ARM's, when should I lock in a rate?

[cruiseroutfit]

I must admit I know very little about the whole mortgage scene, my FIL is a mortgage dude, so he took care of all the paperwork when we purchased our home. We did an 80/20 mortgage, with both loans 3yr (or 2yr??) ARM's. I've been in my house for less than a year (moved in Oct. 06).

Is locking in a rate something I should consider? I was told to wait til my ARM is up and then refinance anyways? Good idea?

I need to sit down with my FIL and talk it over, but in the meantime I keep getting notices from all the local banks & lendors telling me how bad I am going to get screwed by my ARM. They are all cookie-cutter mailers, but they have me starting to wonder.

 

[JeeperG]

My understanding is ARM's are garbage don't EVER do an ARM.
Dunno if this helps any

 

[RockMonkey]

My understanding is ARM's are garbage don't EVER do an ARM.

Yeah unless you KNOW you're going to move within a couple years ARMs are almost always a bad idea. If I had one I would be itching to get out of it yesterday. With that said, I really feel like the rates are going to come down over the next year or so. If you can stand it, maybe wait and see what the rates do. Refinancing is expensive, and you really don't want to do it twice. I'm at 6.75% fixed, and I'm really hoping to see sub 6% rates in the next year or two. If the rates go down enough I will refinance to a 15 year fixed.

 

[cruiseroutfit]

Yeah unless you KNOW you're going to move within a couple years ARMs are almost always a bad idea. If I had one I would be itching to get out of it yesterday. With that said, I really feel like the rates are going to come down over the next year or so. If you can stand it, maybe wait and see what the rates do. Refinancing is expensive, and you really don't want to do it twice. I'm at 6.75% fixed, and I'm really hoping to see sub 6% rates in the next year or two. If the rates go down enough I will refinance to a 15 year fixed.

My FIL also thinks the rates are going to drop, but is it worth the risk?

I think we might move within a couple years, the idea was to find a fixer-upper, move in and make a bit of equity. We got a pretty good deal on the house at the same time homes were selling for way more than they are worth in SL County... I'm just hoping the values don't die like they have in areas of California (selling at 50% of their values just a year ago :sick

I need to look into the ARM's we have, and the restrictions they have (prepayment penalties, rate caps, etc.). Candace actually spent alot more time dealing with that issue than did I, so I might have to go wake here up

 

[RockMonkey]

Let her sleep. You can't lock in anything tonight anyway.

You already decided it was worth the risk when you chose the ARM. Now it's just a matter of timing it right to get out. A lot of people think they're going to move in, get some equity, maybe fix up a little and sell within a year or two, so they get an ARM for the low initial rate. For whatever reason they end up staying for 5, 6, 10 years and get absolutely screwed by the ARM. Both times I've done this I chose mortgages that I could maintain forever. I wont ever be forced to refinance. That's not the best for everyone, but when it comes to my home I don't really want much risk.

 

[sbr]

You can get low or no cost refinances pretty easy your ARM has a prepayment penalty. Your rate wont go up until the arm expires if you pay attention and about 6 months prior start looking by the time it's up you are ready to refi. usually at a lower rate and it works out pretty good . If you wait your interest will skyrocket and your payment will double. But ARM's are not all bad if you know what you are doing.

 

[cruiseroutfit]

You can get low or no cost refinances pretty easy you ARM has a prepayment penalty. Your rate wont go up until the arm expires if you pay attention and about 6 months prior start looking by the time it's up you are ready to refi. usually at a lower rate and it works out pretty good . If you wait your interest will skyrocket and your payment will double. But ARM's are not all bad if you know what you are doing.

Thanks, thats reassuring... I started reading a whole bunch of horror stories about ARM's, mostly from those in saturated markets like CA, AZ and Vegas... seems for every horror story, there is someone that was OK with it too? I'll look into the details of our mortgages and see how bad off I am.

 

[cruiseroutfit]

... For whatever reason they end up staying for 5, 6, 10 years and get absolutely screwed by the ARM. Both times I've done this I chose mortgages that I could maintain forever. I wont ever be forced to refinance. That's not the best for everyone, but when it comes to my home I don't really want much risk.

