When an ARM adjusts…

[HLS]

Kaycee,,

I’m curious why you say “Obviously, I can’t refi now since it isn’t my primary anymore” ?? (Of course you can)

I’m like MONK when it comes to this stuff. Your figures are pretty good.

If you started with $322K and a 5 YR ARM, Your P&I payment @ 4.125% should be $1560.
After 5 years your balance will be down to $300,094 and IF you have a 2% increase, at 6.125% your new payment will be $1956, about $400 a month higher (+25%) but that may only be for 6 months (or 12) depending on your loan, and then it increases again each 6 or 12 mos.

Since you bought in ’03, you should have equity, and rental income that covers the nut, or comes close.

There are people that can barely afford their payment now, and a 25% increase would be the nail in their coffin.

Glad that it worked out for you.

[HLS]

Kaycee,,

I’m curious why you say “Obviously, I can’t refi now since it isn’t my primary anymore” ?? (Of course you can)

I’m like MONK when it comes to this stuff. Your figures are pretty good.

If you started with $322K and a 5 YR ARM, Your P&I payment @ 4.125% should be $1560.
After 5 years your balance will be down to $300,094 and IF you have a 2% increase, at 6.125% your new payment will be $1956, about $400 a month higher (+25%) but that may only be for 6 months (or 12) depending on your loan, and then it increases again each 6 or 12 mos.

Since you bought in ’03, you should have equity, and rental income that covers the nut, or comes close.

There are people that can barely afford their payment now, and a 25% increase would be the nail in their coffin.

Glad that it worked out for you.

[PerryChase]

HLS, with a teaser rate loan say starting at 3%, is there always some kind of negative amortization? I think there would have to be or the lender would be lending below their cost of funds.

What about prepayment penalties on ARMs? That might prevent a few from refinancing.

[PerryChase]

HLS, with a teaser rate loan say starting at 3%, is there always some kind of negative amortization? I think there would have to be or the lender would be lending below their cost of funds.

What about prepayment penalties on ARMs? That might prevent a few from refinancing.

[(former)FormerSanDiegan]

Yes, kaycee could refinance. But it may not make sense because you’d be looking at a mid-to-high 6% rate for non-owner occupied 30-year fixed.
Seems like a keeper loan to me.
What’s the margin and index used to set the rate ?

[(former)FormerSanDiegan]

Yes, kaycee could refinance. But it may not make sense because you’d be looking at a mid-to-high 6% rate for non-owner occupied 30-year fixed.
Seems like a keeper loan to me.
What’s the margin and index used to set the rate ?

[HLS]

I’m in the lending biz, I understand loans.

I’m not saying that KAY needs to refi, but what “seems like a keeper loan” to you could be 10% within 24 months of first change.

You mention a 30YR fixed rate (which they may or may not even qualify for depending on 10-15 other pieces of information), which assumes that they intend to keep the loan long term, so IF TRUE, your conclusion is that the 10% loan within 24 months is a keeper, rather than a locked long term loan in the 6’s.

Great advice.

[HLS]

I’m in the lending biz, I understand loans.

I’m not saying that KAY needs to refi, but what “seems like a keeper loan” to you could be 10% within 24 months of first change.

You mention a 30YR fixed rate (which they may or may not even qualify for depending on 10-15 other pieces of information), which assumes that they intend to keep the loan long term, so IF TRUE, your conclusion is that the 10% loan within 24 months is a keeper, rather than a locked long term loan in the 6’s.

Great advice.

[kaycee]

Yes Former SD, I meant that I would have to get a non-occupied rate and that would be higher than the low 6% rate I have now. So it didn’t seem to make sense. My margins, as I recall were 2% a year. At this point, and I may be very wrong about this, it didn’t seem that it would go up to 8% the second year because mortgages were still below 7%. I know I would need to check what the rate is tied to. But I do remember doing research at the time and making sure my rate was tied to something that was pretty stable.

But anyhow….

