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I've started making offers on real estate again and recently came across an option arm at 2% over 5 years. looking at spending around $200k with a $50k dp. with real estate in the doldrums i can't imagine rates going up anytime soon
Are you aware of what an option arm is? The 2% is not the interest rate, but it is a payment rate and the loan accures interest at a higher interest rate.
The option arm is a very sophisticated loan and make sure you understand the benefits and drawbacks.
I've started making offers on real estate again and recently came across an option arm at 2% over 5 years. looking at spending around $200k with a $50k dp. with real estate in the doldrums i can't imagine rates going up anytime soon
While I won't go so far as to call it madness to get an ARM that might literally be less than half the rate of longer term product, I will strongly advise against thinking that it will easy to refi into something attractive five years out...
There currently an awful lot of folks that have ARMs that probably are stuck with em due to lack of equity. They do not need to refi, as rates are at or below the ARM they have, but when rates rise, and they will, these folks are going to be even more stuck...
I guess what I afraid is not that you are not getting a nice rate (which you are), but that you need to be aware that rates aree likely to be MUCH. Higher in five years AND the home you are purchasing declines in value you might be in bad shape... Without knowing your total financial picture Nor your plans for relocating / selling before the ARM resets I would only caution that prudence demands you evaluate the " worst case scenario"...
While I won't go so far as to call it madness to get an ARM that might literally be less than half the rate of longer term product, I will strongly advise against thinking that it will easy to refi into something attractive five years out...
There currently an awful lot of folks that have ARMs that probably are stuck with em due to lack of equity. They do not need to refi, as rates are at or below the ARM they have, but when rates rise, and they will, these folks are going to be even more stuck...
I guess what I afraid is not that you are not getting a nice rate (which you are), but that you need to be aware that rates aree likely to be MUCH. Higher in five years AND the home you are purchasing declines in value you might be in bad shape... Without knowing your total financial picture Nor your plans for relocating / selling before the ARM resets I would only caution that prudence demands you evaluate the " worst case scenario"...
was going to buy the place outright but when i saw 2% i got thinking. 5 years later if rates change higher i'll just settle
Factor in settlement costs, early termination fees, any junk whatsoever...
Quote:
Originally Posted by 58robbo
was going to buy the place outright but when i saw 2% i got thinking. 5 years later if rates change higher i'll just settle
There are some hinky looking loans creeping back into the marketplace. If you go over everything with a fine toothed comb and really can keep hhe full pay off amount working in a safe investment you could end up ahead of the game, but it is not a no- brainer. Then again paying cash, with the current possibility of continued downdrafts in many areas, is far from a no brainer either. Much depends on what your alternatives are and how stable you need / want your life to be....
these products have these intro rates as a bait to hide terrible reality - they are horrible once intro time is over.
this is time to lock in fixed rates, as they are at their lowest in last 30 yrs, so is very very unlikely that rates will be better 5 yrs from now. Whatever buyer is buying if he can't afford it at 4.25% rate, he shouldn't be buying it.
Last edited by Green Irish Eyes; 09-10-2010 at 10:14 AM..
Reason: edited out reference to deleted post
Last edited by Green Irish Eyes; 09-10-2010 at 10:14 AM..
Reason: Deleted rude comment
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