That could easily be Candace and I... while I would like to move into something different in the years to come, it could easily be in 5-10 years, you never know!

Candace and I discussed this in depth while deciding on the loan, seemed to fit the scenario we were in at the time. The interest rate was predicted to drop from when we purchased, I guess that played into our decision.

 

[mbryson]

I'm right in the middle of doing mine right now. I hope to fund on/about the 24th. Getting a 'second' at the moment is proving quite difficult due to the super crappy stock/lending market. Our ARM did what we needed it to do and we're locking back into a 30 year.

 

[waynehartwig]

Like SBR said, ARM's aren't all bad as long as you know what you are doing and have an exit strategy. If you don't have an exit strategy, then you will be screwed and possibly loose your house - like the horror stories you are probably hearing.

I'm in a 5/1 ARM right now. We didn't plan on being here longer than 2 years when got it, then they (USPS) raised our commitment to Spokane for 4 years, but still plan on moving then. Our ARM is just over 5% right now on a 100% loan. After the 5 years it will go up (chances are real good it will) and most likely go up higher than a fixed. I believe it's 1% above prime. There is a cap of 11%? or something like that. Most ARM's have this same high cap and adjust every year (the second number in the 5/1 is how often it adjusts, the first is the fixed duratino).

The problem that people run into is their credit is screwed up when their ARM is coming due and can't get another loan to save their butts. As long as you keep your payments up, and credit scores high, there will be nothing stopping you from refinancing in 2 years. If your FIL likes you, he did not nail you with a prepayment penalty. We don't have one, either.

As for the interest rates going down/up? Who really knows. I kind of think it will go up because our dollar value is very low and that's because of the interest rates being so low since 9/11. So will the fed's increase the value of our dollar? or keep rates low?

With that said, stay in your ARM and enjoy the low rate as long as you feel comfortable. Your gambling either way, if you stay in it or go fixed now. But remember, refinancing is expesnive. Especially if you have a prepayment penalty. Bank of America will do $0 (no appraisal, doc, etc) fee home loans and I think their fixed right now is about 6.25%? Log onto their website for more info.. As large as they are, they really do have a persoanl touch with their home loans.

...And with a BofA home loan, you qualify for lots of things like free platinum checking, free safe deposit box, free cashiers checks, 0$ online trades, etc. They also won't sell their loan for the term you have it with them.

 

[gripguru]

Ride the rate until the last minute.

There is no possible way that you will get even close to as low of a monthly interest rate right now, no matter if the interest rates go up or down.

The ARM loans are very useful and good, but only if you understand worst-case scenario and best case scenario. You need a good understanding of its purpose. If your loan officer is family, and since he has his daughter's well being in mind, you probably have very little to worry about.

Now for my peice ( I am an Escrow Officer, not a loan officer, so my peice is simply my experience and should not be taken as advice) :

ARM loans keep your monthly income available and you are supposed to use the money to invest or save. Also, they are great if you intend to move on or before the first time that your interest rate is scheduled to change. If you still live paycheck to paycheck in an ARM loan, you will not have a good experience. If you have 100% financing on your home and you have it in an ARM, you will not have a good experience selling or refinancing TODAY. The last two or four years, no problem, but now 100% financing is really a thing of the past.

Both speculations about interest rates are correct, I think they will continue where they are and the FED will continue to infuse cash/money into the economy without changing rates. Interest rates should go down to allow lending to get a little boost and stop this wall street crisis, but they should go up to keep the dollar worth anything compared to foreign markets.

 

[cruiseroutfit]

Time is now to get out of my ARM. I'd like to quit worrying about where it is going to go in the future and get into something fixed, refinancing and paying off the 80% and 20% loans. More and more I'm feeling like I shouldn't have gone with a ARM... home loans are harder to get and home prices are rather stagnant over the past two years... so much for my FIL's advice :sick: That being said we are not due for an interest change yet, and even if it did change we could still "afford" the increased payment, I just absolutely loathe paying more interest and eventually the ARM could reach a level where we couldn't afford it.

