 |
bostonbubble.com
Boston Bubble - Boston Real Estate Analysis
|
|
SPONSORED LINKS
Advertise on Boston Bubble
Buyer brokers and motivated
sellers, reach potential buyers.
www.bostonbubble.com
YOUR AD HERE
|
|
DISCLAIMER: The information provided on this website and in the
associated forums comes with ABSOLUTELY NO WARRANTY, expressed
or implied. You assume all risk for your own use of the information
provided as the accuracy of the information is in no way guaranteed.
As always, cross check information that you would deem useful against
multiple, reliable, independent resources. The opinions expressed
belong to the individual authors and not necessarily to other parties.
|
| View previous topic :: View next topic |
| Author |
Message |
news
Joined: 14 Jul 2007
Posts: 0
Location: Greater Boston
|
|
| Back to top |
|
 |
Shoe
Guest
|
 Posted: Mon Mar 17, 2008 7:31 am GMT Post subject: |
 |
|
Key word:
Globe 
..
.
. |
|
| Back to top |
|
|
JCK
Joined: 15 Feb 2007
Posts: 559
|
| Posted: Mon Mar 17, 2008 2:04 pm GMT Post subject: |
|
|
I don't necessarily disagree with their logic. If the spread in rates between the ARM and the fixed rate is large enough, it's worth going with the ARM.
In February (when this article was probably proposed), there was nearly a full point difference between 5/7 ARMs and the 30 year fixed rates. I'd personally be loathe to give up thousands of dollars of guaranteed savings for the next few years, but to each his own.
If you take the lower ARM rate, and pay your mortgage at the fixed rate payment, you can both save significant amount of interest and mitigate the ARM risk somewhat.
That being said, the ARM market has completely blown up in the last week, and now there's absolutely no sense in getting an ARM at a rate similar to (or even higher than) the available fixed rates. |
|
| Back to top |
|
|
JCK
Joined: 15 Feb 2007
Posts: 559
|
| Posted: Mon Mar 17, 2008 2:08 pm GMT Post subject: |
|
|
To follow up, I think ARMs are fine if you are using them in the context of money saving/risk management, as long as you understand the product and its associated risks.
The practice of using ARMs to squeeze people who cannot afford the fixed rate payment on a particular home is highly questionable in my opinion and not an appropriate use of the product. But of course you can always find exceptions, like a young professional who knows his or her income is going to rise significantly in the near term (I'm thinking someone like a medical resident). |
|
| Back to top |
|
|
admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
|
| Posted: Mon Mar 17, 2008 3:53 pm GMT Post subject: |
|
|
The article does qualify who ARMs are right for, though not until the second page, and the qualification makes their recommendation largely useless in my opinion. Here's the relevant portion:
| Quote: |
With spreads like that, the savings from a jumbo ARM can run into the tens of thousands of dollars in the five-year period before adjusting.
Going with an adjustable loan is easier for homeowners who are certain they will sell their house before the mortgage resets, whether to move onto another home, to another job outside the region, to downsize, or to retire elsewhere.
If that timetable changes, or if homeowners don't know how long they will stay, there is a risk they will be hit with higher rates when the mortgage eventually resets.
|
Given the slow market, you might want to plan on a year or so to resell, which would translate into using an ARM if you plan to only stay in one place for 4 years or less. I would be surprised if this time frame was applicable to more than a small minority of potential buyers. It also seems to me that with such a short time frame, renting would probably be a lot cheaper and a lot more convenient, overall.
- admin |
|
| Back to top |
|
|
JCK
Joined: 15 Feb 2007
Posts: 559
|
| Posted: Mon Mar 17, 2008 4:16 pm GMT Post subject: |
|
|
| admin wrote: | The article does qualify who ARMs are right for, though not until the second page, and the qualification makes their recommendation largely useless in my opinion. Here's the relevant portion:
| Quote: |
With spreads like that, the savings from a jumbo ARM can run into the tens of thousands of dollars in the five-year period before adjusting.
Going with an adjustable loan is easier for homeowners who are certain they will sell their house before the mortgage resets, whether to move onto another home, to another job outside the region, to downsize, or to retire elsewhere.
