Brian Diez talks about why ARM mortgages are still so popular. Despite the problems mortgagees are running into, many ARMs or any other exotic names they might come under. He basically believes lenders are spewing the same rhetoric they were taught. They’ve repeated the pitch so often they believe it?
We are very far from when our forefathers created this country as a place to live free. Owning a shelter is part of the American dream, as well as prosper in business through free trade. Imagine a man and woman trying to start a family nowadays. They typically work 2 jobs each, struggle and sacrifice several years until they have enough to put down maybe 5 or 10% for their dream home. Using a typical 30 year fixed mortgage, they would like retire and have their home paid off. Now someone whispers in their ear that an Option Arm is a great program that gives them 4 different payment options. With a minimum , interest only of 15 year, and 30 year payment. They are lead to believe with the minimum payment they’ll lose a some equity but with houses appreciating as they have in the past, and this is the key flawed argument, they’ll recoup.
Most people are not well coached and are hit with expenses they weren’t expecting, such as furniture, repairs, electric, oil or gas, water, landscaping, telephone, cable, internet, etc. Credit cards might come in handy and are tempting. But now, a year later, they notice their balances on their mortgage statements. Their first mortgage, the option arm which started at $320,000.00 is now $340,000.00. The second (line of credit) still show s the original balance of $40,000.00.
They might have expected this and wanted to catch up before too late, but now the real estate market is adjusting with downward prices. They now owe more than they paid.
Indeed a borrower must have the discipline to make extra payments and reinvest their money. Unfortunately, it isn’t always the case. People are stressed to work hard, make money, raise children, pay more money and taxes. They might not fully be aware of what it entails as far as discipline and financial guidelines. Surely, it isn’t a Lender’s business to educate either but I feel it takes two to tango. But why not take a slightly more expensive 30 year fixed if it saves you hassles in the short run? Surely floating interest rate cannot be better than a fixed one for most people?
Shop around, educate yourself, ask questions, go online and hear what others have to say. Start reading the Dummy’s books first and don’t forget to check out Brian’s blog.