Looking to lock in on a 30 fixed rate mortgage. When a bank looks at your "debt" versus "income". What do they consider debt? I know credit cards, student loans, car payments?? Anything else I am missing? What about month-month bills ie utilities, cell phone, etc?

Any recommendations for local banks/mortgage firms here in the SLC area? I'd like a place that has experience with self-employed applicants. My wife and I have good credit, relatively low debt-income ratio, etc. Thanks in advance!

 

[Tacoma]

They do consider your monthly bills. Self-employment might bite your ass w/down payments, otherwise you should be good. I had to put a little more down than someone working for The Man, but it was all good.

My kids are being taught all about good credit, unlike I was.

 

[cruiseroutfit]

They do consider your monthly bills. Self-employment might bite your ass w/down payments, otherwise you should be good. I had to put a little more down than someone working for The Man, but it was all good.

My kids are being taught all about good credit, unlike I was.

When did you finance/refinance?

My only concern is the supposed fact that "stated" or "partially stated" loans are nearly impossible to get right now, meaning they want two years of tax returns, even for self employed. As my company pays my vehicle, fuel, etc... that hurts my yearly income.

 

[yellowbronco]

My only concern is the supposed fact that "stated" or "partially stated" loans are nearly impossible to get right now, meaning they want two years of tax returns, even for self employed. As my company pays my vehicle, fuel, etc... that hurts my yearly income.

Our last 2 home loans were on stated income, we couldn't even qualify for a "normal" loan with a decent interest rate. We just re-financed this spring and frankly some of our income numbers looked pathetic but still got a "normal" loan with a decent interest rate.

 

[BroncoMama]

My only concern is the supposed fact that "stated" or "partially stated" loans are nearly impossible to get right now, meaning they want two years of tax returns, even for self employed. As my company pays my vehicle, fuel, etc... that hurts my yearly income.

According to our tax returns, we live at nearly poverty level. Our loan lady told me that they will take that bottom number and add stuff back in to get a more accurate number. I can't remember what that stuff was, but it was enough to get us a mortgage with a decent interest rate and seriously, we write EVERYTHING off. For 2006, our bottom line was around $15,000 for a family of 4. What I would recommend is finding out who other self-employed friends have used and liked, and go talk to them. Don't do anything on-line like Lending Tree, because they won't touch self-employed with a ten foot pole, but everyone and their dog will run your credit. Also, the fact that you're already IN the house will only help your cause.

 

[RockMonkey]

We watched rates on bankrate.com, which lists rates and fees for mortgage companies nationwide. We chose a broker out of California to get the lowest rate and fees. It worked out fine. They sold the loan to Wells Fargo after one month. Don't limit yourself to local companies. Many lenders are not doing 80/20 loans anymore, so you may end up paying a bit of mortgage insurance for a while instead.

 

[Tacoma]

When did you finance/refinance?

My only concern is the supposed fact that "stated" or "partially stated" loans are nearly impossible to get right now, meaning they want two years of tax returns, even for self employed. As my company pays my vehicle, fuel, etc... that hurts my yearly income.

We refinanced in.... 05? My vehicle deductions kind of hurt me, too, since I was spending a LOT of money on gas each year... But to be honest, they were paying a lot more attention to my credit than that. *shrug*

 

[waynehartwig]

Our last 2 home loans were on stated income, we couldn't even qualify for a "normal" loan with a decent interest rate. We just re-financed this spring and frankly some of our income numbers looked pathetic but still got a "normal" loan with a decent interest rate.

Thats how the last two houses I've bought have been. This house we financed 100% of it and the last house I financed 80%. I had no choice in 04, no job or etc moving from CA to UT but I had 20% to put down.

I don't remember the guy's name I went through in SLC... I want to say Greg something? I think he was about 9th east and 92 nd south? Sorry, it was 4 years ago.... I went through old emails and I can't find his info

....I'll ask my sister, as she's the one that turned me onto him.

This new loan was a deal through the fed's, so that's of no help to you.

 

[waynehartwig]

Also, the fact that you're already IN the house will only help your cause.

Absolutely! Especially if you have a good payment history as well!!