Comments on: Doomsday Ahead for Many With Adjustable Rate Mortgages?

By: Living Almost Large

Living Almost Large — Sat, 11 Nov 2006 15:39:10 +0000

I have an ARM and I’m going to write on my blog later why I love my ARM. Low interest, moving within the 7 years, and I hate townhouse living (forced to because of price), but I want a single family one day. So I got an ARM because I knew where I would be in 7 years. But even if we didn’t move we could still afford it with the lifetime cap of 5%, currently 4.25% and lifetime 9.25%. Not bad at all. Also after 7 years I’d have payed down a nice chunk $60k of principal by just regular payments, I did the calculation in my blog.

By: LAMoneyGuy

LAMoneyGuy — Thu, 17 Aug 2006 18:56:12 +0000

Ralph, I don’t doubt that most homebuyers have been better off with ARMs over the past 30 years. 30 years ago, in 1976, we had double digit interest rates. They fluctuated as they always do, but generally trended down for the next 30 years. We recently saw multi generational lows in int rates.

Hazzard, sadly many of those HELOCs were not necessarily used for conspicuous consumption directly, but as a piggy back loan for those with 0% down. Looks like they would have been better off financing 100% and paying PMI.

By: Lucy

Lucy — Wed, 16 Aug 2006 20:12:24 +0000

Indeed this seems like win – loose situation and certainly the house owner is not the one that wins in this case. In fact the big spenders could go below bankruptcy because of the ARM. I’m just glad I don’t have one.

By: Kimber

Kimber — Wed, 16 Aug 2006 16:07:34 +0000

I don’t know if ARM’s are any more dangerous to wealth than $0 downpayments and 100% re-finances.
None are great for the average person.

By: AmDollar

AmDollar — Wed, 16 Aug 2006 02:49:55 +0000

I just refinanced my home mortgage a few months ago. Others that continue to have ARMs need to refinance now. Interest only loans are just plain scary.

By: Ralph

Ralph — Tue, 15 Aug 2006 10:01:16 +0000

It’s really strange to us *down under* how US mortgages are generally 30 year fixed rate… here in Oz nearly ALL mortgages are variable rate, and everyone get on just fine. Well, some people DO go broke – but generally only if they’ve borrowed a lot to invest in residential rental properties and assumed that property always goes up, and rates never do. Or they’ve bought way more house than they can really afford!

Generally a fixed rate loan (here only available for 5 year terms generally – then you have to refinance or rollover for another term at the current fixed rate) is 0.5% to 1.0% higher than the variable rates available.

Comparisons of fixed rate vs. variable over the past 30 years or so has shown that 9 times out of 10 you’ll be ahead with the variable rate.

As you say, a fixed rate is shifting risk from you to the lender – so they build in a margin to more than compensate for absorbing the risk!

ps. Variable loan rates usually go up and down in 0.25% increments – in relation to the changes by the central bank. If rates go up a lot, it’s usually because inflation is taking off, so your wages will probably keep pace over the medium term. It can cause problems if you didn’t allow for a possible increase when taking out the loan – most people allow for at least a 0.5% increase when working out the loan they can afford to service.