Posted on 10/11/2006 6:04:07 AM PDT by Hydroshock
NEW YORK (CNNMoney.com) -- Mortgage rates have been trending down, but that won't do much to benefit those who signed up for low-teaser-rate adjustable-rate mortgages in the past few years.
An ARM charges an initial discounted rate for a period of time, after which it adjusts to market levels. When some types of ARMs with teaser rates of 2 percent or less reset, the rates are likely to jump to more than 6 percent - and even as high as 9 percent.
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That can mean a doubling in monthly payments owed for those homeowners saddled with the loans.
The jump in payments could be even bigger for some people. They could have a loan balance that's larger today than it was when they got their mortgage - a situation called negative amortization. And it's common with what are called "payment option" ARMs.
That's because the initial teaser rate is a "payment rate," not an interest rate. That means the market-rate interest on the loan starts to accrue from the get-go and monthly payments aren't enough to cover it, let alone pay down any of your principal.
There may also be a trigger ceiling, meaning when the balance reaches a certain level - say 120 percent of the original balance - the introductory terms will end and the rate will reset upward, according to Christopher Cagan, director of research at First American Real Estate Solutions, a mortgage information provider.
(Excerpt) Read more at money.cnn.com ...
What I don't understand is that most of these people bought when the regular interest rate was soooooo low already.
so these folks didn't read what they were signing? they didn't think or what?
In many cities it was the only way to buy a house. In LA for example over 1/2 of the loans for homes were these in the past few years.
They got a 1.2 percent ARM in February with a monthly minimum payment of $1,372. By April, the loan rate had reset, jumping to 8.375 percent, and their loan balance had ballooned by $3,000 in just two months.
Their new monthly payment: $2,216 if they want to pay interest-only or $2,300 if they want to start paying down principal as well.
"I'd call this an obscene loan," Adam said.
So let me get this straight. They got the loan in February, made the first payment in March, and the loan reset to 8.375% in April. And they were surprised by this?
The refinanced out of fixed rate mortgage to an ARM at 8.375%. BRILLIANT! I have no sympathy for morons.
I love stories that use ridiculous anecdotes.
They thought they were "saving" 1.5% - 2% on the interest without realizing they would loose that and more within 18 months of the 1st interest recalculation.
I call BS on that. The worse loans don't reprice for 12 months. This is a sub prime note.
What I don't understand is this: if you get an ARM, what law dictates that you have to stick with that loan forever? When the ARM is about to go up to 9%, why can't you just refinance and get a 5% fixed-rate loan for 30 years? Where's the problem?
Or as John Wayne put it "Life is hard, but it's harder if you're stupid."
You can, if you can pay closing costs, which is a chunk if change out of your pocket.
I don't follow. Were over half what folks bought? Meaning they had other choices. Or allwhat was offered, still meaning there were other choices.
Don't question. The proper reaction is to tremble in your boots out of fear of the impending doom.
A lot of people I know who signed these types of mortgages didn't care about what was going to happen 3, 5, or 10 years down the road. They wanted their fancy new house AND THEY WANTED IT NOW! And at a mortgage payment they could "afford" along with all their other car payments and charge debt at the time.
LOL. You really believe that?
I will happily sit here with my 5.5% fixed rate mortgage that I am now a little over 3 years ahead on just by paying an extra $100 principal every month.
Many times the problem is that the borrower doesn't qualify for the fixed rate loan, even at, say, 5%. Sometimes, they just barely qualify at the teaser rate of 1% to 3%. They wouldn't have a chance of qualifying for a 5% mortgage.
It's all spelled out in the Note, and again on the Truth-in-Lending, and yet again on the ARM Disclosure flyer mandated by federal law. And refis have a three day right-of-rescission, so there was plenty of time away from the table for the borrowers to review the docs before it all became final.
At some point ignorance becomes willful.
It's scary. Wherever I travel around the outskirts of Detroit, almost all the new developments are of HUGE houses. I get the feeling these people are up to their noses in debt, and when these adjustables double their payments, they'll go under. And there are so many of them!
Then, make a poopie.
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