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

[Irvinecommuter]

I would also add that the mortgage market and rates are incredibly outside of historic norms.  During the bubble times, Greenspan's free market philosophies, the separation of mortgage risk from the lender to general investors, and the toxic nature of how mortgages were sold led to insanely low rates.  Home value, and not risk, became the primary (and sometimes only) measure to issue loans.

When the bubble burst, the global market went into meltdown mode, interest rates remained super low because of things like QE.  Thus, if you got an ARM 5 years ago, there is a good chance that your loan rate is not significantly high because rates like LIBOR is basically zero.

Going forward however, I expect the interest rates to go back up to 7-9% in the next 5 years or so.  Since I intend to stay in my house for the next 20 years, I see no reason to risk that jump when I already have an incredibly low rate historically. 

 

[irvinehomeowner]

Going forward however, I expect the interest rates to go back up to 7-9% in the next 5 years or so.

I'm not so sure about that... which is why a 5/1 would be ideal right now.

When rates were 7, people said they would get to 10, and when it got down to 5, people said back to 8. The economy has adjusted to this low rate environment and to go back to the 7-9% range in 5 years would be a drastic shift.

Maybe in 10-15 years... but 5 or so? But then again, no one ever thought rates would dip below 3.5%.

 

[Irvinecommuter]

Going forward however, I expect the interest rates to go back up to 7-9% in the next 5 years or so.

I'm not so sure about that... which is why a 5/1 would be ideal right now.

When rates were 7, people said they would get to 10, and when it got down to 5, people said back to 8. The economy has adjusted to this low rate environment and to go back to the 7-9% range in 5 years would be a drastic shift.

Maybe in 10-15 years... but 5 or so? But then again, no one ever thought rates would dip below 3.5%.

In a "normal" economy rates of 7-9% is pretty much what you get.  Only the unprecedented events in the past 10 years in both monetary policy, lending standards, and global economic issues have caused the low rates.  5 years is about when I expect the economy to fully recover.
http://www.freddiemac.com/pmms/pmms30.htm

1990s was close to "normal" and had interest rate between 7-10%.  You couple that with very high home prices, a lot of pain will be felt if rates readjusts 3-4%. 

A $750,000 loan at 3% has a P&I payment of about $3,200.  At 4.5%, payment is $3,800.  That loan at 7% bumps the payment up to $5,000.  9% is over $6,000. 

This is not even doomsday stuff.  Doomsday would have the Fed pulling QE and letting rates go whereever they may.  Banks and lenders remain risk averse and overcompensate risk with interest rates and pushing rates into double digit.  Meanwhile, investors sensing a rise in interests, pull out of stock and buy bonds/commodities leading to more increase in rates.  We haven't even gotten to possible inflation.

 

[paperboyNC]

In a "normal" economy rates of 7-9% is pretty much what you get.  Only the unprecedented events in the past 10 years in both monetary policy, lending standards, and global economic issues have caused the low rates.  5 years is about when I expect the economy to fully recover.
http://www.freddiemac.com/pmms/pmms30.htm

1990s was close to "normal" and had interest rate between 7-10%.  You couple that with very high home prices, a lot of pain will be felt if rates readjusts 3-4%. 

A $750,000 loan at 3% has a P&I payment of about $3,200.  At 4.5%, payment is $3,800.  That loan at 7% bumps the payment up to $5,000.  9% is over $6,000. 

This is not even doomsday stuff.  Doomsday would have the Fed pulling QE and letting rates go whereever they may.  Banks and lenders remain risk averse and overcompensate risk with interest rates and pushing rates into double digit.  Meanwhile, investors sensing a rise in interests, pull out of stock and buy bonds/commodities leading to more increase in rates.  We haven't even gotten to possible inflation.

One reason why an ARM is great for me is that I don't plan to stay in my home for 30 years and don't want to feel stuck in my home because of my fixed rate mortgage and prop 13.

In response to your prediction of higher rates - global economic growth is slowing so it's hard to find good investment opportunities for cash. High quality mortgages are a great investment so rates will likely stay low for the rest of my life. Maybe not 4% low, but I doubt they ever get to 7% again.

 

[OpenSky]

8)

 

[usctrojancpa]

Going forward however, I expect the interest rates to go back up to 7-9% in the next 5 years or so.

