ARM vs Fixed Rate Mortgage in 2005
04-18-2005, 11:09 PM
#1
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Thread Starter
ARM vs Fixed Rate Mortgage in 2005
Well, I just accepted a new job so I'll be moving to a new state and will be buying a new home.
Financially, I'm pretty conservative and never really even considered anything but a fixed rate mortgage.
I've been going over the pros and cons of an ARM, especially the ones with the longer term fixed period. They are tempting, but can you dudes give me some reassurance or advice?
Overall, an ARM will allow me to keep more money in hand compared to the fixed rate mortgage, but the ARM comes with risk. We all know that interest rates are likely to climb over the upcoming years, but by how much? There's also potential that the housing market will slow down considerably over the next few years and any equity built by the market increases will be small.
I have no idea how long I'll be in my next home. I detest moving...of course I've only spent just under 4 years in my current home and really benefitted minimally from my current fixed product.
Thoughts? Discuss...
Financially, I'm pretty conservative and never really even considered anything but a fixed rate mortgage.
I've been going over the pros and cons of an ARM, especially the ones with the longer term fixed period. They are tempting, but can you dudes give me some reassurance or advice?
Overall, an ARM will allow me to keep more money in hand compared to the fixed rate mortgage, but the ARM comes with risk. We all know that interest rates are likely to climb over the upcoming years, but by how much? There's also potential that the housing market will slow down considerably over the next few years and any equity built by the market increases will be small.
I have no idea how long I'll be in my next home. I detest moving...of course I've only spent just under 4 years in my current home and really benefitted minimally from my current fixed product.
Thoughts? Discuss...
Last edited by Slimey; 04-18-2005 at 11:12 PM.
04-19-2005, 01:26 AM
#2
Suzuka Master
put the ARM down and slowly back away.....
I hate them. Had it once and it just kept going up. IF (big IF) it did come down, it was miniscule. Just shop hard for a Conventional loan or do a FHA loan which requires a 3% min. down.
If you get an ARM, you will be refinancing down the road and that cost every time you refi.
I hate them. Had it once and it just kept going up. IF (big IF) it did come down, it was miniscule. Just shop hard for a Conventional loan or do a FHA loan which requires a 3% min. down.
If you get an ARM, you will be refinancing down the road and that cost every time you refi.
04-19-2005, 02:32 AM
#3
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I'm in the mortgage business and have had this conversation on a daily basis, as well as 
the conversations here on ARM vs. Fixed. It drives me absolutely batty how people have worked themselves scared silly about ARM's, as you can see from the post above me.
-------
ARM's are very dynamic animals that can be as safe as a fixed if you so choose. There are enumerable things the layman fails to consider when he freaks himself out about an Adjustable rate mortgage. Ill try and list the most compelling below:
-------
ARMS are leveraged on Index's; some volitile, some not. When you hit the adjustment period of your ARM, what the rate adjusts with is the particular index it is attached to.
A COSI (cost of savings index) mortgage for instance, is incredibly safe because the index is the rate a particlar bank pays on its deposits. If that rate skyrockets, that also means the rate they are paying on your savings account skyrocketted as well. Think that will ever happen???? Short answer, NO.
In addition, the mortgage adjusts once a year on a 12 month average of the COSI. Any reasonable math literate person should understand that 12 months of rate fluxations averages out to a tiny change, especially on the COSI.
-----
To originate a 30 year fixed, you have told yourself for absolute sure that you will not SELL or REFINANCE for 30 YEARS. Is that realistic? Short answer, NO. The artical below states that the average mortgage in america lasts 4 years. 99.9% of all mortgages in America do not make it past their 7th birthday. The home is either sold or refinanced. Obviously a good percentage of these people who refinanced had 30year fixed. Why'd they pay all that extra interest for a 30 year loan they never used? Because they bought into the hype.
All the what ifs in the world can argue and counter the above statistic. Regardless, the pure and simple truth is your mortgage will not make it to year ten. People can choose to accept that and save their dimes, or buy into the hype become a part of the statistic.
----
Most lenders can offer at ARM at nearly 1% less interest than a fixed. If you choose the fixed, basically, you chose to pay 1% more interest to feel all cozy, safe and secure. Is your house paying off faster? NO. But at least you're cozy.
A more effective method would have been to: accept the ARM at its rate, but make the actual payment of what the fixed would be. Overpaying your mortgage 100 something dollars a month will most definitly pay that sucker down quickly. Or you can just take the fixed and all the potential money saved is istead paid interest. A more appropriate term may be insurance to feel cozy and secure however.
