Puddy Posted January 28, 2009 Share Posted January 28, 2009 I heard multiple times that part of the mortgage crisis was the ARM's that people jumped into. I've been in an ARM for 6 yrears or so. First three years were fixed and then they adjust every April. Last year my rate decreased to 5.375% and I just received a letter that my rate beginning April, 1st will be 4.0% for the next 12 months. I think it's tied to the 10-year treasury note + a 2.25% margin. How come ARM's have gotten the bad wrap. Maybe they are talking about ARM's with a balloon payment due after a number of years Quote Link to comment Share on other sites More sharing options...
Ursa Majoris Posted January 28, 2009 Share Posted January 28, 2009 They aren't all bad but many were tied to balloon payments due to being e.g. interest only. Quote Link to comment Share on other sites More sharing options...
Randall Posted January 28, 2009 Share Posted January 28, 2009 They aren't all bad but many were tied to balloon payments due to being e.g. interest only. That's right. 60 Minutes did a story where they will be the next to be in heavy foreclosure. One expert said we are only about 1/3 of the way through this mess. Quote Link to comment Share on other sites More sharing options...
detlef Posted January 28, 2009 Share Posted January 28, 2009 Well, when we got into our 30 year fixed, the rationale was that rates were at historically low levels so there wasn't much further they could drop but plenty they could rise. It appears that some who rolled the dice, like yourself, fared well. We're doing a refi right now (to absorb a 2nd we took out a year ago to invest in our new project) and will, again, go with a fixed because now we really must be looking at the bottom. I think, in general, they're being lumped in with so many loans that were constructed to get marginally or unqualified people into loans. For instance, plenty didn't have the credit or equity to qualify for a reasonable rate, so their only shot was an ARM with crazy chit attached to it. Many back in Cali, I know were in negative am loans where the payments were so low that they were actually losing ground each month in terms of their equity. The rationale being that their house was going up faster in value than they were losing ground. Of course, once that stopped, they were totally screwed. So, like so many other things, we've just compartmentalized things into good and bad and most of the bad loans tended to look more like an ARM than a fixed. Quote Link to comment Share on other sites More sharing options...
Azazello1313 Posted January 28, 2009 Share Posted January 28, 2009 yeah I'm in a 5 year ARM at 5.25% that adjusts in october 2010 to, I think, 1% over LIBOR (which is like sub-2% right now). so I'm not really sure if I should strike while the iron is hot to get into something long term right now, or stand pat for a little bit. Quote Link to comment Share on other sites More sharing options...
Square Posted January 28, 2009 Share Posted January 28, 2009 Arms are stupid because APRs are at historic lowes. You are trying to save a point or two on a 30 year mortgage and the overall math doesn't pan out. Now, assuming the economy wasn't in the poopyter right now...where do you think that ARM is going to go when it is at 4~5%? 15 Years ago you'd be happy to get 11% APR. So historically, you are stupid for taking an ARM when you can lock in for 15 -30 years at incredible rates (buddy just locked a 30 year mortgage at 4.62 the other day with zero points). A house is the largest purchase most people ever make. I'm not going to risk trying to save 1% with adjustable rates when I can lock in and be in a great position when the economy is going strong 5 years from now. GL though man. I just think there is more risk in ARMs compared to traditional mortgages when you think long term. Quote Link to comment Share on other sites More sharing options...
Puddy Posted January 28, 2009 Author Share Posted January 28, 2009 I just think there is more risk in ARMs compared to traditional mortgages when you think long term. Not going to argue that given todays rates. However, at the time I refinanced I had intentions of moving in 3 or 4 years. Circumstances have since changed however but I'm hopeful to still move relatively soon (next couple of years) so I'm standing pat. Quote Link to comment Share on other sites More sharing options...
Square Posted January 29, 2009 Share Posted January 29, 2009 Not going to argue that given todays rates. However, at the time I refinanced I had intentions of moving in 3 or 4 years. Circumstances have since changed however but I'm hopeful to still move relatively soon (next couple of years) so I'm standing pat. I guess that is kind of the thing. Everyone assumes they know exactly where they will be and what they will be doing 3-5-8-12 years. It doesn't always work out that way. So, you may be fine and I'm not saying you should make a change if you are pretty sure you are going to change in the near future. But, if you went back 5 years ago and did the calculations and included risk as far as the economy improving and the rates going up from 5 percent, than everyone with a fixed mortgage would be locked for 15 - 30 years at 5-6.5% while your adjustable could have well moved above 7-8%. Plus the costs of refinancing (2-4k) would have to be absorbed by your loan or paid out of pocket when you wanted to avoid your ARM going to 7+ and you refi into a rate fixed at 6.5%. Basically, saving a point or two doesn't always pay off in the long run and since rates are so low there is only one direction for them to really move in the long term future. So, do what you want but there is a lot of sound reasoning behind avoiding an adjustable rate mortgage. I'd suggest your next place (no matter if you are going to move in less than 5 years or not) that you find a traditional fixed mortgage (20% down) where the payment is no more than 25% of your take home pay. GL man. Quote Link to comment Share on other sites More sharing options...
TimC Posted January 29, 2009 Share Posted January 29, 2009 Puddy, you need to immediately stop making payments on that if you expect to get any bailout money to help people with bad mortgages. You're welcome. Quote Link to comment Share on other sites More sharing options...
Big Country Posted January 29, 2009 Share Posted January 29, 2009 I'd suggest your next place (no matter if you are going to move in less than 5 years or not) that you find a traditional fixed mortgage (20% down) where the payment is no more than 25% of your take home pay. GL man. GL finding that in Southern California (assuming you don't take home high six figures) Quote Link to comment Share on other sites More sharing options...
Ursa Majoris Posted January 29, 2009 Share Posted January 29, 2009 GL finding that in Southern California (assuming you don't take home high six figures) I noticed in the LA Times while I was stuck at LAX in December that the median SoCal price had gone from roughly $530,000 to roughly $280,000 between 2005 - 2008, IIRC. That is a monumental drop. Quote Link to comment Share on other sites More sharing options...
The Holy Roller Posted January 29, 2009 Share Posted January 29, 2009 .... in the poopyter right now.... :divingboard: Quote Link to comment Share on other sites More sharing options...
Square Posted January 30, 2009 Share Posted January 30, 2009 GL finding that in Southern California (assuming you don't take home high six figures) I was in Burbank last week and it was 80 degrees in January. I don't feel sorry for you. Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.