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Jonski · 10-31-2007, 02:09 PM

Because after the fixed period of the ARM is over, they can adjust your rates up based on some predetermined formula.

That's what is catching a lot of people now. A lot of people bought in thinking they could afford higher payments in the future by some miracle, or sell because their home would be worth more. They are now caught with higher payments and inability to sell for enough to break even after expenses.

I bought my place in April 2004, and when shopping for a mortgage, I was getting offered a lot of ARMS. If I would have taken one, I could have afforded a bigger place. However, at that time, interest rates were pretty much at historic lows, and I knew damn well that if I couldn't afford a fixed payment then, I wouldn't be able to afford the higher adjusting rate a few years down the road, so I went with smaller place that I could afford the payment on for a 30 year fixed mortgage.

alkanoil · 10-31-2007, 02:09 PM

I'm not sure why people associate ARM's with bad credit. Any lender that offers a 5/1 ARM is a CONFORMING lender. That means you have to have GOOD credit to qualify.

Until yesterday, ARM rates were actually higher than fixed rates. The reason they are different is because different parts of the market control the different rates. The 30 year is controlled by what the 10 year bond does, and the 5/1 ARM is controlled by several markets, such as LIBOR. Prime rate is it's own market, which is controlled by the Fed (that's the rate they just dropped .50%). Prime rate has to do with variable rate loans, like a HELOC (home equity line of credit).

For more information, e-mail me. I'll be glad to answer any more questions you might have, as well as send you information about the different markets.

10-31-2007, 02:09 PM	#11
Jonski Greenhorn Join Date: Dec 2006 Posts: 7 Rep Power: 0	Why are fixed mortgage rates and adjustable rates different? Because after the fixed period of the ARM is over, they can adjust your rates up based on some predetermined formula. That's what is catching a lot of people now. A lot of people bought in thinking they could afford higher payments in the future by some miracle, or sell because their home would be worth more. They are now caught with higher payments and inability to sell for enough to break even after expenses. I bought my place in April 2004, and when shopping for a mortgage, I was getting offered a lot of ARMS. If I would have taken one, I could have afforded a bigger place. However, at that time, interest rates were pretty much at historic lows, and I knew damn well that if I couldn't afford a fixed payment then, I wouldn't be able to afford the higher adjusting rate a few years down the road, so I went with smaller place that I could afford the payment on for a 30 year fixed mortgage.

10-31-2007, 02:09 PM	#12
alkanoil Greenhorn Join Date: Jul 2006 Posts: 7 Rep Power: 0	Why are fixed mortgage rates and adjustable rates different? I'm not sure why people associate ARM's with bad credit. Any lender that offers a 5/1 ARM is a CONFORMING lender. That means you have to have GOOD credit to qualify. Until yesterday, ARM rates were actually higher than fixed rates. The reason they are different is because different parts of the market control the different rates. The 30 year is controlled by what the 10 year bond does, and the 5/1 ARM is controlled by several markets, such as LIBOR. Prime rate is it's own market, which is controlled by the Fed (that's the rate they just dropped .50%). Prime rate has to do with variable rate loans, like a HELOC (home equity line of credit). For more information, e-mail me. I'll be glad to answer any more questions you might have, as well as send you information about the different markets.

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