What were you thinking?

[Granny]

My daughter is writing her final paper for college and after some prompting from mom, has chosen for her topic the "Credit Crisis in America".

So we would like to take an informal poll of those who have an ARM.

What prompted you to go the ARM route instead of a fixed rate mortgage?


Was it because it allowed you to qualify for more house than you could afford at a fixed rate?

Was it because you believed the interest rate wouldn't change much?

Was it because you thought your income would increase along with the ARM, and therefore allow you to continue to make the increased payments?

Was it because you didn't fully understand the benefit to a fixed rate?

Any and all answers would be appreciated. If you don't feel comfortable publicly posting your answers, please feel free to PM me.

Thanks,

Granny

[Bobby'sGirl]

I'll be selling before it readjusts.

More info in private message.

[SinkingFast]

We bought a house once on an ARM when interest rates were going down. That one worked out for us. Every year we owned that house, our payments actually went down.

We didn't get one of the new "teaser rate" ARM's tho. Ours was a traditional ARM.

[Granny]

We didn't get one of the new "teaser rate" ARM's tho. Ours was a traditional ARM.

But won't it eventually go up too?

[B12]

The ARM product was intended for buyers who knew they were relocating within a few years. They are usually a lower rate and hopefully used in conjunction with a no prepayment penalty clause.

Corporate employees who got transferred many times used them to their intended benefit.

Arms can range from one to 7 years or more. The average American family was supposedly moving every 3-7 years, either
relocating or "buying up." The buyer WAS qualified at the 2nd or 3rd year rate, not the initial 1st year rate.

Then the good news!!! Lenders started allowing buyers to qualify at the 1st year rate, assuming the market would continue upward and that salaries were going to rise.

In my opinion, the ARM and the HELOC have resulted in dire consequences.

[Granny]

Thank you B12, that's an angle we hadn't thought of...buying a house with the intention of only staying a few years.

[SinkingFast]

As B12 suggested,........... We were "Corporate Gypsies". Company moves every few years.

The house we owned on the ARM, we only owned 4 years. Our value increased significantly and the interest rate decreased the whole time we were there.

At that time,........ Back in the '90's,.......... Historically speaking,............ The overall interest rate with the old style ARM's was lower than Fixed rate loans.

And, as B12 said, Buyers were qualified at a higher index rate. In our case, our loan was approved at 2% higher than our actual initial rate. If we didn't qualify at the higher index rate, we wouldn't have gotten the loan.

[Granny]

Sinking Fast,

I love it..Corporate Gypsies. She's got to incorporate that into her paper.

When I bought my house in 2000, I asked for a fixed rate and there were no questions asked. When I refi'd in 2003 to get a lower fixed rate, the mortgage rep. attempted to persuade me into an ARM and I refused. They also tried to get me to take out some equity and again I refused. I like my equity tucked away, inaccessible.

What were they thinking?