I'm not so sure about that... which is why a 5/1 would be ideal right now.

When rates were 7, people said they would get to 10, and when it got down to 5, people said back to 8. The economy has adjusted to this low rate environment and to go back to the 7-9% range in 5 years would be a drastic shift.

Maybe in 10-15 years... but 5 or so? But then again, no one ever thought rates would dip below 3.5%.

In a "normal" economy rates of 7-9% is pretty much what you get.  Only the unprecedented events in the past 10 years in both monetary policy, lending standards, and global economic issues have caused the low rates.  5 years is about when I expect the economy to fully recover.
http://www.freddiemac.com/pmms/pmms30.htm

1990s was close to "normal" and had interest rate between 7-10%.  You couple that with very high home prices, a lot of pain will be felt if rates readjusts 3-4%. 

A $750,000 loan at 3% has a P&I payment of about $3,200.  At 4.5%, payment is $3,800.  That loan at 7% bumps the payment up to $5,000.  9% is over $6,000. 

This is not even doomsday stuff.  Doomsday would have the Fed pulling QE and letting rates go whereever they may.  Banks and lenders remain risk averse and overcompensate risk with interest rates and pushing rates into double digit.  Meanwhile, investors sensing a rise in interests, pull out of stock and buy bonds/commodities leading to more increase in rates.  We haven't even gotten to possible inflation.

You really think the US govt can afford to let rates go that high with the amount of debt that the US has?  Come on, the Fed will keep rates in check as the economy will continue to improve slowly.  So if rates do go to 9%, my rate is capped at 7.5% so I'd be in good shape (besides the fact that I could pay down my loan amount).  Remember that the loan payment adjustments both on the rate AND on the loan balance when it re-amortizes after the fixed period. 

 

[Irvinecommuter]

Going forward however, I expect the interest rates to go back up to 7-9% in the next 5 years or so.

I'm not so sure about that... which is why a 5/1 would be ideal right now.

When rates were 7, people said they would get to 10, and when it got down to 5, people said back to 8. The economy has adjusted to this low rate environment and to go back to the 7-9% range in 5 years would be a drastic shift.

Maybe in 10-15 years... but 5 or so? But then again, no one ever thought rates would dip below 3.5%.

In a "normal" economy rates of 7-9% is pretty much what you get.  Only the unprecedented events in the past 10 years in both monetary policy, lending standards, and global economic issues have caused the low rates.  5 years is about when I expect the economy to fully recover.
http://www.freddiemac.com/pmms/pmms30.htm

1990s was close to "normal" and had interest rate between 7-10%.  You couple that with very high home prices, a lot of pain will be felt if rates readjusts 3-4%. 

A $750,000 loan at 3% has a P&I payment of about $3,200.  At 4.5%, payment is $3,800.  That loan at 7% bumps the payment up to $5,000.  9% is over $6,000. 

This is not even doomsday stuff.  Doomsday would have the Fed pulling QE and letting rates go whereever they may.  Banks and lenders remain risk averse and overcompensate risk with interest rates and pushing rates into double digit.  Meanwhile, investors sensing a rise in interests, pull out of stock and buy bonds/commodities leading to more increase in rates.  We haven't even gotten to possible inflation.

You really think the US govt can afford to let rates go that high with the amount of debt that the US has?  Come on, the Fed will keep rates in check as the economy will continue to improve slowly.  So if rates do go to 9%, my rate is capped at 7.5% so I'd be in good shape (besides the fact that I could pay down my loan amount).  Remember that the loan payment adjustments both on the rate AND on the loan balance when it re-amortizes after the fixed period.

Fed is already start the ease up on the policy...I think that 1% a year is about where the Fed wants to go.  That's why I put 5 years.  I believe that the US economy could be back to "normal" growth and inflation by that point.

I definitely think that ARM works for you but it doesn't work for many people especially in this era of high housing prices.  Most people are already buying at or near their max and with wages being stagnant, they can't bare the risk.

 

[usctrojancpa]

Going forward however, I expect the interest rates to go back up to 7-9% in the next 5 years or so.

I'm not so sure about that... which is why a 5/1 would be ideal right now.

When rates were 7, people said they would get to 10, and when it got down to 5, people said back to 8. The economy has adjusted to this low rate environment and to go back to the 7-9% range in 5 years would be a drastic shift.

