I agree, the budget has to be able to absorb increases but the fatc is the market that sets rates wants a premium for fixing the rate long term. The investors are not stupid, they project what the future will bear for rates and will demand premiums for the risk of lending for longer term at fixed amounts.
In other words the fixed rates provide a guarantee, and that guarantee cost money.
I agree, the budget has to be able to absorb increases but the fact is the market that sets rates wants a premium for fixing the rate long term. The investors are not stupid, they project what the future will bear for rates and will demand premiums for the risk of lending for longer term at fixed amounts. In other words the fixed rates provide a guarantee, and that guarantee cost money.
Exactly. The buyer pays a premium just as the buyer of health insurance, liability insurance and life insurance pays an insurance premium.
For those who live from paycheck to paycheck, insurance is a good thing to have even if the cost of your insurance means that you are on a tighter shopping budget.
The problem today is that, in order to afford inflated prices, too many buyers are stretching their budgets to the limit even after they have taken advantage of every risky gimmick that the market offers.
Too many of them have left themselves no margin of safety and too many of them now have mortgages that they won't be able to afford once the "interest only" period expires even if interest rates stay the same.
My own rule of thumb is that, if a buyer cannot afford the price with a standard fixed rate loan, he should be looking at a more affordable piece of property.