“Why would people who can afford conventional 30-year mortgages sign on to Option ARMs especially if the fees are higher with prepayment penalties? ”
I’ve wondered why they would and I think it is because they forget about RISK. Risk that the home value will decline, risk that they could lose their job, risk that the market will go south. I think I have read often where people have actaully drawn out the equity in their home and invested it. To me that sounds crazy, but I do not have any stomach for risk. I guess if you can sleep at night, even leveraged like that, then you are fine.
