Why would someone pick an adjustable rate mortgage over a fixed rate one?
Kiwi asked:
I just read that foreclosures are up 78% in my state, and a lot of them were because people could not afford to pay on their skyrocketing adjustable rate mortgage. I have never bought a home before, but I would like to know why anyone would choose such a mortgage. Are fixed rate mortgages so much harder to obtain?
Betty
I just read that foreclosures are up 78% in my state, and a lot of them were because people could not afford to pay on their skyrocketing adjustable rate mortgage. I have never bought a home before, but I would like to know why anyone would choose such a mortgage. Are fixed rate mortgages so much harder to obtain?
Betty
Tags: Fixed Rate, Lot, Mortgage Rate
March 22nd, 2009 at 9:07 am
Laurie
adjustable rates are initially lower than the fixed rate mortgages. so, it was one way for buyers to qualify for more house. i think some buyers were counting that their incomes will grow or the equities on their houses will continue to increase that they can refinance later. but when housing prices dropped, they owed more than the house is worth so unable to refinance. job loss means buyers lost the required income to get financing too.
March 24th, 2009 at 4:02 pm
Jeremy
people chose adjustable rate mortgages, because if they don’t plan to stay in this house forever- the interest rate was lover, then fixed. Some of the people with not so perfect credit don’t have any other choice , only adjustable rate, because that’s what sub prime lenders offer before they collapse. Now, banks tighten their guidelines and those people can’t refinance or sell the houses and that what we have right now in the real estate market.
March 25th, 2009 at 4:42 pm
Steve
Because at first the rates are REALLY low and itseems like a great deal. And then they jack them way the fuck up.
March 27th, 2009 at 10:22 am
Curtis
Part of the reason is all people want to hear is the rate, they make the decision based on what the rate is they do not look at the big picture.
Up until the last 12 months or so people would hear the lower rate and say that is what I want.
An adjustable rate mortgage is good for a couple of reasons;
1) if you plan on staying in the home for 3 years then a 5 year arm would be good for you.
2) If you know that you will definately refinance before the loan starts to adjust then it would be a good idea.
the other problem lower rates on the arms let people buy bigger homes then what they could afford. there is a program out there called an option arm which the monthly payment was based on 2% but you accrued interest at 6%. You had 4 payment options and everyone was making the smaller payment which zapped everyones equity.
March 29th, 2009 at 3:00 pm
Ann
Adjustable rate mortgages in my opinion are sucker loans. It’s to draw you in then jack up the price when it resets. I advise any potential clients that if they want to know what to pay each month, then it’s better to choose a fix rate.
March 31st, 2009 at 1:50 pm
Raul
I keep askng myself the same thing. People dont think about the future. Thye just think about what they want now. So they get adjustable rate mortgages thinking they can afford them and not thinking the rate will go up. Historically rates were always higher then they are now so why wouldnt the rate go up.