---
The average mortgage rate in america is 6.something% but the average consumer debt rate is 13.something%. (forgive me for not recalling the exact numbers) Basically that implies, as consumers rack up debt, in all likelyhood it will be wrapped into their mortgage at some point to save on interest.
Now everyone tells themselves they would never do this of course but everyone does it never the less. And its a smart idea in all reality. Why pay such crazy rates throughout their term when their interest rate can be cut in half if you so choose.
This is just one more reason that feeds into mortgages not making it to year 7.
----
ARMS are typically refinanced at the adjustment period. The fear of having an ARM adjust all over the place is irrational because most ARM's are refinanced at that time.
---
If you have a second mortgage, a fixed is more than irrational, its ludicrous. Unless you intend to see that second throughout that 30 year term, you WILL refinance it into your first mortgage when appreciation allows. The trick here is to refi when all your leans equal 80% or less to the value of your home. At that point, you can take the two mortgages and make them one; saving you hundreds of dollars a month. The only way this wouldnt happen is if you saw that second throughout its 30 year term and paid it off. Realistic???
---------------------------------------------------
Anyway, I have a lot more in my head and in my research materials but I'm not sure i still have anyones attention at this point. I'll just close here. I just pasted an article below to support my claim of the average lifespan of a mortgage.
What it really comes down to though is what makes you feel safe and cozy. Despite all the numbers, statistics and trends, what you feel most comfortable with should be your most important factor.
----------------------------------------------------------------------------------------------
http://www.online96.com/realest/calc.html
ARM'S VS. FIXED
The decision to apply for an Adjustable Rate Mortgage (ARM) or a Fixed Rate Mortgage is one that most people make without considering the financial implications.
Very often, we apply for a fixed rate mortgage because we believe that the ARM is too volatile and will adjust to a payment far more adverse than we can afford.
This thinking is true among first time homebuyers even though they should probubly consider the ARM over other financial options more than anyone else. The natinal average a first time homebuyer keeps his mortgage is less than three years. Today mortgages are paid off quicker than ever, we refinance, trade up, change jobs and have many other circumstances affecting our lives. As a result, the probability of a thirty year period with the same mortgage is highly unlikely.
In determining which mortgage is best, a new home buyer or current mortgage refinancer should first ask themselves how long they intend to stay in this property.
Considering that a 7 year ARM is "Fixed" for the first 7 years, and is currently about 3/4% lower than a 30 year fixed rate mortgage, a borrower obtaining a $100,000 mortgage would save $51.00 per month, or nearly $4,300 during the first 7 years. Since the everage life of a mortgage is less than 4 years, this makes perfect financial sense. Another consideration is that during the seven yearsos stable mortgage payments, a homeowners income willbe substantially increasing. A $50,000 salary today with only 3% annual increases will equate to a $61,493 salary in seven years, resulting in $958 more income per month. This will more than compensate for any changes in payment. In addition, the $51.00 savings could be applied to the monthly payment resulting in a lower principal balance and quicker mortgage payoff.
the conversations here on ARM vs. Fixed. It drives me absolutely batty how people have worked themselves scared silly about ARM's, as you can see from the post above me. -------
ARM's are very dynamic animals that can be as safe as a fixed if you so choose. There are enumerable things the layman fails to consider when he freaks himself out about an Adjustable rate mortgage. Ill try and list the most compelling below:
-------
ARMS are leveraged on Index's; some volitile, some not. When you hit the adjustment period of your ARM, what the rate adjusts with is the particular index it is attached to.
A COSI (cost of savings index) mortgage for instance, is incredibly safe because the index is the rate a particlar bank pays on its deposits. If that rate skyrockets, that also means the rate they are paying on your savings account skyrocketted as well. Think that will ever happen???? Short answer, NO.
In addition, the mortgage adjusts once a year on a 12 month average of the COSI. Any reasonable math literate person should understand that 12 months of rate fluxations averages out to a tiny change, especially on the COSI.
-----
To originate a 30 year fixed, you have told yourself for absolute sure that you will not SELL or REFINANCE for 30 YEARS. Is that realistic? Short answer, NO. The artical below states that the average mortgage in america lasts 4 years. 99.9% of all mortgages in America do not make it past their 7th birthday. The home is either sold or refinanced. Obviously a good percentage of these people who refinanced had 30year fixed. Why'd they pay all that extra interest for a 30 year loan they never used? Because they bought into the hype.
All the what ifs in the world can argue and counter the above statistic. Regardless, the pure and simple truth is your mortgage will not make it to year ten. People can choose to accept that and save their dimes, or buy into the hype become a part of the statistic.
