Replies

1. 
   intrepidcat | Jun 21, 2006 11:25pm | #1

   Luckily, I have always been able to avoid any adjustable rate financing.

    

   There are almost daily daily articles about how people are getting hurt with ARM's.

   Best advice I've seen: If you got one get rid of it soon.

    

   Foreclosures are going up.

    

    

    

   If having a low wage work force was good for a country's economy then why hasn't Mexico built a fence? 

    

1. 
   DougU | Jun 22, 2006 06:59am | #7

   I had an ARM once/still, I was going to college and bought a house and that's all I could get the bank to give me.

   I always had three year terms, got down to the final 10 or 12 thousand and the bank made it a 5 year fixed rate at 6%, I'm in the final year of the loan and I have yet to make a payment on that house, always been rented.

   Saying all that I would be sceptical to get one now, probably wouldn't, to afraid of what might happen with the interest rates!

   Doug

   Edited 6/22/2006 4:37 pm ET by DougU

2. 
   Piffin | Jun 22, 2006 12:15am | #2

   We started with an arm at a pretty good rate back about '96-7 or so
   Just a couple months ago the thirty year rate got to equall what we were paying so we refinanced to lock in at that rate. I forget if I'm at 6.25% or 6.375%

    

    

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1. 
   mrfixitusa | Jun 22, 2006 01:29am | #3

   I'm looking at buying an investment house and owning it for 2-3 years.Banking guidelines suggest that one consider an ARM under two conditions:(1) the ARM interest rate is significantly lower than Fixed Rate and (2) the lenghth of the loan is short-term (less than five years).You have to look at the frequency the rate adjusts - with some loans it's only once a year.^^^^^^

    

   SNAFU (Situation Normal: All Fouled Up)

3. 
   DonK | Jun 22, 2006 05:17am | #4

   I had an adjustable rate mortgage years ago. I only owned the place about 5 years and the rate adjusted monthly. I actually did okay with it, couple ups and downs but it served my needs. Rates were fairly constant back then.

   I've been watching this market for a while. Too many people bought in at below market rates and they are getting hammered. Just saw a story that a lot of the lower level credit risks are starting to get hit harder with foreclosures.

   The way things are now, it's probably a 50-50 shot on which one works better for a 5 year term. Rates aren't likely to keep going up substantially (I hope I don't eat those words) so if the ARM adjusts on a 3 or 5 year basis, you could do okay. By the way, check what the rate adjustment is tied to.

   If it were longer term, I would go with a fixed, for security's sake.

   Don K.

   EJG Homes      Renovations - New construction - Rentals

    

4. 
   davidmeiland | Jun 22, 2006 06:18am | #5

   On our first house, bought in '97, we had a 30-year-fixed and should have gotten an ARM instead. I have always felt nervous about adjustable rates and wanted a fixed, but we could have done much better in an ARM.

   On this one we started with a 30-year-fixed, paid a point to get the rate down an eighth, thinking we'd just sit on that loan forever. Wrong. We refi'd in January and at least a few hundred dollars of that point were wasted. Oh well. We still have a fixed rate and I am SO glad of it, because we would be scrambling to get out of it.

   These days I would do an ARM to get a property bought, but I'd refi quickly to a fixed. Even a quarter or half a percent makes a huge difference, and one of the reasons we bought a house was to have a stable housing cost. As long as the septic system doesn't fail then we pretty much have that.

5. 
   peteduffy | Jun 22, 2006 06:34am | #6

   Had an ARM when we bought the current house.  Rate differential of ARM vs. fixed was large enough to make a 5/1 ARM worthwhile.

   Not to mention on our first house we got a 30 year fixed, bought 3 points to shave down the interest rate.  Planned to stay there for 10 years or more, and buying the points would have definitely paid off over that timeframe.  Problem was, I got a job transfer after 6 months.  Had to eat all those points.  Ouch!

   A realtor once told me that even if you stay in your house more than 5 years, chances are you won't have the same mortgage in 5 years.  Like I said, back then the differential between ARMs an Fixed was a couple of percentage points.  At the beginning of the loan, when you are paying mostly interest (and little principle) that can really work to your benefit. 

   To reiterate, a point or 2 at the beginning of the loan really matters.  Then after the 5 years, you have less principle to refinance, and even if it is at a higher rate than your ARM, you might save over the long run.  (Most people forget that after 5 years the principle is less.)

   Google some mortgage calculators and run a comparison.   Run $x @ FIXED% for 30 years.  Note the total paid over the life of the loan.

    Then run $x @ ARM % for 5 (or 1 or 7, whichever ARM you choose) years.  Figure out how much principle is paid down after that period, then input the new principle amount at the new interest rate.  See what happens.

   But with weird rate structures like we have now, where there is little difference  between fixed and ARMS, the results will be less dramatic.

   Might think about a 5/1 ARM now, then when the 5 years are up, refi the lower principle amount to a 15 year fixed.  That way, you pay off the mortgage in 20 years instead of the usual 30.

   And just think of making extra principle payments each month like a savings account.  If your mortgage is at 6.5%, any additional principle you pay is like a savings account paying you the 6.5% interest.

    

   Pete Duffy, Handyman