I am confused by all the media that says people can't afford their homes becuase they chose an adjustable ARM for a mortgage. Did they not ask what their payment could jump to? I understans some thought they could re-finance and now can't. Anyone have any thoughts on this?
2007-03-27 11:21:33 · 7 answers · asked by marzo 2 in Business & Finance ➔ Personal Finance
Homeowners are not well informed about how ARMs work. The interest rate may start out low for a temporary time, then after that, it will change. For example a 3/1 ARM mean that the initial interest rate remain fix for 3 years and after that, the interest rate adjusts every year. For many homeowners, when a mortgage payment jump from $800/month to $900/month, they can't afford it. Therefore, they have to foreclose the house.
People could refinance, but its going to cost them. For many lenders, the homeowner have to pay upfront fees that costs well over thousands of dollars. Some lenders include the fee in part of the loan. Either way, it cost money to refinance.
The worst way to sign up for a mortgage loan is not ask any questions and not doing research to find out how the mortgage works. Most people focus on what is the current interest rate, rather than figure out whether this type of mortgage is for them or not.
2007-03-27 16:31:26 · answer #1 · answered by Anonymous · 3⤊ 0⤋
The problem with this particular down turn is that the homes did not increase in value as they had in the past, thus people had more mortgage than they had house, other wise they would have refinanced into another ARM.
Some people are acting as if Arms and stated income loans were discovered yesterday. These products have been around for more than a couple of decades.
People have a copy of their loan documents, which tell them exactly when the rate will go up as well as what percentage. I understand that all can not do percentages, but they have friends and relatives that can.
When this down turn has past as it surly will the displaced sub-prime lenders will be replaced by others and in2-3 years the new home buyers will again look at arms as a god send.
Some even think that arms are simply there for people with credit problems. This is simply not the case. many people that want to save money and have a savings plan use this mortgage product as way of putting some money aside for other things.
Investors use these arms also so as to maximum out a better return on their investment and have more rent up front.
So I wish that the public will understand arms are not for people with bad credit. This is a mortgage product used by many individuals.
I hope this has been of some use to you, good luck.
"FIGHT ON"
2007-03-27 18:47:11 · answer #2 · answered by Skip 6 · 0⤊ 0⤋
People with some credit problems can get a lower interest rate by using the ARM than a fixed rate. They believe that they will be able to refinance before the rate and payment go up, so they are not worried about it. The problem is that they don't take care of their credit and are still in the problem credit category when it is time, so they either have to refinance at a higher rate, or accept the ARM increase. Either way, they can't afford the new payments, and end up in foreclosure.
2007-03-27 18:33:10 · answer #3 · answered by Brian G 6 · 0⤊ 0⤋
Let me tell you from experience...My 2 year ARM is up in May. I agree with you; the people who borrowed the money should know. (I know and I'm trying to refinance.) I had just divorced and was in a mess financially and felt "lucky" to get the loan even though it was over 8%...I know, omg...lol! I was promised that I could pay on the principal extra and my credit would get better and I could refinance--for a better rate............. (Good intentions but of course I didn't get around to doing it.)
I'm in okay shape; but I have really WORKED at helping myself; I can see how someone with children or sick, etc. would easily have a hard time refinancing as promised by my broker....
Hope this personal experience scenario helps you understand it better....
2007-03-27 20:22:53 · answer #4 · answered by imcurious 3 · 0⤊ 0⤋
Yes - half are unprofessional mortgagte brokers who do not CLEARLY explain at what points in time the mortgage payment can go up, or by how much.
The other half are foolish borrowers who assume that their income will increase enough to cover the payment increase and turn out to be overly optimistic.
2007-03-27 18:27:40 · answer #5 · answered by Arsan Lupin 7 · 0⤊ 0⤋
I agree with all the rest of the answers here. All bring up good points. I would suggest looking to NPR for answers. They ran a great piece on subprime mortgages recently (subprime and ARM do not always equate but often).
2007-03-27 21:03:12 · answer #6 · answered by ChiKristin 2 · 0⤊ 0⤋
Don't finance your home using ARMS!
But who's listening! Apparently lots of people aren't!
2007-03-27 18:28:29 · answer #7 · answered by DEE 3 · 0⤊ 0⤋