----
Most lenders can offer at ARM at nearly 1% less interest than a fixed. If you choose the fixed, basically, you chose to pay 1% more interest to feel all cozy, safe and secure. Is your house paying off faster? NO. But at least you're cozy.
A more effective method would have been to: accept the ARM at its rate, but make the actual payment of what the fixed would be. Overpaying your mortgage 100 something dollars a month will most definitly pay that sucker down quickly. Or you can just take the fixed and all the potential money saved is istead paid interest. A more appropriate term may be insurance to feel cozy and secure however.
---
The average mortgage rate in america is 6.something% but the average consumer debt rate is 13.something%. (forgive me for not recalling the exact numbers) Basically that implies, as consumers rack up debt, in all likelyhood it will be wrapped into their mortgage at some point to save on interest.
Now everyone tells themselves they would never do this of course but everyone does it never the less. And its a smart idea in all reality. Why pay such crazy rates throughout their term when their interest rate can be cut in half if you so choose.
This is just one more reason that feeds into mortgages not making it to year 7.
----
ARMS are typically refinanced at the adjustment period. The fear of having an ARM adjust all over the place is irrational because most ARM's are refinanced at that time.
---
If you have a second mortgage, a fixed is more than irrational, its ludicrous. Unless you intend to see that second throughout that 30 year term, you WILL refinance it into your first mortgage when appreciation allows. The trick here is to refi when all your leans equal 80% or less to the value of your home. At that point, you can take the two mortgages and make them one; saving you hundreds of dollars a month. The only way this wouldnt happen is if you saw that second throughout its 30 year term and paid it off. Realistic???
---------------------------------------------------
Anyway, I have a lot more in my head and in my research materials but I'm not sure i still have anyones attention at this point. I'll just close here. I just pasted an article below to support my claim of the average lifespan of a mortgage.
What it really comes down to though is what makes you feel safe and cozy. Despite all the numbers, statistics and trends, what you feel most comfortable with should be your most important factor.
----------------------------------------------------------------------------------------------
http://www.online96.com/realest/calc.html
ARM'S VS. FIXED
The decision to apply for an Adjustable Rate Mortgage (ARM) or a Fixed Rate Mortgage is one that most people make without considering the financial implications.
Very often, we apply for a fixed rate mortgage because we believe that the ARM is too volatile and will adjust to a payment far more adverse than we can afford.
This thinking is true among first time homebuyers even though they should probubly consider the ARM over other financial options more than anyone else. The natinal average a first time homebuyer keeps his mortgage is less than three years. Today mortgages are paid off quicker than ever, we refinance, trade up, change jobs and have many other circumstances affecting our lives. As a result, the probability of a thirty year period with the same mortgage is highly unlikely.
In determining which mortgage is best, a new home buyer or current mortgage refinancer should first ask themselves how long they intend to stay in this property.
Considering that a 7 year ARM is "Fixed" for the first 7 years, and is currently about 3/4% lower than a 30 year fixed rate mortgage, a borrower obtaining a $100,000 mortgage would save $51.00 per month, or nearly $4,300 during the first 7 years. Since the everage life of a mortgage is less than 4 years, this makes perfect financial sense. Another consideration is that during the seven yearsos stable mortgage payments, a homeowners income willbe substantially increasing. A $50,000 salary today with only 3% annual increases will equate to a $61,493 salary in seven years, resulting in $958 more income per month. This will more than compensate for any changes in payment. In addition, the $51.00 savings could be applied to the monthly payment resulting in a lower principal balance and quicker mortgage payoff.
04-19-2005, 06:04 AM
#4
Where is my super sauce?
Thread Starter
Some good infomation.
Do your thoughts on the ARM change with the upslope we're likely to see in rates over the next few years?
A potential irrational fear from my readings: negative amortization. Can this happen during the fixed period of the ARM?, or is this a potential of only the adjusting portion if the market rate change exceeds one's caps.
Do your thoughts on the ARM change with the upslope we're likely to see in rates over the next few years?
A potential irrational fear from my readings: negative amortization. Can this happen during the fixed period of the ARM?, or is this a potential of only the adjusting portion if the market rate change exceeds one's caps.
04-19-2005, 07:21 AM
#5
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Originally Posted by Slimey
Some good information.
Do your thoughts on the ARM change with the upslope we're likely to see in rates over the next few years?
Do your thoughts on the ARM change with the upslope we're likely to see in rates over the next few years?
