Popular ARM loans can misfire for some homebuyers (Oops!)

http://www.reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=5156145

NEW YORK, May 16 (Reuters) - U.S. homeowners with adjustable rate mortgages (ARMs) may soon have to find cash for higher monthly mortgage payments at a time when expenses like food and gasoline are also rising -- pressuring household budgets already thinly stretched.

Signs of U.S. economic strength have propelled interest rates higher as the bond market girds for the Federal Reserve to raise rates sooner than previously expected.

"Those stretching to get into a home by using that (ARM) as a tool but haven't planned ahead are going to get into trouble," warned Douglas Duncan, chief economist at the Mortgage Bankers Association.

"There will be some people who will go delinquent because they stretched to get into a house and exhausted their financial resources to do it," he said. "When rates rise and adjustable rates rise as well, they won't be able to meet the payments."

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Didn't Meanspin just tout these as the way to go?

the lenders must be banking -- no pun intended. sorry -- on rates going up significantly the next few years. thanks, but i'll keep my 6.125% 30 year loan.

I said "No thanks, I'll take a 30 yr fixed at 6.5!" Damn good thing too. Rates will NEVER be that low again...

and got a 30 yr fixed at 6.50 (down from 8.0). i would NEVER do an ARM loan - too risky.

I got a 1 yr arm with a 1% max annual fluctuation and a 5% cap in 1991. It has gone up a few times, but on ly once over the original rate.

We are already at all time highs for home foreclosures, and banks got so aggressive in lending that several of them will NOT get back what they loaned on those properties. If interest rates on the ARMs start ticking up too fast there is gonna be a BIG mess.

You are going to start seeing a lot of houses go up "For Sale By Owner" first--those are the folks who don't want to even take the percentage loss that a real estate agent takes. After that, the foreclosures will start to hit and there is gonna be a LOT of housing on the market at below what the bank loan was...


Laura

.... well DUH. There is no free lunch. In this interest-rate environment (low rates), you'd have to be rich enough that it doesn't matter or very naive or dumb to get involved with an ARM.

I hear it on the radio all the time, like leasing cars, ARMS are sold as a savvy way to get seomthing for nothing. Neither are, they are both sucker bets.

Is not for everyone, no matter WHAT Fanny-Mac and Freddie-Mac are saying, especially for low-income potential home-owners.

You wind up with people who put themselves on a very austere budget that has no room for unplanned expenses (yeah, I know) they have to buy homes in crappy neighbourhoods that will nEVER produce "equity" (yeah I know) and they don't have the income to pay for upkeep and repairs (Yeah, I know. buying a gallon of paint was a big event)

Was making the point that perhaps instead of paying more than 50% of your pay for a "home", a lot of people would be better off paying only 30% in rent.

I pay 25% on my income in rent now. When I was a "homeowner", I was paying over 50% of my pay to just service the mortgages. Utilities were extra...I kept thinking "this is insane", but I kept hearing how wonderful it was that I was "building Equity", especially when they'd tell me some cooked-soggy numbers about how much my shack was supposedly worth...

People with these ARM's afe gonna be hurting.Most are already stretched to the max, and the only way they took the damn things in the first place is because they were told that since they're home-owners, they're now "solid citizens" and will get pay raises.

That's right, I was told "don't worry about the rate in your ARM rising, because you'll surely get enough pay raises to cover it by the end of 5 years..."

"Screw the Poor", that's the name of the game in the financial business. Lobby the Government to put the taxes on their backs, while you get a tax break, and then come up with all kinds of bait-and-switch "product" to pry the rest of their money away from them....

I feel their pain. If my housepayment were to increase substantially, I'd be in deep compost. I have a fixed loan. The mere idea of an adjustable rate mortgate horrified me.

5.75 for 30 years.......

Stay away from ARMS!!!!!!