ARM Loan Problems
We are long past the era of adjustable rate mortgages(ARM) that took this nation by storm in the early 2000’s that were so popular. The memories are lasting and is still having a negative long term effect on our homeowners all across the country. Many homeowners were drawn into these types of loan because of the tantalizing introductory rates that we knew would never last for long. Yet so many were suckered into these types of loans; and are now regretting their decisions today. These types of loans started a destructive dominal affect that was one of the key components of the downward spiral of the mortgage bubble from the last decade.
How could anyone forget about the ARM loans as they are commonly referred to, especially if you live or own real estate in Florida, California, Nevada, or New York, just to name a few of the places that were greatly affected by these loans. They took an enormous toll on borrowers. Many of these loan started out with very low teaser interest rate, some as low as 1% and going just a bit higher for starters, they were really tempting. Imagine getting a $166/mth house payment on a $200,000 mortgage loan excluding private mortgage insurance, and escrow. It can be hard for someone looking to buy a home to avoid such a low house payment on any property of that value. Borrowers were in a feeding frenzy and banks cranking out loans like crazy because they stood a chance to making hundreds of billions of dollars. Many got these kinds of loan with the hopes of their property value increasing, and when it was time to refinance their loan in about 2-5 years down the road the equity would be overflowing. Then they would refinance and cash out again. This was true for many homeowners for many years, but history and common sense would tell anyone that the rate of property appreciation could not last forever; even though bank would like for you to think it would. If this lasted for ever, many working class people simply would not be able to afford a home, and they would go vacant which would force the prices back down. It depends on when you bought and sold your home, do not get me wrong, many homeowners made lots of equity money for many years which was great for them. Some homeowners thought that they could do this forever, until they realized that was just a fairy tale when it all came to a crashing end on late 2006. Housing prices started plummeting, and the easy access to easy cash from homes was no longer a possibility. Reality started to set in as house prices started to dive head 1st. Everybody was starting to wake up and realize this had to eventually happen. The notion of a forever increasing equity pie in the sky idea was just that, and it was not reality.
Homeowner today have hopefully learnt from their experience in dealing with ARM loans, and are opting for more stable and predictable mortgage loans. In a market such as this one, a 15 or 30 year fixed rate mortgage loan is a wiser decision that an ARM loan in most cases. ARM loans can work good for a while, just like it did in the early 2000’s before the big mortgage bust. ARM loan works better in a newly appreciating housing market with soaring house prices, before they plateau, and then fall off. ARM loan will have it’s opportunity again that will have a lot of borrowers interested in it, and at that time lenders will start offering them in mass marketing to the public once the time is right again. However, they will do it in a different way that how they offered these loans in the early 2000's. Right now homeowners are looking for something that is stable and that they can count on their mortgage payments staying consistent for years to come. When our mortgage inventory get down below 3 months supply on the market and there starts to be a shortage of new homes in inventory, the prices will move up again across the country as a whole. At that point homeowners stand a good chance of doing well if they get into an ARM, build up some equity, and sell or refinance into a fixed rate mortgage loan. Until them there is no need to get into a ARM loan which is know for being unstable. In addition, to make matters worst, if you are opting for an ARM in a down housing market it could cost you such large losses it could take you years to recover. I would advise you to wait on an adjustable rate for now, unless there is something uniquely advantageous about the ARM loan that makes it attractive; and at that point I would still say be cautious.