Maybe in 10-15 years... but 5 or so? But then again, no one ever thought rates would dip below 3.5%.

In a "normal" economy rates of 7-9% is pretty much what you get.  Only the unprecedented events in the past 10 years in both monetary policy, lending standards, and global economic issues have caused the low rates.  5 years is about when I expect the economy to fully recover.
http://www.freddiemac.com/pmms/pmms30.htm

1990s was close to "normal" and had interest rate between 7-10%.  You couple that with very high home prices, a lot of pain will be felt if rates readjusts 3-4%. 

A $750,000 loan at 3% has a P&I payment of about $3,200.  At 4.5%, payment is $3,800.  That loan at 7% bumps the payment up to $5,000.  9% is over $6,000. 

This is not even doomsday stuff.  Doomsday would have the Fed pulling QE and letting rates go whereever they may.  Banks and lenders remain risk averse and overcompensate risk with interest rates and pushing rates into double digit.  Meanwhile, investors sensing a rise in interests, pull out of stock and buy bonds/commodities leading to more increase in rates.  We haven't even gotten to possible inflation.

You really think the US govt can afford to let rates go that high with the amount of debt that the US has?  Come on, the Fed will keep rates in check as the economy will continue to improve slowly.  So if rates do go to 9%, my rate is capped at 7.5% so I'd be in good shape (besides the fact that I could pay down my loan amount).  Remember that the loan payment adjustments both on the rate AND on the loan balance when it re-amortizes after the fixed period.

Fed is already start the ease up on the policy...I think that 1% a year is about where the Fed wants to go.  That's why I put 5 years.  I believe that the US economy could be back to "normal" growth and inflation by that point.

I definitely think that ARM works for you but it doesn't work for many people especially in this era of high housing prices.  Most people are already buying at or near their max and with wages being stagnant, they can't bare the risk.

One thing that I will agree on with you is that people should not use ARM loans to stretch to buy a property (i.e. they qualify using an ARM loan but can't qualify if they get a 30-year fixed loan).  You definitely want to have cash reserves and be good with your money management before you think about getting an ARM loan.  Gotta go into it with your eyes wide open.  Btw, most people don't even realize that the adjustments for the ARM loans are based upon SHORT TERM LIBOR rates, not long term bonds rates or what 30-year fixed loan rates are. 

 

[notTHEoc]

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?

Let's assume you can comfortably pay off your balance and/or comfortably make cap rate payments so forget the worst case of losing home. Still think 30 yr can make sense even though i doubt rates go up more than 1-2pts in next ~5 years. But suppose avg rates are ~2-3pts higher from 2020-2040 (50/50 chance?).

There is a big oppty cost if you have to pay down your loan or make higher payments 2020-2040. If you're wired to paying down a mortgage for "peace of mind" reasons, then you don't care because you'll be mortgage-free by then anyway, but then in that case you may miss out on some of the benefits of current low long-term rates.

Hypothetically, why not cash-out refi to 80% ltv on 30-yr fixed to guarantee yourself cheap source of funds if you want to move up to a larger home in the future (like la vita 4) while keeping your current place a rental? Rather than be "all-in" on low rates when you're ready to move up later?

On the margin, having an ARM on primary residence reduces your ability to take risk elsewhere imo. Buy or co-invest in a side biz? Buy another rental? Bonds, stocks? If your primary residence is fixed, you can more safely do those things imo.

Even at today's rates, it's not hard to get a return similar to mortgage rates in tax-free munis. Or get a ~7-8% return in bonds with modest leverage and reasonable risk. If rates go higher, you'll be able to get even higher return than your mortgage with lower risk.

So instead of saving the $$ upfront, you might make more over 20-30 yrs by taking as much cheap money as you can now and some modest risk.

Also, if rates go up, you might lose some flexibility. Maybe the move up home is less feasible now? Or maybe you can't sell your current place for as much as you hoped?

So if your goal is to pay off home quick, i'd agree 5-year arm is better. if goal is to take advantage of cheap long-term money and you want more freedom to make other investments, i'd say 30-year may make sense.

 

[usctrojancpa]

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?

Let's assume you can comfortably pay off your balance and/or comfortably make cap rate payments so forget the worst case of losing home. Still think 30 yr can make sense even though i doubt rates go up more than 1-2pts in next ~5 years. But suppose avg rates are ~2-3pts higher from 2020-2040 (50/50 chance?).