As consumers, we will always live in fear of changes in the economy and how it will effect our lifestyle. In mortgages however, rate boom generalizations are hardly logical. This is because mortgages are leveraged on one of 15+ different indexes. Some of these indexes are controlled by the fed and adjust with changes in our economy, some have no connection to it at all and adjust by other unrelated forces. As such, some are extremely volatile, some are extremely static.
The COSI and CODI are two relatively stable indexes because they are leveraged on the lenders depository rate. For them to increase substantially means the the bank is paying substantially more on it deposits. We all know savings accounts pay crap and can be relatively sure they always will so this index moves like a slug, if at all throughout your ownership of this mortgage. Other index's such as the LIBOR are leveraged on foreign banks and have little to do with our economic changes.
Anyway, my point is that as a consumer, I am better off accepting the positive that I will refinance my mortgage before year 30. With that understood, my next goal is to research and secure the appropriate combination of fixed period ARM and stable index for my goals. A 10/1 ARM tends to be an excellent solution for the risk adverse. It is fixed for 10 years so it will be around long after the inevitable refinance at year 7.
A potential irrational fear from my readings: negative amortization. Can this happen during the fixed period of the ARM?, or is this a potential of only the adjusting portion if the market rate change exceeds one's caps.
This cannot happen during the fixed period of th ARM because the required payment pays the accrued interest each month. If you keep the loan throughout the adjustment period, neg am is a possibility when the market rate exceeds the adjustment caps like you said. Those caps exist however to keep your payment from becoming disastrous, not to prohibit you from paying the accrued interest.
So essentially, if you can afford it, ignore the adjustment capped payment and pay the interest due that month. You did before it hit the cap, why not after. This is just exit strategy speak however. In all likelihood, your loan would never make it this far into the adjustment period before you decided to refinance.
Closing costs for refi's are also a concern people have to convince themselves they're going to keep a loan for 30 years. These days, loan officers have options to originate low or no closing cost loans. I can do it all day long in my market so it should be relatively accessible elsewhere as well.
04-19-2005, 07:34 AM
#6
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Thread Starter
Again, really good information. Thanks.
Everything that you say rings true. To date, because of a variety of circumstances, my average time of mortgage ownership before relocating or refinance is about 3 years. The fixed rate products sit well in my financially conservative brain, but everything I've read tells me that I really reaped no advantage from that product.
Everything that you say rings true. To date, because of a variety of circumstances, my average time of mortgage ownership before relocating or refinance is about 3 years. The fixed rate products sit well in my financially conservative brain, but everything I've read tells me that I really reaped no advantage from that product.
04-19-2005, 07:34 AM
#7
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just like anything else, arms are there for a reason, if you have a good grasp of what you are getting into they can easily work to your advantage, or disadvantage depending on the current situation....
however, aren't the 10 year rates worthless right now??? i thought even the 7-year arms were pushing the boudary of not even being a significant difference from the 30-year
i just took out a 5 year arm, and figure that (with 7 being the magic number) i will save more than enough if i take it out even to year 6 with one year being adjusted upwards vs paying a 30 year through the same period of time... the 7 year just didn't save any money for me as of a month ago
either way the housing market is cyclical and (from what i see) appears to hit spurts every 9-12 years, from rates dropping (or housing prices going up), and the chances of you pulling out money from a refi or moving prior to or during that cycle are pretty good anyway
unless you are retiring in that house, then there isn't a good reason to take out a 30 year loan (or shorter)
and furthermore with smart investing if you can easily beat the interest rate you are paying on your mortgage, then keeping only 20-30% equity in your house and pulling out reinvesting the rest seems to be the best way to use that money.... depending on what your timeline to retirement is...
however, aren't the 10 year rates worthless right now??? i thought even the 7-year arms were pushing the boudary of not even being a significant difference from the 30-year
i just took out a 5 year arm, and figure that (with 7 being the magic number) i will save more than enough if i take it out even to year 6 with one year being adjusted upwards vs paying a 30 year through the same period of time... the 7 year just didn't save any money for me as of a month ago
either way the housing market is cyclical and (from what i see) appears to hit spurts every 9-12 years, from rates dropping (or housing prices going up), and the chances of you pulling out money from a refi or moving prior to or during that cycle are pretty good anyway
unless you are retiring in that house, then there isn't a good reason to take out a 30 year loan (or shorter)
and furthermore with smart investing if you can easily beat the interest rate you are paying on your mortgage, then keeping only 20-30% equity in your house and pulling out reinvesting the rest seems to be the best way to use that money.... depending on what your timeline to retirement is...
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04-19-2005, 07:05 PM
#8
Suzuka Master
Mortgage people as well as Agent love the ARM cause then the Client can buy more house with their money. Why is it that so many people will go with a Conventional. It is not because they fear the ARM.
