I am hard pressed to think of a more backward-looking decision than choosing a variable loan over a fixed rate loan right now. (Except maybe to lend someone money for 30 years at 4% fixed). Just because something worked in the past doesn’t mean it will work in the future. Looking at economic fundamentals will serve you better than looking in the rear view mirror.[/quote]
I hear you.
I was just reminiscing that for the last few decades, a variable rate mortgage would have saved a lot of money over a string of refinancing (with costs associted) to fixed-rate mortgages.
In my case, the property is no longer owner-occupied which would make refinancing not at the lowest fixed rate.
I will take my chances with that property. I see the savings at the lower variable rate as an offset to possible future rate rises.
If we have anemic growth like Japan, we could have low interest rates for a long time.
I read that capital is not really a problem like it was in decades past. The world is awash in liquidity. Central banks are keeping rates low to help their economies grow.[/quote]
Absolutely variable rate mtgs which floated with the market closely (NOT the 1 yr T-Bill program) over the last 25 years or so were a better deal than obtaining fixed rate mtgs at a higher cost and then serially refinancing to obtain lower rates (and NOT removing equity). This is true whether one is entering the 26th year of payments on a property purchased in 1986 or has bought and sold 10-12 times since then, taking out an OPTION ARM each time up until about 2003.
These types of mtgs always had 0 points and cost $1200 to $2800 out the door in purchase/refi closing costs (the lower range if property qualified for a short-term title policy). Doc drawing was $150 (the borrower chose the payment-day-of-the-month) and there were no other lender costs but recording fees (which have now gone thru the roof). Typical closing time was 10-30 days with an average of 21 days. It is very sad that the era of local “direct lending” has gone by the wayside. I am in hopes that it will come back.
The vast majority of these loan programs did not participate with PMI companies. The borrower had to have 20% down and no impound service was available. “Tax service fee” was $50-$75.
I think it is self-defeating for a homeowner to serially refinance, fold the closing costs into the new mtg every time and start all over again every 1-3 yrs, but that is just me :={
