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6 answers

They are good for short term investing. If you plan to sell with a year or so they are the best bet, they offset the capitol gains tax a little bit.

2007-12-09 02:20:28 · answer #1 · answered by Landlord 7 · 2 0

Yes and in fact in most cases if its the person first home it is wiser and here is why.

First of all a lot of folks misunderstand the TEASER loans or TEASER rates as arm loans. They are 2 different loans.

The teasers shoot way up after the teaser rate is over. The ARM loan can actually Gradually go up.

When is it a good idea to get an arm loan?
Answer: When you plan to sell the house in about 5 years or less.

When shouldn't you get an arm loan?
When you plan to stay in that home forever

Here is why arms are good.
Lets say Interest rates are fixed at 6%
Lets say the arm starts at 3% then in the second year it goes to 4% then in the third year it goes to 5% then in the 4th year it goes to 6% Then in the 5th year it goes to 7% and then in the 6th year it goes to 8%

Then it stays fixed at 8%..

Ok now follow along with this.

Mary buys a home on a fixed rate at 6% she stays there for 4 years and sells her house.

Now lets talk about LIsa. Lisa buys her home same price but she goes on an arm and she sells her house in 4 years. Get the picture? Lisa was wiser and Mary wasted money. Mary would have been wiser to go with an arm and she would have had lower rates for 4 years.

So getting a fixed can be a bad idea.

Now for an example when an arm is not good.
Joe gets an arm loan but stays in the house for 20 years. In that case he would have been better off with a fixed loan.

The rule of thumb is if you are going to live there less than 5 years then arm is the way to go.

If you are going to stay in the house forever then go fixed.

The time to decide on a loan is when you have decided How Long will you stay in that particular house.

I have seen people get arm loans and then stay in their house forever and thats dumb.

Then I've seen people shy away from an arm and get a fixed and then move in 3 years lol and thats dumb too.

The rule is : Short time in the house go with arm
Long time in the house go for fixed

2007-12-08 22:14:15 · answer #2 · answered by Anonymous · 1 0

Depends on the type of risk you can handle. The low interest rates you can get can be nice, but can you handle the payments if the rate is high. These loans are good for short term borrowers because they are usually favorable initially, but it can get expensive in the future as the interest rate changes. So if you dont plan to spend a long time there no problem.

2007-12-08 21:56:01 · answer #3 · answered by Skywalking 3 · 0 0

ARMs are good when rates are low and expected to rise and you plan on selling before the rate goes up.
They also can be good when rates are very high (been a while here) and you think they will be much lower when your rate adjusts.

also be weary of anyone who tells you they know which way rates are headed, they are likely only trying to sell you a loan product or service. nobody ever knows which way rates are headed. saying you can predict interest rates is like saying you can predict the direction of the stock market.

2007-12-08 22:16:28 · answer #4 · answered by Stanley 3 · 0 0

ARM's have their place in lending, and are recommended for folks who are quite certain of selling in a few years, due to planned job relocations, etc. For those who plan to stay in their homes, ARM's are a distinct gamble in that you do not know what rate you will face when you are at terminus and deciding to refinance.

Do understand that ARM's themselves are not responsible for what is currently happening in the foreclosure situation. It was the ARM taken at a very high LTV ratio with the intent to refinance later. Meanwhile, property values unexpectedly started downward, and these ARM holders could not refinance what was owed because their properties were no longer worth as much as what was owed.

2007-12-08 22:01:44 · answer #5 · answered by acermill 7 · 0 0

ARM = Adjustable Rate Mortgage

In today's market, it is probably not the best choice. Try for a fixed rate.

2007-12-08 21:51:57 · answer #6 · answered by Anonymous · 0 1

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