Rates are still good. It just does not make sense to do an ARM unless you want to buy more house and you do not have too much money for the monthly PMI.
my 2 cents
Rates are still good. It just does not make sense to do an ARM unless you want to buy more house and you do not have too much money for the monthly PMI.
my 2 cents
04-19-2005, 07:10 PM
#9
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Originally Posted by Eggplant-EX
put the ARM down and slowly back away.....
I hate them. Had it once and it just kept going up. IF (big IF) it did come down, it was miniscule. Just shop hard for a Conventional loan or do a FHA loan which requires a 3% min. down.
If you get an ARM, you will be refinancing down the road and that cost every time you refi.
I hate them. Had it once and it just kept going up. IF (big IF) it did come down, it was miniscule. Just shop hard for a Conventional loan or do a FHA loan which requires a 3% min. down.
If you get an ARM, you will be refinancing down the road and that cost every time you refi.
No disrespect, but stop giving advice on subject you know very little about.
04-19-2005, 07:10 PM
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Originally Posted by Eggplant-EX
It just does not make sense to do an ARM unless you want to buy more house and you do not have too much money for the monthly PMI.
Last edited by TLover; 04-19-2005 at 07:13 PM.
04-19-2005, 07:11 PM
#11
I feel the need...
I'm not biased either way, it all depends on how long you truly intend to stay in your current home. Personally, I'm fairly conservative - and when I refinanced in June '03 even though knew in all likelihood I wouldn't stay in my current home, 15 year fixed at 4.875 without points was pretty damn good, historically speaking.
I take comfort in knowing that less than two years into my current mortgage, more than half of my monthly payment goes toward principle rather than interest.
I take comfort in knowing that less than two years into my current mortgage, more than half of my monthly payment goes toward principle rather than interest.
04-19-2005, 07:20 PM
#12
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I just bought a house last month.
Same question.
The one you need to ask yourself: How long until I sell (including when I have no-job/market depression). I figured 5 years. I got a 7-year ARM.
I did not have the 20% down to avoid PMI, so I did a 10% Line of Credit (interest only) and pay down on that. The nice thing with the Line of Credit is that as you pay more principal, the interest goes down. This is commonly called the 80/10/10 (80% financed, 10% down, 10% LoC).
Same question.
The one you need to ask yourself: How long until I sell (including when I have no-job/market depression). I figured 5 years. I got a 7-year ARM.
I did not have the 20% down to avoid PMI, so I did a 10% Line of Credit (interest only) and pay down on that. The nice thing with the Line of Credit is that as you pay more principal, the interest goes down. This is commonly called the 80/10/10 (80% financed, 10% down, 10% LoC).
04-19-2005, 07:27 PM
#13
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Originally Posted by PistonFan
I'm not biased either way, it all depends on how long you truly intend to stay in your current home. Personally, I'm fairly conservative - and when I refinanced in June '03 even though knew in all likelihood I wouldn't stay in my current home, 15 year fixed at 4.875 without points was pretty damn good, historically speaking.
I take comfort in knowing that less than two years into my current mortgage, more than half of my monthly payment goes toward principle rather than interest.
I take comfort in knowing that less than two years into my current mortgage, more than half of my monthly payment goes toward principle rather than interest.
04-19-2005, 07:38 PM
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Originally Posted by Eggplant-EX
Mortgage people as well as Agent love the ARM cause then the Client can buy more house with their money. Why is it that so many people will go with a Conventional. It is not because they fear the ARM.
Rates are still good. It just does not make sense to do an ARM unless you want to buy more house and you do not have too much money for the monthly PMI.
my 2 cents
Rates are still good. It just does not make sense to do an ARM unless you want to buy more house and you do not have too much money for the monthly PMI.
my 2 cents
I would be more than obliged to discuss this further with you but I think I have already filled this thread with too much of what could be construed as my opinion. I don't want this to turn into a he said he said war and lower the value of each others argument.
That said, I'm going to respectfully claim that you are wrong and let others chime in with their opinions.
04-19-2005, 07:39 PM
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Originally Posted by BigPimp
GoDucks is giving good advice. I would love to help but I dont really have the energy right now to discuss this.
04-19-2005, 08:27 PM
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I'm no fan of the ARM either(in this market), but it can make sense, mainly depends on how long you want to stay in the home.
Basically, whatever bank you choose to do the refi, ask them what ALL the options are. There are ways to get around every hot button that a client has...there are products for short term, little money down, reduction of PMI, lowest rate...all these factors affect what one product or COMBINATION of products are right for any one individual(conv, arm, int-only, fixed first~heloc second, etc).
