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An ARM and a Leg
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Tuesday, June 20, 2006
7:27:00 AM EDT
Hearing Nothing at the moment
This is no good: People who took out adjustable rate mortgages over the last couple of years to take advantage of the low rates they initially provided are finding that their housing costs are going up, up, up as interest rates rise:
ARMs, which featured a low introductory interest rate that resets upward after a set period of time, were easier to qualify for than traditional fixed-rate loans.
ARMs are now starting to fall by the wayside as the difference in interest rates narrows. The average rate on a 30-year fixed rate loan in May was 6.60 percent compared to 5.63 percent on a one-year ARM, according to Freddie Mac. In 2003, rates on a 30-year fixed were at 6.54 percent, while ARMs carried a 3.76 percent rate.
This year, more than $300 billion worth of hybrid ARMs will readjust for the first time. That number will jump to approximately $1 trillion in 2007, according to the MBA. Monthly payments will leap too, many beyond what homeowners can afford.
Like many folks, when we bought our house we had a number of options for our mortgage, including an ARM. But our philosophy regarding mortgages is summed up rather simply as: Don't mess around with where you live. We paid a higher rate for our 30-year mortgage, but on the other hand we know pretty much precisely what we're going to pay on the that mortgage for the next couple of decades. Having that sort of long-term stability helps immensely when planning one's future.
I do have a number of friends with ARMs; I don't expect any of them will be facing forclosure, as many of the people in this article appear to be, but I can't imagine these friends of mine will be pleased that hundreds of dollars more have been tacked onto their monthly payments. Who would?
Do you know someone who has an ARM? Are they worried about what the future will bring in terms of their rates?
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7:27:00 AM EDT
Hearing Nothing at the moment
An ARM and a Leg
This is no good: People who took out adjustable rate mortgages over the last couple of years to take advantage of the low rates they initially provided are finding that their housing costs are going up, up, up as interest rates rise:
ARMs, which featured a low introductory interest rate that resets upward after a set period of time, were easier to qualify for than traditional fixed-rate loans.
ARMs are now starting to fall by the wayside as the difference in interest rates narrows. The average rate on a 30-year fixed rate loan in May was 6.60 percent compared to 5.63 percent on a one-year ARM, according to Freddie Mac. In 2003, rates on a 30-year fixed were at 6.54 percent, while ARMs carried a 3.76 percent rate.
This year, more than $300 billion worth of hybrid ARMs will readjust for the first time. That number will jump to approximately $1 trillion in 2007, according to the MBA. Monthly payments will leap too, many beyond what homeowners can afford.
Like many folks, when we bought our house we had a number of options for our mortgage, including an ARM. But our philosophy regarding mortgages is summed up rather simply as: Don't mess around with where you live. We paid a higher rate for our 30-year mortgage, but on the other hand we know pretty much precisely what we're going to pay on the that mortgage for the next couple of decades. Having that sort of long-term stability helps immensely when planning one's future.
I do have a number of friends with ARMs; I don't expect any of them will be facing forclosure, as many of the people in this article appear to be, but I can't imagine these friends of mine will be pleased that hundreds of dollars more have been tacked onto their monthly payments. Who would?
Do you know someone who has an ARM? Are they worried about what the future will bring in terms of their rates?
Written by johnmscalzi Blog about this entry |
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This entry has 9 comments: (Add your own)
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Hmmm, I think I just got called a foolish idiot. Sticks and stones, and all that.
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Tee, I don't know nearly as much about your personal situation as I would need to know to give you appropriate advice, nor is financial advice my primary line of work. I would advise you to sit down with an actual financial advisor.
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Glad you talked about this stuff John, infact I was going to e-mail you for some advice concerning finances. I have a HELOC...the rates based on the prime rate. Half of the line is used. I'm trying to understand cash-out refi's. Is a cash-out refi wiser then holding onto this loan?
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You are very smart. The mortgages that are even scarier are the interest only loans where money is added to the principle when the minimum amount is paid. When those go to get refinanced home owners are going to owe a LOT more than their homes are worth in a deflated market and their payments will be huge compared to what they are paying now. It's not going to be pretty. Kathy
http://journals.aol.com/kaydeejay5449/ALittleLeftofCenter/
6/24/06 12:47 AM