How much can I afford to pay in rent?

[StevieG]

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it's nothing compared to the complete butt-f*cking you would have gotten paying rent.

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This logic is no longer true in a good number of markets at this moment.

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High quality post, cubs.

<font color="white">I originally sent this as a PM, but cubs is over the limit</font>

[Cubswin]

Ive been meaning to clean out my PM box... its been full for quite some time. [img]/images/graemlins/crazy.gif[/img] Anyone know what is the max number of PMs you can have saved?

[jaydub]

dcasper,

Your arguments are naive except for #3.

Here are my arguments for why an ARM is not good right now.

1. Interest rates at a relative low and are likely to increase in the coming years. I will caveat that I have not looked at actual interest rates recently and if this has already occured, my argument sucks.

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.

And no bold either.

J

[dcasper70]

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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....

[Cubswin]

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

[dcasper70]

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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.....???