That being said, Slimey, what is your main concern? Low rate, low-fee refi, etc?
And really, Eggplant makes a good point here. Not saying that DUCKS or BIGPIMP would do this, but I've seen it happen fairly often.(edit=when rates were much lower though ).
Basically, whatever bank you choose to do the refi, ask them what ALL the options are. There are ways to get around every hot button that a client has...there are products for short term, little money down, reduction of PMI, lowest rate...all these factors affect what one product or COMBINATION of products are right for any one individual(conv, arm, int-only, fixed first~heloc second, etc).
That being said, Slimey, what is your main concern? Low rate, low-fee refi, etc?
Originally Posted by Eggplant
Mortgage people as well as Agent love the ARM cause then the Client can buy more house with their money.
04-19-2005, 09:45 PM
#18
Where is my super sauce?
Thread Starter
Originally Posted by chef chris
That being said, Slimey, what is your main concern? Low rate, low-fee refi, etc?
I probably want it all -- I want to buy the biggest home I can afford, keep my monthly payment low, keep my payments predictable, and pay off some principle with the loan (I guess this feels safe to me if nothing else). I have no idea how long we'll stay in our next home -- we could get antsy after a few years and want to move up or out, or we can love it and stay put.
I'm thinking a 5 or 7 year ARM vs a 30 fixed will make the most sense to me, depending on how the rates compare. I'm guessing that I won't be in the home for more then 7 years, given my current track record.
Originally Posted by chef chris
low-fee refi, etc?
04-19-2005, 09:55 PM
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I think you hit the nail on the head...as long as the note doesn't contain a pre-payment clause or something similar, I think you'll be fine. Just ask a lot of questions of the bank/broker...asking saves $$$.
A few options if you want the least amount of out-of-pocket fees/no PMI...look into an ARM(or conventional) first mortgage & a second mortgage of the Home Equity Line or Loan type. Just about anyone in the industry can offer you a no fee/no point mortgage these days...lots of competition in the market with fees. ...OR...if you prefer to pay points(if you go the conv route) then you can wrap those fees into the second mortgage at closing, etc.
Just some other options to consider...
A few options if you want the least amount of out-of-pocket fees/no PMI...look into an ARM(or conventional) first mortgage & a second mortgage of the Home Equity Line or Loan type. Just about anyone in the industry can offer you a no fee/no point mortgage these days...lots of competition in the market with fees. ...OR...if you prefer to pay points(if you go the conv route) then you can wrap those fees into the second mortgage at closing, etc.
Just some other options to consider...
04-19-2005, 11:06 PM
#20
Suzuka Master
Originally Posted by BigPimp
No disrespect, but stop giving advice on subject you know very little about.
I AM in the Real Estate business and am on my 5th mortgage. How many have you had??
04-20-2005, 12:02 AM
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Originally Posted by Eggplant-EX
I AM in the Real Estate business and am on my 5th mortgage. How many have you had??
04-20-2005, 01:14 AM
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Originally Posted by Eggplant-EX
I meant to say Pricinciple & Interest. I appraise and am not 100% up on mortgage terms...
Bite me!!
Bite me!!
04-20-2005, 07:35 AM
#25
Team Owner
Some observations about this thread.
Avoiding PMI- Requires buyer (most likely first time/young) to take out a second mortage. Thus higher monthly mortgage payment (higher than if they just paid the PMI??) . Is it smart to take on that much debt?
ARMs- Could be good, if rates go up the solution is refi? That doesn't make sense to me. What do you refi into? Another ARM? A traditional 15 or 30 year? If you refi into another ARM will the rate be lower than your current ARM? I would assume a refi into a traditional mortgage would equal a higher rate. A good argument for ARM is that you probalby won't be in the house long enough for the adjustable part to kick in.
One thing I haven't seen any discussion of is actually paying off the mortgage. With all this rate jockeying (via. refi's etc) will the mortgage ever get paid off?
Are terms on ARMs 30 years? (ie. if I keep the ARM for its entire life, when will the mortage be paid off)
Avoiding PMI- Requires buyer (most likely first time/young) to take out a second mortage. Thus higher monthly mortgage payment (higher than if they just paid the PMI??) . Is it smart to take on that much debt?
ARMs- Could be good, if rates go up the solution is refi? That doesn't make sense to me. What do you refi into? Another ARM? A traditional 15 or 30 year? If you refi into another ARM will the rate be lower than your current ARM? I would assume a refi into a traditional mortgage would equal a higher rate. A good argument for ARM is that you probalby won't be in the house long enough for the adjustable part to kick in.
