5/1 and 7/1 ARM mortgages

[Spincycle]

Originally Posted by skapur

Thanks for your input guys. Well Fargo is now offering me ridiculous 30 yr FHA rate 6.75% and $13,000 in closing costs, 10% down. My score is 650 and my wifes 730. Now I need to shop around a bit.

BTW..I finally signed the contract today. 2 months to closing date.

Look at Spencer Savings maybe BofA. Wells Fargo is too high on all accounts.

[MoorestownResident]

I have a 5.75% fixed rate, no need to consider an ARM at that level. Keep in mind that even a 6.5% fixed rate is historically on the low side. ARMs, like Interest Only (IO) loans work well for those that are wealthy or for those buying something they can easily afford. The problems started when ARMs and IOs became teasers for those that could NOT afford what they were buying.

[mikieguns]

overall I am ok with ARMS if the rate is truly much better than a fixed and you plan to either sell or refinance sometime in the foreseeable future. obviously the long term fixed option is "safer" if it is your primary residence and planning to live there for a while, especially if you can get a decent rate. in my opinion, the rates on the ARMS right now are not good enough to justify doing one. just my two cents.

overall, although housing prices are pretty decent right now, market conditions for mortgages have gotten pretty bad in my opinion. for example, last december i was looking at a property for $350K and was quoted a monthly payment (mortgage plus taxes) of $2600. Now, 9 months later I have been given almost the same exact monthly payment quote for a house that is $50K less. Really frustrates me! There have been a number of factors that have changed over the past year contributing to this: (so I am told):
1) rates are higher in general. Back then they were 6.25%, and now they would be 6.5-6.75% for 20% down and even more for 10% down.
2) rates are now credit graded. It's not enough to have a good down payment anymore to have the best rates. You must also fall into the top tier of credit scoring to get the best rates (720 or higher)
3) this is possibly the biggest factor: that mortgage insurance companies have raised their rate significantly, to offset the cost of high default rates on low down payment loans.

Each of these 3 factors alone is enough to raise rates/payments, but when combined it certainly has a more dramatic effect. All of these constraints are (hopefully) intended to sure up the lending industry, by holding borrowers to higher standards & making sure they are completely qualified. But they make it tougher for people like me! I was about to make an offer on a property but now I am thinking I will hold right for a bit.

[camaro69]

Originally Posted by Diane Giam

I would stick to a fixed rate. If you look around you may get lower than posted.

Imo, An ARM is what caused all the problems you see today. It's better to be safe. I have owned four homes, and I have never taken anything that wasn't a fixed rate.

Diane G

Wrong. ARMS's didn't cause todays mortgage crisis. People who bought homes well over their heads at 100% borrowings caused this crisis.

[Diane Giam]

Originally Posted by MPBsr

Wrong. ARMS's didn't cause todays mortgage crisis. People who bought homes well over their heads at 100% borrowings caused this crisis.

That's true, but if they had a fixed rate they would not be in the trouble they are in today. They now own homes less than their mortgage, so they are foreclosing on them . Having worked in a bank in the Mortgage dept the only choices I would recomend are the Conventional, FHA, and VA mortgages.

Diane G

[Spincycle]

Originally Posted by MPBsr

Wrong. ARMS's didn't cause todays mortgage crisis. People who bought homes well over their heads at 100% borrowings caused this crisis.

I have heard a few stories about people with ARMS on both 1st and 2nd (HELOC) with no money down plus money back. They had credit FICO less than 700 too. Has anyone heard of similar senario?

This is insane. No money down, money kicked back, and teaser rates on a double mortgage. Everyone was living large and told it was OK to stretch only if it meant buying real estate (real estate was the best investment). Sellers/brokers/banks were laughing hand over fist at when the cycle boomed. There were no controls or caps in place to police what was about to take place.

I also heard foreigners made out like bandits, took out mortgages w/huge HELOCs, maxed out the HELOC and the left the county, let the house foreclose. But nobody mentions this at all for sake of "PC".

[Rasital]

Do you have to put 20% down to get a 5/1 or 7/1 arm?

[manderly6]

Originally Posted by Rasital

Do you have to put 20% down to get a 5/1 or 7/1 arm?

It certainly isn't a blanket requirement.

[rscalzo]

I heard it was 18% at some time in 80s

15 % fixed mortgages were not unusual in the early 80's.

[USER876]

I had a 7 yr arm at 4.5% back in 2004. The townhouse was a stepping stone, and I knew I would be moving onto something bigger in the 7 yr period.

I just moved into a 4 bedroom house. I saved tens of thousands of dollars in interest over if I went with a 5.5% 30 yr fixed mortgage. I was a great move.

I wouldn't recommend going with an arm if you:

Can't afford the payments based on 2 % points higher

or

Plan on staying in the place for more than 7 yrs