did not look at everything.

quck question. what makes canada's loans so bad?

 

[rnmcd]

Originally posted by: Wingznut
[rnmcd, did you miss my post above? That is a perfect real-world example of why it's not always a good idea to buy an ARM.

(Going by my above example...) Even if ARM's are cheaper than 30-yr rates in 2009, they are still going to be significantly more expensive than 2004's 30-yr rate.

The gist is... If the rates are higher when the ARM runs out, you lose.

I caught your quote. I was just trying to make the point to someone else that ARMs are always lower than the 30-year rate--if you look at them on the same day.

Yes, I realize that there is as great chance that the 2009 ARM rates will be higher than the 2004 30-yr rates but who back in 1970s thought that 30-yr rates in the first years of the next millenium would be about 5.2%?

It's a gamble...

 

[classy]

Quite frankly in todays economy you would be a fool to get an ARM. While interest rates are low you want to lock in. ARMs are good in times when rates are a little high, but the market is stable. But in a times like these, if anyone suggests you take a ARM just walk away.

 

[dirtboy]

A person can just refi, but morgages aren't free. You generally pay 1% to the broker, plus all the other expenses. Not something you want to do all the time.

 

[GasX]

Originally posted by: rnmcd
It sounds like after the term of the initial loan is up your interest rates goes up...if so, why couldn't a person refinance with another lower interest rate ARM?

Right now you could get a 5.5% fixed rate loan or a 4.75% 5 year ARM - Sweet!

Supposing the rates go up drastically in 5 years...

You could then choose between a 7.5% fixed rate loan or a 6.75% ARM

That would suck and don't even think that rates might go down...

If you plan to live there forever and/or you don't want to take on interest rate risk, get a fixed rate. If you plan on moving after a few years, an ARM is THE way to go.

There is also an interest only loan, but that is NOT for the average person..

 

[Gibson486]

Bceause the ARM architecture is pretty old😉

Sorry, could not resist.

 

[royaldank]

I did an ARM but I also plan to sell my house in the next 3-5 years. It's a starter house and something to fix up. I plan to do some more repairs over the next year or two and get it ready for re-sell. When I got my house, my credit wasn't great due to problems in the past. Right now, I just want a roof, a low payment, and something I can get a return out of while building up good credit.

I work for a mortgage company so I don't have to pay origination/points. Ended up with a 3.5% ARM which I just couldn't pass up. This was roughly 15 months ago.

 

[Wingznut]

Originally posted by: classy
Quite frankly in todays economy you would be a fool to get an ARM.

Not true at all... If you are absolutely sure that you are going to sell within a few years, then you can save a lot of money with an ARM.

 

[classy]

Originally posted by: Wingznut

Originally posted by: classy
Quite frankly in todays economy you would be a fool to get an ARM.

Not true at all... If you are absolutely sure that you are going to sell within a few years, then you can save a lot of money with an ARM.

Most people average 5-10 years living in a house. For example the average good rate for a 7/1 ARM is around 5%, fixed rates are at 5.5%. A lot of uncertainty is in ARMs. So your right to small degree, if a person is going to sell in less than 5 years it will work, but most folks live in a home they purchase on average 10 years. Also depending on the market and cap rates will also influence your rate as well. Depending on the arm it is based on either the 1 or 5 year T-bills. With the way the Fed will continue to raise interest rates over the next couple years, as I said before you would have to be stone crazy to take an ARM right now. These low rates that folks are quoting are for 5 years or less ARMs. The only way I would suggest a person take an ARM right now is if they need to qualify for more money to purchase a house they know they can pay for. Then shop heavily for a fixed mortage from someone else 🙂

 

[GoPackGo]

Originally posted by: rnmcd
It sounds like after the term of the initial loan is up your interest rates goes up...if so, why couldn't a person refinance with another lower interest rate ARM?