One thing I haven't seen any discussion of is actually paying off the mortgage. With all this rate jockeying (via. refi's etc) will the mortgage ever get paid off?
Are terms on ARMs 30 years? (ie. if I keep the ARM for its entire life, when will the mortage be paid off)
04-20-2005, 08:02 AM
#26
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Originally Posted by Eggplant-EX
I AM in the Real Estate business and am on my 5th mortgage. How many have you had??
Dude, you appraise real estate, keep it that way. You are very far from knowing anything about mortgages and your comments show it. But keep digging, maybe you'll convince people.
No offenseI do mortgages for a living and I deal with these types of questions all day long. In the time I have been here, I must've closed over 600 loans, with 67% of those being ARMs. Yes, you are correct, I know very little about it.
Keep digging.
04-20-2005, 08:16 AM
#27
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Originally Posted by doopstr
Some observations about this thread.
Avoiding PMI- Requires buyer (most likely first time/young) to take out a second mortage. Thus higher monthly mortgage payment (higher than if they just paid the PMI??) . Is it smart to take on that much debt?
ARMs- Could be good, if rates go up the solution is refi? That doesn't make sense to me. What do you refi into? Another ARM? A traditional 15 or 30 year? If you refi into another ARM will the rate be lower than your current ARM? I would assume a refi into a traditional mortgage would equal a higher rate. A good argument for ARM is that you probalby won't be in the house long enough for the adjustable part to kick in.
One thing I haven't seen any discussion of is actually paying off the mortgage. With all this rate jockeying (via. refi's etc) will the mortgage ever get paid off?
Are terms on ARMs 30 years? (ie. if I keep the ARM for its entire life, when will the mortage be paid off)
Avoiding PMI- Requires buyer (most likely first time/young) to take out a second mortage. Thus higher monthly mortgage payment (higher than if they just paid the PMI??) . Is it smart to take on that much debt?
ARMs- Could be good, if rates go up the solution is refi? That doesn't make sense to me. What do you refi into? Another ARM? A traditional 15 or 30 year? If you refi into another ARM will the rate be lower than your current ARM? I would assume a refi into a traditional mortgage would equal a higher rate. A good argument for ARM is that you probalby won't be in the house long enough for the adjustable part to kick in.
One thing I haven't seen any discussion of is actually paying off the mortgage. With all this rate jockeying (via. refi's etc) will the mortgage ever get paid off?
Are terms on ARMs 30 years? (ie. if I keep the ARM for its entire life, when will the mortage be paid off)
Avoiding PMI with a second mortgage is a solution but not the best. We handle it differently by basically adding a small percentage to the rate instead of charging PMI. That small add-on drops off when you reach 20% equity or property has gained market value and we do an appraisal after at least 24 months to show it.
Most people do not stay in the their mortgage long enough for the adjustable part to kick in. You just have to be smart on the term of the ARM that you pick. Adjustables are traditionally based on 30 year payout schedule. You can decide what you refi into, typically another adjustable is a good solution. It's is slightly riskier that a typical 30 yr fixed but when the ARM adjusts, there is always a yearly cap and a lifetime cap, plus it's based on a short term index so it's not likely to go too high.
04-20-2005, 10:13 AM
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PMI can be the best way if you have a very strong feeling that the house will appreciate at a fast rate. Once you can prove you've got 20% equity in the joing, your PMI obligation is over.
Also, I don't think anyone's mentioned conforming vs non-confirming mortgates. If you go with an 80/20, or some variation, you don't get their "best" rate on the 80% part. So, you're penalized twice for not having the 20% down.
Hey, where ya moving to? I'm going to stalk you until you install my dust deflector
Also, I don't think anyone's mentioned conforming vs non-confirming mortgates. If you go with an 80/20, or some variation, you don't get their "best" rate on the 80% part. So, you're penalized twice for not having the 20% down.
Hey, where ya moving to? I'm going to stalk you until you install my dust deflector
04-20-2005, 12:49 PM
#31
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Thread Starter
Originally Posted by beerknurd
PMI can be the best way if you have a very strong feeling that the house will appreciate at a fast rate. Once you can prove you've got 20% equity in the joing, your PMI obligation is over.
Also, I don't think anyone's mentioned conforming vs non-confirming mortgates. If you go with an 80/20, or some variation, you don't get their "best" rate on the 80% part. So, you're penalized twice for not having the 20% down.
