APR is 1% higher than Interest rate

[aneftp]

Originally Posted by mortimer

Right. We got one in 2002 and reduced our interest rate from 7.85% to 5.2%.

We took all of the interest savings and used it to make extra principle payments.
When our loan re-set in 2007, we had a much lower balance. We were in the process
of selling our house, but if we were going to stay, we would probably have done
yet another 5-year ARM. The much lower rates made sense and still make sense
as long as the borrower doesn't take the lower payments as license to spend.

Exactly! Unfortunately probably the vast majority of people who took out ARMs just looked at the bottom line monthly payments and didn't look at paying down the principal with the savings.

It's just the American way of the way they view finances.

They figure that "extra" money would be considered "dead money tied into a home".

Rather they see the extra money is something to spend either on more investments that can make more return or just blowing the money away on various vacations/cars/paying down other debt.

[mortimer]

Originally Posted by aneftp

It's just the American way of the way they view finances.

I look at the interest cost per month and only that. That's why I want a 15-year loan.

Originally Posted by aneftp

Rather they see the extra money is something to spend either on more investments that can make more return ... paying down other debt.

I'm OK with that providing they really pay down credit card debt and/or
really know how to earn more than 5% on their investments. I do, but most people really don't.
I'm still not into using real estate margin to trade stocks for my personal finances.

In 2002, refinancing was often the "Escalade Refinance."
My neighbor, who eventually defaulted in 2007, did the "Corvette Refinance."
Unfortunately, lots of people believe that mortgagors struggling today are those same
types of people. Those cash-out dudes are long gone since they always financed
"at the edge." The ones left lost jobs, are using savings, and making sacrifices.

My Loan Officer really really tried to push $25-50k in cash-out on me.

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