When most people got their ARMS (1 to 4 years ago), the ARM rate was dramatically below fixed rates and there was tremendous advantage to them. However, today, it is not unusual to ARMS with the same rate as fixed or only .25% below a fixed rate. No big advantage to ARMs currently.
"No big advantage to ARMs currently.
"
That can be true, except they're still peddling the interest-only option on these, leading the buyer to wrongly think they can afford a property they should probably avoid.
If I were one of these folks, I'd be looking closely at what the payment's likely to be when the loan converts, then either refinance now or plan a sale at least 6 months in advance of the conversion date. To be safe, 9 months would be better.
The young couple who bought my former house in California financed it this way, against my advice. Trouble is that now there's a problem there. The sewer that was supposed to be built in that small coastal town is stalled, and there are a bunch of lawsuits and regulatory fines looming.
Homes in that community are virtually unsaleable for the moment, since there are so many financial unknowns. Now, they're about to hit a conversion date, and it's not going to be pretty for them.
They pretty much maxed out their purchasing power to buy that house...and it was the cheapest house on the market at the time. I warned them that they were flirting with danger, but they're about 30 and think nothing can go wrong in their life.
I had another offer on the house, too, so I tried to convince them not to do it, but they wanted a house in that town and they wanted it then, so I went ahead with the sale.
I hope they come out OK on it.