Hey, where ya moving to? I'm going to stalk you until you install my dust deflector
Also, I don't think anyone's mentioned conforming vs non-confirming mortgates. If you go with an 80/20, or some variation, you don't get their "best" rate on the 80% part. So, you're penalized twice for not having the 20% down.
Hey, where ya moving to? I'm going to stalk you until you install my dust deflector
Milwaukee
for multiple reasons...I might explain more later.
As they say, another satisfied customer.
04-20-2005, 01:18 PM
#33
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Originally Posted by BigPimp
Dude, you appraise real estate, keep it that way. You are very far from knowing anything about mortgages and your comments show it. But keep digging, maybe you'll convince people. No offense
I do mortgages for a living and I deal with these types of questions all day long. In the time I have been here, I must've closed over 600 loans, with 67% of those being ARMs. Yes, you are correct, I know very little about it. Keep digging.
No offenseI do mortgages for a living and I deal with these types of questions all day long. In the time I have been here, I must've closed over 600 loans, with 67% of those being ARMs. Yes, you are correct, I know very little about it.
Keep digging.at your age of 26, I do not buy the 600 loans. And if you are doing 67% ARMs, then I truly believe that you are have NOT being doing all of your Customers a service, especially since we have had such low rates. I would not be surprised if you work with people who have bad credit and wind up doing ARM loans with high interest rates.....
04-20-2005, 01:20 PM
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Originally Posted by Eggplant-EX
at your age of 26, I do not buy the 600 loans. And if you are doing 67% ARMs, then I truly believe that you are have NOT being doing all of your Customers a service, especially since we have had such low rates. I would not be surprised if you work with people who have bad credit and wind up doing ARM loans with high interest rates.....
04-20-2005, 01:20 PM
#35
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Come on guys, please don't mess up one of the few educational threads on this board.
04-20-2005, 01:22 PM
#36
Where is my super sauce?
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Originally Posted by doopstr
Come on guys, please don't mess up one of the few educational threads on this board.
04-20-2005, 01:24 PM
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Originally Posted by Eggplant-EX
at your age of 26, I do not buy the 600 loans. And if you are doing 67% ARMs, then I truly believe that you are have NOT being doing all of your Customers a service, especially since we have had such low rates. I would not be surprised if you work with people who have bad credit and wind up doing ARM loans with high interest rates.....
https://acurazine.com/forums/ramblings-12/wow-huge-award-work-301069/
Oh and I was # 582
04-20-2005, 01:27 PM
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I think the key to mortgages is getting a loan broker who 1. understands your situation and 2. is open-minded, in that s/he isn't fixated on one type of loan regardless of your situation.
04-20-2005, 01:53 PM
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Originally Posted by TLover
I think the key to mortgages is getting a loan broker who 1. understands your situation and 2. is open-minded, in that s/he isn't fixated on one type of loan regardless of your situation.
I think that is absolutely ludicrous. Maybe he's had a bad experience and it rang true for him or maybe he's talking out of his ass
But i do know that it is not possible in the way I operate my business and therefore ludicrous to hear him say.As I have said, all facts and statistics aside, the most compelling truth to the loan you choose is "does it make you feel comfortable." If it scares the hell out of you, then thats reason enough not to choose it.
That said, when I sit down and prequal my clients, the first thing we do is go over their goals, plans, and risk tolerance. From that conversation, an ARM or a fixed is chosen and ONLY THEN do i go qualify the purchase price. There are just way too many variables to do it the way he suggests considering I have 30+ wholesale lenders to choose from who all offer different programs. That means hundreds of programs to choose from. Not having chosen fixed or ARM ahead of time means juggling possibly hundreds of different products.
Last edited by GoDucksCLSPride; 04-20-2005 at 01:58 PM.
04-20-2005, 01:55 PM
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Originally Posted by Eggplant-EX
at your age of 26, I do not buy the 600 loans. And if you are doing 67% ARMs, then I truly believe that you are have NOT being doing all of your Customers a service, especially since we have had such low rates. I would not be surprised if you work with people who have bad credit and wind up doing ARM loans with high interest rates.....
Easy math. I close on average 25 loans per month, I have been here over 2.5 years, 25X24 months. I am also not a broker, so to me it does not matter what product my customer's choose, but they are very happy to select an ARM (most of the time ask for it) and save lots of money per month. They know their risk and still choose an ARM because most of the time it makes sense. Most people do not realize ARMs exist and happy to get one.
I am not here to make this a pissing contest but rather educate and provide feedback since I do this everyday. I just hate to see blind leading the blind as in the case of your advice.
You just had a bad experience and no one to point you in the right direction.