Cuz they stick it to you

 

[Wingznut]

Originally posted by: classy

Originally posted by: Wingznut

Originally posted by: classy
Quite frankly in todays economy you would be a fool to get an ARM.

Not true at all... If you are absolutely sure that you are going to sell within a few years, then you can save a lot of money with an ARM.

Most people average 5-10 years living in a house. For example the average good rate for a 7/1 ARM is around 5%, fixed rates are at 5.5%. A lot of uncertainty is in ARMs. So your right to small degree, if a person is going to sell in less than 5 years it will work, but most folks live in a home they purchase on average 10 years. Also depending on the market and cap rates will also influence your rate as well. Depending on the arm it is based on either the 1 or 5 year T-bills. With the way the Fed will continue to raise interest rates over the next couple years, as I said before you would have to be stone crazy to take an ARM right now. These low rates that folks are quoting are for 5 years or less ARMs. The only way I would suggest a person take an ARM right now is if they need to qualify for more money to purchase a house they know they can pay for. Then shop heavily for a fixed mortage from someone else 🙂

Don't ask me for a link to back it up... But I believe the average first time home owner lives in their house for less than five years.

 

[classy]

Originally posted by: Wingznut

Originally posted by: classy

Originally posted by: Wingznut

Originally posted by: classy
Quite frankly in todays economy you would be a fool to get an ARM.

Not true at all... If you are absolutely sure that you are going to sell within a few years, then you can save a lot of money with an ARM.

Most people average 5-10 years living in a house. For example the average good rate for a 7/1 ARM is around 5%, fixed rates are at 5.5%. A lot of uncertainty is in ARMs. So your right to small degree, if a person is going to sell in less than 5 years it will work, but most folks live in a home they purchase on average 10 years. Also depending on the market and cap rates will also influence your rate as well. Depending on the arm it is based on either the 1 or 5 year T-bills. With the way the Fed will continue to raise interest rates over the next couple years, as I said before you would have to be stone crazy to take an ARM right now. These low rates that folks are quoting are for 5 years or less ARMs. The only way I would suggest a person take an ARM right now is if they need to qualify for more money to purchase a house they know they can pay for. Then shop heavily for a fixed mortage from someone else 🙂

Don't ask me for a link to back it up... But I believe the average first time home owner lives in their house for less than five years.

No its more than 5 years. 5.9 years according to realtor.org which I am a member of, link
here. Now I have dealt with two of the top 3-4 lenders in the nation for home mortages in Wells Fargo and Chase Manhattan. Both lenders told me that it was closer to 9-10 years that most firstime home buyers stay in their homes. But like I said a lot of factors weigh in the decision, but I for one first as a professional and second as a new home owner myself, I don't really see the benefit to ARMs right now. They have their merits but I think the risks right now outweigh the benefits.

 

[Goth]

Unless you're planning on being in your house for a limited number of years, ARMs generally are risky. If you're planning on staying 5 years, a 5 year ARM probably would be a good idea. If you might be there after the fixed portion of the ARM, depending on how the loan is set up, your rate could jump 2% or so per year with a cap of 6-10%. If you have to get an ARM just to be able to afford the payments now, you're taking too much risk unless you're sure of your future financial situation (big raise at a steady job, for example).

In my case, I opted for a 3-1 ARM. I had planned on paying off my house in 5 years and had a 15 year loan at 5.75%. By going to a 3-1 ARM at a fixed 3% for the first three years, then adjusting to a max of 5% in year four and 7% in year five, I would save about $4K after paying the refinancing closing costs. Even though the loan adjusts to a higher rate in years four and higher, the balance on the loan would be low so it wouldn't have much of an impact. The loan can adjust up to 2% higher every year starting in year four with a lifetime cap of 6%, so the highest the rate would be is 9%.

 

[dquan97]

We're buying a condo and currently in escrow for $225K. Financing it with a 7/1 ARM, no points, no orig fees, 4.875% interest. We're forcasting selling the condo within 5-7yrs and getting a bigger place. I can post details if asked.