If that timetable changes, or if homeowners don't know how long they will stay, there is a risk they will be hit with higher rates when the mortgage eventually resets.
|
Given the slow market, you might want to plan on a year or so to resell, which would translate into using an ARM if you plan to only stay in one place for 4 years or less. I would be surprised if this time frame was applicable to more than a small minority of potential buyers. It also seems to me that with such a short time frame, renting would probably be a lot cheaper and a lot more convenient, overall.
- admin |
Admin,
A couple qualifications. It's not just sell, but also refinance. We originally took out a 5/1 ARM on our condo, which we recently refinanced to a lower rate 15 yr mortgage. In the end, the savings on the ARM more or less paid for the refinancing costs. I think it really depends on the individual circumstances. We ended up saving significantly by taking this route, but it did involve some risk.
If you're really thinking about selling within four years, I agree, renting is probably better. For that reason, a 7/1 ARM may be a better product, assuming the rate differential is large enough to make the risk worth while.
I guess I hesitate at the idea of leaving tens of thousands of dollars on the table for a security that you may never need. What if your job changes, you have a kid and need to move. What if rates suddenly plunge and you end of refinancing anyway before the fixed term is over?
But, at the same time, I think it's unwise to take out an ARM if you know that you won't be able to afford the max rate during the adjustable period.
Your point about the caveat being buried deep in the article is also well taken. |
|
| Back to top |
|
|
JCK
Joined: 15 Feb 2007
Posts: 559
|
| Posted: Mon Mar 17, 2008 6:50 pm GMT Post subject: |
|
|
| If anyone is looking to refinance a mortgage, rates today on fixed mortgages are really low, with the whole Bear-Stearns financial meltdown and surprise fed rate drop.... |
|
| Back to top |
|
|
admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
|
| Posted: Tue Mar 18, 2008 1:34 pm GMT Post subject: |
|
|
It sounds like you lucked out a little with the interest rate movement (or lack thereof). If I were to buy now, I think that relying on rates to be the same or lower five years from now would be pretty risky, given that they are still well below average. You make a good point that an ARM would be fine if you can assume the risk of historically normal rates, but I don't think most people can. A lot of people were using ARMs to stretch what they could buy and the mantra from many agents and mortgage brokers was "oh, you can just refinance into a fixed rate later." They completely glossed over the very real possibility that refinancing wouldn't help when the time came. You're not glossing over it, I'm just saying that a rationale like yours which makes sense for some gets filtered by the salesmen and the irrationally exuberant so that the risks and caveats get lost and far too many people end up with something riskier than what they can accommodate.
- admin |
|
| Back to top |
|
|
JCK
Joined: 15 Feb 2007
Posts: 559
|
| Posted: Tue Mar 18, 2008 1:39 pm GMT Post subject: |
|
|
| admin wrote: | It sounds like you lucked out a little with the interest rate movement (or lack thereof). If I were to buy now, I think that relying on rates to be the same or lower five years from now would be pretty risky, given that they are still well below average. You make a good point that an ARM would be fine if you can assume the risk of historically normal rates, but I don't think most people can. A lot of people were using ARMs to stretch what they could buy and the mantra from many agents and mortgage brokers was "oh, you can just refinance into a fixed rate later." They completely glossed over the very real possibility that refinancing wouldn't help when the time came. You're not glossing over it, I'm just saying that a rationale like yours which makes sense for some gets filtered by the salesmen and the irrationally exuberant so that the risks and caveats get lost and far too many people end up with something riskier than what they can accommodate.
- admin |
I agree. I think the problem is not that ARMs are bad products, but that they've been inappropriately used. If you take a 7 year ARM and pay down principal with the difference in payment or save for retirement, that can make a sound financial strategy. But I agree, for someone taking out putting down 0% and basically praying that their property values increase so they can refi at a later date, is far riskier than has typically been portrayed. |
|
| Back to top |
|
|
|
|
You can post new topics in this forum
You can reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum
|
Forum posts are owned by the original posters.
Forum boards are Copyright 2005 - present, bostonbubble.com.
Privacy policy in effect.
Powered by phpBB © 2001, 2005 phpBB Group
|
FAQ
Search
Memberlist
Usergroups
Register
Profile
Log in to check your private messages
Log in
