Surprised the rate on your ARM increased?

[REWahoo]

ARMS can be a great idea if your horizon to sell is pretty short (less than 3 years).

...or if you are going to pay it off within that time frame.

 

[cute fuzzy bunny]

Yep. The best mortgage rate of all...paying it to yourself!

My credit union had some stunning deals on 3/1 5/1 and 7/1 fixed/adjustables a few years ago.

The 5/1 was slightly under 4% for the first 5 years, then the usual 'up to 2%' a year adjustment.

For most people, who live in a home for 5-7 years...what a great deal that was.

I remember posting as to whether the folks here thought it would be a good idea to pull a few hundred thousand on that 5/1 and try to arb it. The collective consensus was that it wasnt a good idea. You guys dont know anything! I'd have made a bundle

 

[REWahoo]

I remember posting as to whether the folks here thought it would be a good idea to pull a few hundred thousand on that 5/1 and try to arb it. The collective consensus was that it wasnt a good idea. You guys dont know anything! I'd have made a bundle

Obviously you don't have the right chiropractor or you could get an adjustment...

http://www.washingtonpost.com/wp-dyn/content/article/2006/04/06/AR2006040602079.html

 

[old woman]

...or if you are going to pay it off within that time frame.

I got an ARM HELOC as a first mortgage in 2002 at prime minus .75 because I was in a fixed rate at 6.625% and the ARM was very cheap. Now it will be 7% so not much more than my old fixed rate and I had 4 years of cheaper credit. The HELOC had no cost to get it and refinancing to a fixed would cost about $3K. I don't want to pay 7% so this month I sold some stock and paid it down a bit. Now I owe 67K so my payments being interest only will probably be under 400 still. It it shot up to 10% or something I would pay it off from my ROTH IRA contributions or coversions from more than 5 years ago.
Nobody tricked me into an Interest only ARM that adjusted monthly, and you don't need to feel sorry for me.

 

[Nords]

I remember posting as to whether the folks here thought it would be a good idea to pull a few hundred thousand on that 5/1 and try to arb it.  The collective consensus was that it wasnt a good idea.  You guys dont know anything!  I'd have made a bundle  

Gosh, I thought at the end of the 5/1 you were going to roll it over to a wad of zero-interest credit-card balance transfers!

 

[cute fuzzy bunny]

Whadda I look like? JG?

 

[REWahoo]

Whadda I look like? JG?

Now that you mention it, your new avatar does look a little familiar!

 

[cute fuzzy bunny]

The rabbit or the fat guy?

The fat guy isnt even wearing dinner plate sized glasses...

 

[mathjak107]

the same thing happened in the berkshires in mass..homes went for a fraction as people bailed out of the area as jobs dried up

 

[justin]

I have an ARM. I got it almost 2 years ago to consolidate debt and to do the "cash out and arbitrage the balance" thing on my free and clear house. Rate is still 3.75%. In July it goes to 4.75% and then can go up or down 1% every 2 years. When I got the loan, 30 year fixed rates were ~5.5%. I figured it would take about 12 years before the fixed rate mortgage would be better than the ARM, due to big savings on interest in the first decade or so.

Then there's the fact that the mortgage was pretty small at about 1.3x our annual income. And who knows if we would still be living in the same house 12 years down the road? Or that rates wouldn't stay low or go up and then back down? Too many unknowns leaning towards the ARM. Almost 2 years into it and having 15% of it paid off, I feel pretty good about my decision.

 

[al_bundy]

And why is his ARM Mortgage higher than my 20 year fixed in San Diego? These examples make a good story on the surface, but they don't pass the smell test. Not typical, even for spendthrift Americans.

Not to get too off topic, but while I like to bash predator businessmen/legal loan sharks as much as the next guy, I don't feel much sympathy for people in over their heads on mortgages. People will spend 40 hours figuring out their NCAA brackets or football pools, but can't go to lending tree or do a little research to make sure when they sign the most important documents (probably) in their life, they aren't getting a raw deal?

My MIL just vented to me she thought she was going to lose the house. She and FIL seperated about a year ago (total mid life crisis-whatever), he's paying ~$1,000 a month (they have two kids still under 18), and they bought their house over ten years ago for ~$120,000, and she makes a pretty good wage, 20 years in a govt. job. Yet somehow she can't make what should be $1200-$1300 payment, tops?

I tried to help her, but it was no use, run up credit cards, refinance and pay off. Nail in the coffin was getting a pool put in right before they seperated. On the one hand, she admits she wouldn't have done it if she had known what was coming, but it should have never been that close to the edge in the first place.

Even still, I tried to sit down with her and work the numbers, figure out what she can do. The more I dived in, the more my head was reeling, $200+/month on "whole" life insurance on the kids? How much for car insurance? I told her what she needed to do, I garantee she hasn't done it. And six months from now things will be even worse and she won't remember this conversation.

I love her very much, she is the best MIL one could ask for in many ways, but she suffers from a mental block that I just don't think is curable. I told DW that if it comes to it, we'll buy a bigger house and have her move in, pay us rent that is equivalent to the difference in the house payment. She's great with her grandaughter, and I couldn't bear the thought of her living anyplace but a nice home.

When an ARM or IO loan goes to fixed rate, its usually based on the LIBOR rate plus a premium of 2% or so. Right now the LIBOR is around 5%. Last year it was around 4% I think. From what I read somewhere this year only around $350 billion in ARM and IO mortgages will go fixed. Next year it's around $1.5 trillion and I think even more in 2008. A lot of people who bought expensive homes will soon have their payments double or more.