!!!!!!! I SOLD MY HOUSE TODAY. YEAH.!!!!!!!!!!

;), ;0, ;0, ;), ;0, 😉 (Me doing the happy dance)

It’s not a great deal. But hey its a deal right?

[kaycee]

Yes Former SD, I meant that I would have to get a non-occupied rate and that would be higher than the low 6% rate I have now. So it didn’t seem to make sense. My margins, as I recall were 2% a year. At this point, and I may be very wrong about this, it didn’t seem that it would go up to 8% the second year because mortgages were still below 7%. I know I would need to check what the rate is tied to. But I do remember doing research at the time and making sure my rate was tied to something that was pretty stable.

But anyhow….

!!!!!!! I SOLD MY HOUSE TODAY. YEAH.!!!!!!!!!!

;), ;0, ;0, ;), ;0, 😉 (Me doing the happy dance)

It’s not a great deal. But hey its a deal right?

[HLS]

Congratulations. Is it SOLD like closed escrow and you have the money OR is it “sold” like you accepted an offer and the loan & escrow process is starting ??

[HLS]

Congratulations. Is it SOLD like closed escrow and you have the money OR is it “sold” like you accepted an offer and the loan & escrow process is starting ??

[kaycee]

No, sadly it is nowhere near escrow. Nor is the loan process starting. <>. But all inspection contingencies are through and they took posession today. I started a new thread with the details.

I do have a question about ARMS though.

I took a 5/1 ARM because I thought, I would be out in less than 5 years. But if you thought that you were going to stay in a house long term (back in ’02 or so timeframe), was a 5/25 available to you? Were the rates on that signifigantly higher? Why didn’t more people sign up for those? It would seem that that type of a mortgage would be more appealing to the majority of people because you are only risking a jump once.

[kaycee]

No, sadly it is nowhere near escrow. Nor is the loan process starting. <>. But all inspection contingencies are through and they took posession today. I started a new thread with the details.

I do have a question about ARMS though.

I took a 5/1 ARM because I thought, I would be out in less than 5 years. But if you thought that you were going to stay in a house long term (back in ’02 or so timeframe), was a 5/25 available to you? Were the rates on that signifigantly higher? Why didn’t more people sign up for those? It would seem that that type of a mortgage would be more appealing to the majority of people because you are only risking a jump once.

[(former)FormerSanDiegan]

HLS –

I respect your opinion, and appreciate the perspective and honesty that you bring to the board

But, based on the facts posted and the assumptions enumerated below I still think it would be a keeper loan for me.

Granted I have not seen that additional terms such as index, margin and caps stated, and if these differ significantly from my assumptions I could change my mind. So, there are several big IFs here.

(Note: Never take out an ARM if you don;t know your caps, margin, and index and all terms of the loan such as pre-payment penalties, etc).

Here’s why I think it’s a keeper:

1. She said it will likely re-set to about 6%. I assume that the first adjustment to ~ 6% reflects an the fully indexed rate (e.g. LIBOR at ~ 5,2 + 1% margin or some other combination) First adjustments are typically capped at the max rate increase (e.g. 5%, but don;t know in this case).

2. If her 5/1 ARM was originally at 4.125% it is very likely that the maximum rate was set at 4.125+5 % or 9.125%, based on similar terms to 5/1 ARMS I investigated in the 2002-2003 time frame.

So, if I could turn back time and grab this loan (as I understand/interpret it), I would. In a heartbeat.

Reasons: The fully indexed rate is currently less than most 30-year fixed rates. And this is at a time when the yield curve is flat or slightly inverted. The spread is likely to be much greater if inflation increases.

The maximum rate may only by 9.125%. That’s a hefty increase from her original rate, but pretty good insurance if inflation rages in the future.

Again, if one has sufficient reserves my opinion is that this loan could be a keeper.

(Point may be mute, since the property is kinda sold in a rent-to-own way.)

P.S. – Post edited for typos and clarity.

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