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I'm wary of ARMs in low equity situations (and call me crazy but IMO 80% or higher LTV is a LOW equity situation especially given the possibility that home values will continue to decline and our area could cetainly begin to suffer more severely than we have up to now).
With fixed rates under 5% I'm a real tough sell on an ARM.
Ummm, you can have your home lose value, you can be upside down, you can lose your job, you can get injured, you can get sick and be in a boatload of trouble even if you purchase your house with a fixed-rate mortgage. These are all risks of purchasing an asset using substantial debt, not just the risk of purchasing an asset with variable-rate debt.
Yes, there is always risk involved, but we need to minimize the possibilities. With responsible purchasing and borrowing, the risks can be greatly minimized. With my fixed rate and affordable home, I can get run over by a steam roller and still keep my home. If I had an ARM, I would lose my home at some point. If people don't want to realize what has happened and who is at fault, then they are just fooling themselves.
Please correct me on the facts on this, as I have not studied this particular mortgage option from SECU. But at 3.75%, it is only 1% less than my fixed rate. So in what, 2 years, the ARM adjusts to at least what my rate is? So you saved a whole 2 years worth of 1% interest, to now be at or higher than mine and then the sky is the limit from there? Do you know how fast 2 years can go by and how bad any particular market can be? What happens in 4, 6 & 8 years? My rate looks pretty damn good then. Why not take the 4.75% fixed rate and not have any pressure at all regarding the rate increasing? The ARM lovers would at least have little more of an argument if the spread was 4 or 5 percent, but we are talking 1% here.
[/list]Interesting economic theory. Some questions:
What happens when the cost of money in the banking system rises, and our financial markets are stuck in unprofitable situations because 100% of their mortgage portfolios are held in fixed interest receivables?
What happens when the mortgage market becomes illiquid because lenders can no longer package and sell loans to raise additional capital for further lending?
On bailing out banks - you favor eliminating the FDIC then, and removing the "insurance" we all have on our deposits? (Which is used to "bail out" banks)?
I would say that we would finally have responsible lending and a market where is should be naturally. The government uses it's regulation to create a net effect that they wish. The net effect is meant to gain votes for re-election. They don't care about what is right or wrong, just what gets votes. So by manipulating the market with stupid things like the CRA and refusing to let bad companies die, they actually create more issues and extend the pain. The only time that we recover is when the government STOPS manipulating the market and let's it correct. All we need is basic rules and actually enforce them. We need to stop trying to create magical ways for people to gain wealth. How about just working for it?
To a point you could be correct, but here is where the logic falls apart. When you have all the idiotic people that CAN'T manage their finances well or get in over their head or lose a job or have a health issue or the interest rates skyrocket or home values fall, it is YOU and I that have to pay for it. If it just affected the moron that was stupid enough to take out an ARM mortgage, I would say no problem and let the idiot crash and burn. Unfortunately, it doesn't happen that way. Have you paid attention to the trillions and trillions of dollars were are paying out and guaranteeing to cover this mess? It is YOU, ME and all the other RESPONSIBLE people that have to pay the price for this. Therefore it IS my business to speak up about this completely idiotic loan option.
Like I said, irresponsible lending will lead to problems whether a loan is fixed or adjustable. I agree that some people should just NOT be allowed to borrow, but many of those people should have been denied a loan altogether.
I'm all for more regulation to keep the housing industry from ruining the economy further, but I consider an ARM to be an investment vehicle. As long as I can show that I have high probability of using it responsibly, I should be able to do so when I consider it applicable. Again, I equate it to investing in any market. Many mutual funds have lost 30% - 100% of their value over the past year, should we not be able to invest in mutual funds at all? There are 55 year old people who lost hundreds of thousands in retirement savings because they stayed in high risk funds instead of moving to conservative. That doesn't mean we should remove high risk investments from the market.
You've talked about socialism in the past. Your tagline speaks out against communism but in the same breath you're advocating removal of a program (ARM) just because some people are greedy and made the wrong decisions (lenders and borrowers). One of the main arguments against communism and socialism is that others should not have to pay for or be penalized for the mistakes or misfortune of others.
That is your cost, it gets added to the principle. A big stipulation is that the loan must be over 3 years old.
Which loan must be over 3 years old? I assume you mean the loan to be refinanced. Mine is, but I don't see where you see that. Can you point it out? I may be missing other things as well.
Which loan must be over 3 years old? I assume you mean the loan to be refinanced. Mine is, but I don't see where you see that. Can you point it out? I may be missing other things as well.
I know that to be the case from past experience but I *think* I saw it on the modification form.
You'll also have the typical closing costs and prepaids (if the SECU has you escrow).
Vicki
It appears you HAVE to escrow. So the additional fees would include legal fees, document fees, etc. Any ballpark idea of how much they might come to? ($195k loan amount, if relevant)
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Do you know how fast 2 years can go by and how bad any particular market can be? What happens in 4, 6 & 8 years? My rate looks pretty damn good then. Why not take the 4.75% fixed rate and not have any pressure at all regarding the rate increasing? The ARM lovers would at least have little more of an argument if the spread was 4 or 5 percent, but we are talking 1% here. 
