Nightmare Mortgages

Business Week ^ | September 11, 2006 | Unknown

[Mini-14]

The stupidity of taking out an option ARM is obvious to me after reading criticisms of the loan, as I have had courses in finance as part of a MBA program. The people who make these loans certainly know the pitfalls of these loans.

On the other hand, people who get this stuff pitched to them may have little financial knowledge. In my opinion, the people who take out these loans are less culpable than the bankers who provide the loans.

[Phantom Lord]

demsux,

Don't know shit huh? Sorry, I know because it is what I have done for a living for 10 years.

Sorry that you got taken or had subpar credit. But 6.75% was the PEAK rate about a month ago after years of increases.

[Phantom Lord]

ARMs allow people to purchase when they don't have a leg to stand on.Sometimes. But they are also a very powerful tool to save a ton of money on the purchase of your home.

My case being a perfect scenario.

When I bought my home in 1999, a 30 year fixed was 7.25%. I got a 1 year ARM at 5.25%. Worst case scenario in a year it would go to 7.25%. But it didn't. It dropped in 2000. It dropped again in 2001. And again in 2002. And again in 2003. But in 2003 I was able to refi to an even lower rate of 3% for a 3/1 ARM. And it was known that I would be in a new home before sometime during the last year of the 3 year fixed period.

So, should I have gone with the 7.25% fixed, or did I make the right move with the ARM?

I hope the answer is obvious.

[Phantom Lord]

However, financing these past couple of years at a one year ARM is not wise

Very very few people should be getting short term (1 and 3 year)ARMs right now. Fixed is prefered, but if a nice spread can be obtained with a 10/1 or 7/1 I would have no hesitation about putting someone in one of those. Especially first time buyers. They won't be in the home that long.

[agrarianlady]

Someone please tell me I made a bad move.

Well, my Northern VA neighbor thought the same thing two years ago, and now they want to move, have no paid-down equity, and can't get their price (house has been on the market a while with no lookers). So basically, it's like they rented from the bank, but instead of a $2,000 a month rent they paid $3000 a month plus upkeep.

What would a similar property to yours rent for per month, and what is your current monthly nut? That sometimes can clue you in to the fundamentals of your market.

[Porterville]

IMHO, hyperbolic statements make many on this thread look like they have a small rudimentary understanding of economics and business. Of course, IMHO, It makes them appear to be jealous of the successful investors and (IMHO) shows a pettiness characteristic of failures.

[Mini-14]

Seattle is listed as a #10 on this guy's Potential Housing Bubble (7.5 to 10.0)
John Burns Real Estate Consulting Housing Cycle Barometer  An explanation of the table is proved here:  www.cepro.com/news/editorial/14925.html

[Mini-14]

[Jaysun]

Someone please tell me I made a bad move.

Brilliant move. I'd bet that your house payment is less than a decent 2 bedroom apartment in the area. And although it's hard to build much equity in 2 years, with a bit of luck you'll take some money with you when you move.

[Rate_Determining_Step]

Actually, I'm paying $1600/mo. Less than what it would rent for. Although renting IMHO has been ridiculously expensive, especially if you consider the zero equity factor.

[Busywhiskers]

"Geez.....I heard the same doom and gloom in the 70's....."

And if you think about it a bit the doom and gloom actually occurred in the late 70's and early 80's.

[Liberty Valance]

what's a mortgage?

[Jaysun]

Actually, I'm paying $1600/mo. Less than what it would rent for. Although renting IMHO has been ridiculously expensive, especially if you consider the zero equity factor.

I see. Then the value of your home is higher than average. Congratulations.

Renting is idiotic unless it's absolutely necessary. And many neglect to consider the tax advantages of buying a home when comparing mortgage payments to that of rentals, not to mention the building of equity.

[Pelham]

No one is noticing the distinction between an ARM and an Option ARM. Except the unlucky stiffs mentioned in the article, who now understand the difference all too well.

[Pelham]

Which helps explain the high prices in California.