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.
“on this board of petty spell-checkers its pathetic…”
you mean “it’s”
come on lawyer…everything I said was intended to be helpful as to why some people choose I/Os and others don’t…the same points were reiterated by a number of other people…didn’t intend anything to be “genius” just trying to help on a topic I know something about…you, however, yet again have nothing to say on the TOPIC…
as to the “you’re what’s wrong with the world” condescension…I think most surveys say that the majority of the world’s ills are attributable to lawyers not people who make occasional spelling errors…
oh, by the way, as a British public school and Oxbridge graduate, my knowledge of Latin isn’t that bad even though both of my colleges have the rarity of having their mottos in English…
“I understand that things move a little slower in the publishing/non-profit/library world but I eat people like you (financially speaking)”
Wow, touched a nerve. Sorry, I’m a lawyer, so I doubt you’re “eating people like me” financially speaking. But with a comment like that I’m glad I said it – you’re what’s wrong with the world today, saying things like that. I just hate when people go on line and spout like they’re some sort of genius and use words they can’t spell.
wow 10:54 is sooo smart…nothing to add so he has a petty little point to make about someone who’s too busy making money to go back and read his posts…there is such a prevalance (yes I know that’s spelled wrong…ooops “prevalence”…see I can do what you do too) on this board of petty spell-checkers its pathetic…
I understand that things move a little slower in the publishing/non-profit/library world but I eat people like you (financially speaking) before you’ve even got out of bed…I was trying to make a point that could be actually helpful to people who are trying to figure out what’s going on…
What a f’ing loser…
The New York Magazine. “The seller’s market has finally started to turn into a buyer’s market—or at least the beginning of one. According to a report by appraisal firm Miller Samuel, the number of sales last spring—traditionally the busiest season—were down 14.8 percent from the year before.â€
“Those who bought at the exuberant height of the market—are wondering if now is the time to cash out and take cover in a rental. Some sellers are watching weeks turn into months. Some, in a hurry to unload, are slashing prices twice and three times.â€
“Buyers, meanwhile, are wondering if there will be even better deals in six months. Alyssa Gelper, a lawyer who abandoned her search for a two-bedroom, two-bathroom apartment last spring (’I didn’t want to be the last sucker to buy high before the market tanked’), has decided the waters are safe to wade in.â€
“In a very short time, the rules of the real-estate game have changed dramatically—and buyers are more in control than they have been in a while. ‘They’re taking their time, and they’re not afraid to make an opening offer that’s 10 to 15 percent off the asking price,’ says Corcoran’s John Gasdaska.â€
“The supply of new condos for sale has more than doubled in the past two years, notes appraiser Jonathan Miller. What’s more, some 24,000 units have been approved to go on the market by the end of 2006, an astonishing number considering that altogether only about 15,000 condos, co-ops, and townhouses are sold in any given year—20,000 at the market’s peak, according to Jeffrey Jackson of MMJ Appraisals.â€
“High-profile projects like Downtown by Starck, Bryant Park Tower, 99 Gold, and Schaefer Landing are giving discounts, and other condo developers are bailing out before they even break ground. Last week, it was reported that the developers of 485 Fifth, a new designer condo going up at Bryant Park, were essentially abandoning the project because half the units remain unsold, at over $1,000 a square foot.â€
“The growing list of casualties includes Williamsburg’s 55 Berry (which is now turning rental) and 133 Greenwich (they’ve put the land up for sale). The glut is affecting everyone in the market, whether they’re trafficking in new stock or a prewar.â€
“Carol Candiano’s already moved to the West Twenties while her Upper East Side one-bedroom awaits a buyer at $425,000. ‘We had someone lowball the apartment and offer $340,000. I told my broker to tell him to get lost,’ she says. ‘Just because the market’s a little soft doesn’t mean I’m going to have a fire sale. If I have to, I’ll rent it out. I refuse to be desperate.’â€
“Cookie-cutter condo buildings constructed in the eighties may offer bargains, if you don’t care about bells and whistles. Units in these buildings can have a hard time measuring up to apartments in the shinier, sexier tower next door, so their sellers will have to compete on price. ‘In last year’s world, you were getting very little discount,’ maybe 5 percent, if that, says appraiser Jeffrey Jackson. ‘In today’s market, that discount could be as much as 10 to 20 percent.’â€
“‘Developers don’t want to make it look like they’re negotiating on the price,’ says Dolly Lenz, vice chairman of Prudential Douglas Elliman Real Estate. Still, a bargain is a bargain—and that’s a word we haven’t heard in a long time.â€
What’s the matter with “renting from the bank” if you have tax deductions?
Presumably the IO principal is being invested in a diversified asset (i.e., not all in your house).
And even if it is not, IO rates were (when I was looking) lower than fixed rates.
I am a fan of IOs (for financially astute homeowners).
Question for the Interest Only crowd. Have you made any principle payments? What are you doing with the extra $$ every month?
It just seems like these I0 loans are nothing more than renting from the bank.
“diminimous”
How can one be financially astute when one cannot spell “de minimis”?
i think my 5 year rate is 4.25% with caps of 1% per year and 4% total. it is a pretty good loan, but those days are long gone.