[cr]

HLS/Rustico/FSD,

I agree it’s quite an open ended question, and I can see how one could benefit from FSD’s situation. I am planning to do a 15yr fixed when I buy, because I envision rates going up, and don’t expect to double my income after I buy within 3 years. 4 maybe :), and I would prefer not to sell, at least until the next bubble.

But I want to make sure my reasoning to go with a fixed is solid, which gets back the original post.

I view ARMs/IO as a way to get more house than you can afford. Omitting the option of selling after rates/payments adjust what would make those worthwhile? A huge increase in pay is about the only likely thing I can think of, and that’s not a guarantee. If you’re not moving, can’t sell or refi (and cover the original loan) because the value went down, shouldn’t you go fixed?

There may be benefits, but with unknown rate changes it’s too convuluded to determine the long run cost comparison. I imagine you would have to have a higher ROI than the highest your mortgage rate could go. That’s the only thing I could see making your money saved with an ARM/IO worth more than paying off a house and having the money later. That of course assumes you could afford a fixed at the time of purchase, and actually invest the savings. Then again, with a higher rate, you may be paying a lot more on the full term than with a fixed.

My buddy is a broker in SD. I’ll ask hi if ARM/IO’s were higher commissions.

[cr]

HLS/Rustico/FSD,

I agree it’s quite an open ended question, and I can see how one could benefit from FSD’s situation. I am planning to do a 15yr fixed when I buy, because I envision rates going up, and don’t expect to double my income after I buy within 3 years. 4 maybe :), and I would prefer not to sell, at least until the next bubble.

But I want to make sure my reasoning to go with a fixed is solid, which gets back the original post.

I view ARMs/IO as a way to get more house than you can afford. Omitting the option of selling after rates/payments adjust what would make those worthwhile? A huge increase in pay is about the only likely thing I can think of, and that’s not a guarantee. If you’re not moving, can’t sell or refi (and cover the original loan) because the value went down, shouldn’t you go fixed?

There may be benefits, but with unknown rate changes it’s too convuluded to determine the long run cost comparison. I imagine you would have to have a higher ROI than the highest your mortgage rate could go. That’s the only thing I could see making your money saved with an ARM/IO worth more than paying off a house and having the money later. That of course assumes you could afford a fixed at the time of purchase, and actually invest the savings. Then again, with a higher rate, you may be paying a lot more on the full term than with a fixed.

My buddy is a broker in SD. I’ll ask hi if ARM/IO’s were higher commissions.

[cr]

I’ve got some questions on this now:

Sounds like most of us argue exotic mortgages are bad, so let’s just look at ARMs. To me the open-ended ability for rates to increase is a recipe for disaster but HLS is arguing it can be better if you invest that money.

I’d bet most people don’t have any discretionary income, thus the need for an ARM, but let’s assume they do.

I know it depends on the rates, but let’s use what they are are today.

Over the 30 year life of a loan, what costs more: ARM or fixed? Say it’s a 3-year ARM that started 3 years ago, and just reset. If I recall, a 30yr fixed ends up costing around double the purchase price. What about an ARM?

Won’t the difference come down to what the adjusted ratepayment becomes, and won’t that rate be higher than if it was fixed?

Now I’ve gone crosseyed.

[cr]

I’ve got some questions on this now:

Sounds like most of us argue exotic mortgages are bad, so let’s just look at ARMs. To me the open-ended ability for rates to increase is a recipe for disaster but HLS is arguing it can be better if you invest that money.

I’d bet most people don’t have any discretionary income, thus the need for an ARM, but let’s assume they do.

I know it depends on the rates, but let’s use what they are are today.

Over the 30 year life of a loan, what costs more: ARM or fixed? Say it’s a 3-year ARM that started 3 years ago, and just reset. If I recall, a 30yr fixed ends up costing around double the purchase price. What about an ARM?

Won’t the difference come down to what the adjusted ratepayment becomes, and won’t that rate be higher than if it was fixed?

Now I’ve gone crosseyed.

[cr]

ehhh, ehhhh, EHHHCHHOOOspillover effectsHHHOOOOOO!!!!!

Excuse me, Mr. Bernanke, can I borrow that tissue?

[cr]

ehhh, ehhhh, EHHHCHHOOOspillover effectsHHHOOOOOO!!!!!

Excuse me, Mr. Bernanke, can I borrow that tissue?

[cr]

I don’t get the impression this guy is a troll so at the risk of looking naive I’ll state the obvious:

Any Non-Traditional mortgage, Adjustable, interest only, or (the now defunct) negative amortization is essentially designed to do one thing: get you into a house you could not otherwise afford.

It may save money in the short term, but then what? If you don’t have a bulletproof answer to that, than you should go traditional. And “I will take my equity, pay off the loan, and buy something else” is not a bullet proof answer in today’s market.

[cr]

I don’t get the impression this guy is a troll so at the risk of looking naive I’ll state the obvious:

Any Non-Traditional mortgage, Adjustable, interest only, or (the now defunct) negative amortization is essentially designed to do one thing: get you into a house you could not otherwise afford.

It may save money in the short term, but then what? If you don’t have a bulletproof answer to that, than you should go traditional. And “I will take my equity, pay off the loan, and buy something else” is not a bullet proof answer in today’s market.

[cr]

Nice find hawk. The funny thing is he acts as if the second video is what he had been saying all along.

He represents the short-sightedness of the “experts” on housing who take a snapshot of the status quo and ignore trends and historical data.

His suggestion that lowering rates 1% would correct all the prices, which he alludes to as being too low, further displays his ignorance.

[cr]

Nice find hawk. The funny thing is he acts as if the second video is what he had been saying all along.

He represents the short-sightedness of the “experts” on housing who take a snapshot of the status quo and ignore trends and historical data.

His suggestion that lowering rates 1% would correct all the prices, which he alludes to as being too low, further displays his ignorance.

[cr]

I said this before on another post. Lowering rates is liking throwing gasoline on the fire. Directly or indirectly, lowering rates got us into this mess, and then some. Lowering them even after they’ve come up isn’t going to help.

[cr]

I said this before on another post. Lowering rates is liking throwing gasoline on the fire. Directly or indirectly, lowering rates got us into this mess, and then some. Lowering them even after they’ve come up isn’t going to help.

[cr]

You’re right bobby, it was a feeble attempt at humor, though it is still good advice for prospective buyers to heed to avoid foreclosure.

If they’re facing it, there’s probably not a lot they can do as I would venture to say most people in it are already stretched to the max financially on payments before they go up.

[cr]

You’re right bobby, it was a feeble attempt at humor, though it is still good advice for prospective buyers to heed to avoid foreclosure.

If they’re facing it, there’s probably not a lot they can do as I would venture to say most people in it are already stretched to the max financially on payments before they go up.

[cr]

I didn’t read all the posts in detail but I agree with the affordability issue.

Some of the trollers we get here with agendas alligned with the NAR point to other things like inventories as the reason prices will drop.

That clearly shows they don’t understand the fundamentals of why we are still in a bubble.

[Author]

Posts