3.75 no points

[briansd1]

bearishgurl, the reason I say that Greenspan was right is because I have a buddy who went with adjustable in 1989 (he bought at the high back then but rode it out). He has not refinanced even once…. And all along he’s enjoyed the lowest rates because rates went down the whole time.

[bearishgurl]

[quote=briansd1]bearishgurl, the reason I say that Greenspan was right, is because I have a buddy who went with adjustable in 1989 (he bought at the high back then but rode it out). He has not refinanced even once…. And all along he’s enjoyed the lowest rates because rates went down the whole time.[/quote]

Understand this, brian. I myself have used adjustable-rate mtgs since 1986 . . . continuously. If I could get another one on my next purchase with the same or very similar terms as the one I have now, I would do it again . . . in a heartbeat. But that’s probably not possible. The “FB” of late (who had a “subprime” version of the same mtg) has given them a bad name so they are likely no longer available to prime and alt-a borrowers who understand how to use them responsibly :={

[flyer]

My brother and his wife got a real steal at “Pebble” about 20 years ago, and, like you, he had to jump through lots of hoops before finalizing the deal.

It’s a little too cool for us up there, but they absolutely love it, and we really enjoy visiting them. That area is truly one of the most beautiful places in the world.

You did great–ENJOY!!

[Rich Toscano]

[quote=bearishgurl][quote=briansd1]bearishgurl, the reason I say that Greenspan was right, is because I have a buddy who went with adjustable in 1989 (he bought at the high back then but rode it out). He has not refinanced even once…. And all along he’s enjoyed the lowest rates because rates went down the whole time.[/quote]

Understand this, brian. I myself have used adjustable-rate mtgs since 1986 . . . continuously. If I could get another one on my next purchase with the same or very similar terms as the one I have now, I would do it again . . . in a heartbeat. But that’s probably not possible. The “FB” of late (who had a “subprime” version of the same mtg) has given them a bad name so they are likely no longer available to prime and alt-a borrowers who understand how to use them responsibly :={[/quote]

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.

[bearishgurl]

[quote=Rich Toscano][quote=bearishgurl][quote=briansd1]bearishgurl, the reason I say that Greenspan was right, is because I have a buddy who went with adjustable in 1989 (he bought at the high back then but rode it out). He has not refinanced even once…. And all along he’s enjoyed the lowest rates because rates went down the whole time.[/quote]

Understand this, brian. I myself have used adjustable-rate mtgs since 1986 . . . continuously. If I could get another one on my next purchase with the same or very similar terms as the one I have now, I would do it again . . . in a heartbeat. But that’s probably not possible. The “FB” of late (who had a “subprime” version of the same mtg) has given them a bad name so they are likely no longer available to prime and alt-a borrowers who understand how to use them responsibly :={[/quote]

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]

Rich, in my case, I intend on putting my property on the market in 2.5 years. I am already more than 10 years into my current mtg and it is amortizing faster now. My interest rate is current +/- 4% and has a 2% annual cap. My current monthly PI is $1200 mo.

It is a fairly large home on a larger than std lot.

If I end up turning it into a rental instead of selling in 2014, I will simply retire the mtg at that time if interest rates go thru the roof and place the property into rental service.

[Rich Toscano]

Makes perfect sense for a shorter-term situation like that, BG. I was generalizing, thinking in terms of a new long-term purchase.

[briansd1]

[quote=Rich Toscano]

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.

[Rich Toscano]

Yep, it did work in the past for sure… I am pretty convinced it won’t work so well in the future, but of course that is speculation (and the timing is always in question… it seems like it can’t be long now, but I’ve already thought that for a while!)

[bearishgurl]

[quote=briansd1][quote=Rich Toscano]

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 :={

[an]

[quote=bearishgurl]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 :={[/quote]
The biggest difference is, 25-30 years ago, rates were well above the historical average. Today, it’s well below the historical average. Common sense tell me we always revert back to the historical average. So, getting a 30 year fixed at 4% or an ARM at 3%, when historical average is around 8%, is the risk really worth 1%? How long do you see ARM staying below 4%?

[briansd1]

Actually, it depends on the holding period.

When I hear people say “we want move up in 5 years” I wonder why they would take on more costly loans.

I believe there’s is more psychology/animal spirits in people decisions that rationale.

[an]

[quote=briansd1]Actually, it depends on the holding period.

When I hear people say “we want move up in 5 years” I wonder why they would take on more costly loans.

I believe there’s is more psychology/animal spirits in people decisions that rationale.[/quote]
Agree, get the loan that’s fixed for the duration of your planned stay. If you plan to move in 10 years, get a 10/1 ARM, not a 5/1 ARM. No point in paying more for a 30 year fixed as you said.

[Rich Toscano]

[quote=briansd1]Actually, it depends on the holding period.

When I hear people say “we want move up in 5 years” I wonder why they would take on more costly loans.

I believe there’s is more psychology/animal spirits in people decisions that rationale.[/quote]

Because there is a difference in wanting to move in 5 years and being forced to… or, put another way, getting the fixed rate opens up the option to keep the property longer than originally intended.

[an]

[quote=Rich Toscano][quote=briansd1]Actually, it depends on the holding period.

When I hear people say “we want move up in 5 years” I wonder why they would take on more costly loans.

I believe there’s is more psychology/animal spirits in people decisions that rationale.[/quote]

Because there is a difference in wanting to move in 5 years and being forced to… or, put another way, getting the fixed rate opens up the option to keep the property longer than originally intended.[/quote]
Some people don’t want that option though? So the additional cost to have that option is not worth it. I agree that there’s a difference in wanting vs forcing to move, but you’re not being forced to move if you get an ARM. You just have to pay extra for that want if you change your mind (assuming rates goes up from here). Everyone’s situation is different and there are a lot of calculation to determine where’s the break even point between ARM vs fixed in term of how long you want to stay.

[Rich Toscano]

Sure, I agree, every situation is different. Again, I am just generalizing here.

[Author]

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