Re: How much can I afford to pay in rent?
 

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2. The housing market in many areas is due for a downward turn and this could devastate someone who took an ARM expecting to be out in a couple years. The choice of leave and take a big loss of equity vs pay a much higher, possibly too high, payment is an ugly one.


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I guess my view of ARM's are quite different. I happen to be 18 months into a 5/1, so there may be a little bit of me defending my decision wading into this...

If a person KNOWS they will only be in a home for say 2-4 years, how can an ARM be bad?
Are you saying that the market could take such a dive that the owner may not be able to sell at the end of that period?

Aside from that possibility, which IMO is remote, why so negative?

4 yr comparison (based on bankrate.com overnight averages):
200k mtg
30yr fixed, 5.7%, $1160.80/month, 48 months=$55718.40
5/1 ARM, 5.24%, $1103.17/month, 48 months=$52952.16

So $2766 difference in favor of the ARM

And 200k should get you a great condo in about 75% of the country.

Fill me in if I'm missing something major here... [img]/images/graemlins/confused.gif[/img]

Edit: Of course I stupidly forget the possibility of being forced to sell for less. Go ahead, kick me...
Another Edit: but since that could happen with a 30 yr fixed also, it's irrelevant. No kicking! Now I'm just confused and rambling....

Re: How much can I afford to pay in rent?
 

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So you dont think the possiblity of someone's mortgage doubling is not a good reason for cautioning someone against an ARM? The fact is, home buyers tend to overextend themselves. Just look at how much lenders are willing to give borrowers and you can see why this is the case. If someone is overextended on day 1 of a mortgage, what happens 1 year down the road when Mr McMansion owner doesnt get that correspnding raise in income to cover the cost of that nice, new, increased mortgage payment?

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Well, if the rates keep going up, and the market keeps going down, you can always refinance to a fixed rate loan before it gets too bad.

Re: How much can I afford to pay in rent?
 

You calculations assume interest rates dont move... correct?

Re: How much can I afford to pay in rent?
 

At an additional cost, of course. One day i want to be the bank [img]/images/graemlins/smile.gif[/img]

Re: How much can I afford to pay in rent?
 

cubsalwayslose,

Perhaps I was not clear. My statement was basically that just because a person can get themselves into trouble by buying too much house with an ARM does not necessarily mean that ARMs themselves are a bad choice. Don't get me wrong, they are here but the reason is not concerns about buying too much house.

J

Re: How much can I afford to pay in rent?
 

Correct, ARMs are not a bad choice in all instances, especially people planning to own for a short period of time or those planning to buy when rates are dropping. Rates are currently on the rise so i think right now is not the right time to jump into one.

Re: How much can I afford to pay in rent?
 

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You calculations assume interest rates dont move... correct?

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Absolutely no assumption at all.
In a 4 year comparison, I GARANTEE interest rates don't move.

By definition, the rate in a 5/1 ARM doesn't move for 5 years.
Should I also define 30yr FIXED.....???

Re: How much can I afford to pay in rent?
 

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Correct, ARMs are not a bad choice in all instances, especially people planning to own for a short period of time

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Wow, sounds like something from number 2

Re: How much can I afford to pay in rent?
 

Thanks for all the advice - I've found it really helpful. I may reconsider the amount that I'm saving, but I really don't mind living like a bum for a while to save and buy. I have a terrible fear of turning 50 and having no savings like my dad. Or worse, turning 40 and having my dad want to rely on my savings.

And I promise no gimmick accounts later; I live much too far north to get robbed by mexicans. We have our own stereotypes up here, but they aren't about cleaning ladies. Or any kind of work at all.

Re: How much can I afford to pay in rent?
 

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At an additional cost, of course. One day i want to be the bank [img]/images/graemlins/smile.gif[/img]

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Yeah, but it could easily be worth it.

How bout them ING flat $555 refi rates?