How low can we go? 30 yr fixed at 3.75% with no fees...

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ps9 said:
Whats your exit when rates go up?
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Depending on how far you kicked the can and with what terms, if you do take your ARM to either 5 or 7 and rates have gone up, you have a few options:

1. Wait it out, most ARMs have a provision on how high it can jump per year and what it maxes out at, if you can afford both... you may just sit.

2. Refi into another ARM when your adjusted rate is higher than that refi.

3. Refi into a 15 or 10 fixed that may have a lower rate than your adjusted rate.

4. Don't pay and squat for free for at least 1 or 2 years. :)
 
Just trying to think of a 'worst scenario' with 5/1 ARMs.  Kinda like the Tenth Man scenario from World War Z.  I just can't find a situation where a 30 yr makes sense to me.
 
Worst scenario with any ARM is what is the maximum rate you will have to pay and can you afford it.

So if your 5/1 ARM is 2.5%, what is the cap? Most ARMs usually have a 5% max cap, so can you afford payments at a 7.5% rate, because that is your 10th man.

In the case of a real 10th man scenario... you win... zero mortgage payments and you saved money to buy Tyler Durden shotguns and extra momopi survival kits.
 
I'm not playing 10th Man anymore, somebody paint me a worst scenario, maybe OpenSky?

I just can't get over the fact that the 30yr mortgage is the most popular program out there, why do people pay all that interest to lenders?
 
WTTCMN said:
I'm assuming when you say "rates go up", they go really up so a refi scenario is out of the equation?
In that case, the exit would be to sell or deal with the cap payments.  My cap is around 7%.  Would suck but not doomsday.
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Yup, I'd suck it up and probably do a paydown to get the payment increase minimized.  As if you have strong savings/cash reserves, getting an ARM loan is a no brainer since you can bring the payment down if the worst case happens and your rate goes to the cap. 
 
ps9 said:
I'm not playing 10th Man anymore, somebody paint me a worst scenario, maybe OpenSky?

I just can't get over the fact that the 30yr mortgage is the most popular program out there, why do people pay all that interest to lenders?
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Doomsday is you hit the cap at the end of the fixed period and you stay there for the rest of the amortizing term.  Because most people are highly risk averse and they can't stomach any kind of interest rate risk.  As I tell my buyers, getting a 30-year fixed loan is like buying $10m of liability insurance and having your car coverage at $5m.  It basically covers you head to toe.  However, if buyers can handle a little interest rate risk and have good cash management then an ARM loan is a great option.  ARM loans are no these scary things that came along in the bubble days 10 years ago, they have been around for decades and decades.  I love the fast that I have a lower monthly payment AND I pay down my loan balance faster each month. 
 
I had this crazy idea (throwing this out there to PS9)....what happens if you had enough cash to pay off your loan but you choose to refi every few months and with a lender credit to where you fund your property tax & insurance impound reserve.  You pay off the loan days/weeks after you close it....rinse and repeat....you basically keep walking away with lender credits each refi.  In summary....

1. Refi paid off home
2. Get lender credits to fund impound reserves
3. Payoff loan days/weeks after closing
4. Lender refunds your impound reserves
5. Profit
6. Rinse & Repeat
 
ps9 said:
I just can't get over the fact that the 30yr mortgage is the most popular program out there, why do people pay all that interest to lenders?
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Uncertainty mainly.

If a 30-year is at 5% now, people don't want to risk paying 7.5% later even though odds are they will probably sell that home before then. And the whole "refi" solution is also uncertain because what if their financial situation has changed and they can't qualify for a refi (self-employed, job loss, etc)?

After my first home, I've never carried a 30-year fixed on my primary rez. I even had one of those toxic O-Arms that everyone claimed were going to explode during the bubble (it didn't, since interest rates dropped, I was actually paying off more principal because my minimum payment was higher than fully amortized P&I).

So the 10th man actually is if you have a job loss or drop in income and can't afford the fully capped rate. At that point, you can't refi because you won't qualify and the 2.5% difference in rate payment is what puts you into foreclosure rather than scraping by.
 
Yes... on our rental it's a 30-year. More 10th man scenarios with property that is not your primary residence... esp ones where you can't charge market rent.
 
WTTCMN said:
That's a lot of shit hitting the fan at the same time.  Job loss.  In the 7th year of a 5/1 ARM.  But didn't do anything about it in Years 1-6 so I'm guessing super high rate environment.  At that point - just squat.
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Health problems is a 10th man you may not be able to prepare for.

Can't get re-employed, disability might only cover your lower rate payment... etc etc.

Being young and healthy doesn't really protect you... as it won't stop a bad car accident that leaves you unable to earn income.

ps9 is making me scare myself.
 
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