The Ugly Flipside of Cheap Mortgages
We were at a dinner party on Saturday night with a friend who bought his house about three years ago, financing it with a 5-year ARM. Eventhough he’s got another couple of years left before his rate would readjust (presumably upwards), he’s getting ready to refinance with a 30-year fixed in the next few weeks….
We were at a dinner party on Saturday night with a friend who bought his house about three years ago, financing it with a 5-year ARM. Eventhough he’s got another couple of years left before his rate would readjust (presumably upwards), he’s getting ready to refinance with a 30-year fixed in the next few weeks. Even though a 30-year fixed rate back then would have probably been around 5.5% (as opposed to 7% today), in this case the bet paid off for him. He couldn’t have afforded to buy the house at the time without using an ARM; now he’s making a good deal more money than when he first bought, and is willing to pay a little more for the security of knowing his rate won’t get jacked up to 9% in a couple of years. Not everyone’s so lucky, as yesterday’s Times article on the topic points out. Some people in a strong financial position used ARMS smartly to lower their monthly costs with the knowledge they could always just pay off the loan with cash if the rate rose too much. Others, like Inga Rogers, the hairstylist from Boston, are finding their backs to wall, unable to carry the new monthly costs after her rate jumps from 3.875% to 6.875%. Interestingly, New York City has a higher rate of ARMs than the rest of the country (57% versus 48%) but the potential threat is mitigated somewhat by a high proportion of wealthy owners; in addition, the higher turnover rate in portions of the NYC market make ARMs often a suitable choice. Are any readers finding themselves or close friends facing a potentially dire situation because of an ARM? We hope not.
It Seemed Like a Good Bet at the Time [NY Times]
Doubling Down with a Second ARM [Brownstoner]
Illustration by Ross MacDonald.
re: petty spell-checkers
I still think no one should be allowed to post who cannot spell “definitely”.
That is a reasonable bar.
The other day I saw a post somewhere that had 2 spelling errors in that one word.
Given that the lawyer graciously bowed out, as the finance guy, I do too. One last comment though – I’m also on the board on a Brooklyn non-profit so, to someone elses point, nothing is mutually exclusive in NYC. Apologies to any non-profiteers who were offended – this guy really got my goat with his 11th grade spelling bee attitude and nothing to say on the topic that would be of help to people trying to make one of the most important financial decisions that one has to make.
I doubt that all those ARM I/O holders are savvy! It’s like those kids in Lake Woebegon… Anyway, I/O makes sense for us because all our extra $ goes into investments bearing a ROR of almost 6%. And I have a 10 year ARM – I really doubt we’ll still be in this house in 10 years.
Oxford AND Cambridge? Wouldn’t one or the other have sufficed?
That 57% is one statistic quickly thrown out there with little explanation. Do they mean 57% of NYC mortgage holders, or 57% in the last year, 3 years, what time frame?
I have a home eq line of credit that is variable rate, is it possible I am counted in this stat? (with orig. mortgage paid off and zero balance on the line of credit).
And how many may have major part of their mortgage fixed, but a 2nd small part ARM? Kind of meaningless stat without knowing a lot more.
“I am not sure that anyone can credibly say that financial savvy and spelling are correlated or mutually exclusive. So can we not have this arguement, and focus on the more salient points and opinions, without vituperation and with perhaps some sense of humor?”
Will do. This lawyer bows out, with the final statement that with a statistic like above, where 57% of NYC are getting ARMS, can anyone really in their heart of hearts, believe that ALL of those mortgages were taken out by financially-wise folk who understand them?
I agree, lawyers stink on the whole, but they are hardly the cause of the world’s ills…real estate agents are the more likely candidates right now.
Or in NYC, financial guys who make nasty remarks about the folks in the non-profit world who choose to forgoe a wealthier and easier lifestyle in order to help others.
I am not sure that anyone can credibly say that financial savvy and spelling are correlated or mutually exclusive. So can we not have this arguement, and focus on the more salient points and opinions, without vituperation and with perhaps some sense of humor?
lol