There is a big oppty cost if you have to pay down your loan or make higher payments 2020-2040. If you're wired to paying down a mortgage for "peace of mind" reasons, then you don't care because you'll be mortgage-free by then anyway, but then in that case you may miss out on some of the benefits of current low long-term rates.

Hypothetically, why not cash-out refi to 80% ltv on 30-yr fixed to guarantee yourself cheap source of funds if you want to move up to a larger home in the future (like la vita 4) while keeping your current place a rental? Rather than be "all-in" on low rates when you're ready to move up later?

On the margin, having an ARM on primary residence reduces your ability to take risk elsewhere imo. Buy or co-invest in a side biz? Buy another rental? Bonds, stocks? If your primary residence is fixed, you can more safely do those things imo.

Even at today's rates, it's not hard to get a return similar to mortgage rates in tax-free munis. Or get a ~7-8% return in bonds with modest leverage and reasonable risk. If rates go higher, you'll be able to get even higher return than your mortgage with lower risk.

So instead of saving the $$ upfront, you might make more over 20-30 yrs by taking as much cheap money as you can now and some modest risk.

Also, if rates go up, you might lose some flexibility. Maybe the move up home is less feasible now? Or maybe you can't sell your current place for as much as you hoped?

So if your goal is to pay off home quick, i'd agree 5-year arm is better. if goal is to take advantage of cheap long-term money and you want more freedom to make other investments, i'd say 30-year may make sense.

I can't speak for PS9 of anyone else who got an ARM loan but I got an ARM because I wanted to have more money to invest with.  I would say that a lot of the people that get 30-year fixed loans do so because they don't understand how an ARM loan works.

 

[notTHEoc]

a

 

[calimark]

not a perfect analogy, but if a company took on debt, would the company be stupid for taking on 30 yr fixed rate debt (at today's rates)?

 

[bones]

asdf

 

[paperboyNC]

not a perfect analogy, but if a company took on debt, would the company be stupid for taking on 30 yr fixed rate debt (at today's rates)?

Quite different. If I could borrow money that was not attached to anything (the equivalent of a corporate 30 year bond) I would definitely get a fixed rate mortgage.  I would probably split the home loan into 3 loans with 1 loan being a 30 year fixed, 1 loan being a 10yr ARM and the last loan being a 5yr ARM.

I am refinancing my mortgage right now after having an ARM for a few years. I saved $9,400 total in 28 months with the ARM compare to the 30yr fixed and since I'm refi-ing the 30yr fixed would have been a complete waste of almost 10 grand.

The biggest reason 30yr mortgages suck is that you lose your locked in rate if you move to another home. Corporations don't face that problem. Of course you can keep your old home as a rental and still keep that locked in rate, but I don't plan to do that.

 

[notTHEoc]

a

 

[qwerty]

not a perfect analogy, but if a company took on debt, would the company be stupid for taking on 30 yr fixed rate debt (at today's rates)?

Quite different. If I could borrow money that was not attached to anything (the equivalent of a corporate 30 year bond) I would definitely get a fixed rate mortgage.  I would probably split the home loan into 3 loans with 1 loan being a 30 year fixed, 1 loan being a 10yr ARM and the last loan being a 5yr ARM.

I am refinancing my mortgage right now after having an ARM for a few years. I saved $9,400 total in 28 months with the ARM compare to the 30yr fixed and since I'm refi-ing the 30yr fixed would have been a complete waste of almost 10 grand.

The biggest reason 30yr mortgages suck is that you lose your locked in rate if you move to another home. Corporations don't face that problem. Of course you can keep your old home as a rental and still keep that locked in rate, but I don't plan to do that.

well you gambled and won. a lot of folks have gambled with ARMS and lost.  i could have done a 5 yr ARM at 2.65 back in december of 2012 but went with a 30 year at 3.75% instead.  from a pure financial perspective i probably would have been better off, in the first 5 years i would have saved about 30K in interest before the tax benefit and about 17K after the tax benefit, but after that its unknown and having the fixed rate gives me more flexibility and peace of mind. Im not going to sweat over 17K over a five year period. im paying off our house in 10 years, so the savings over the next 5 years after that would be even less than the 17K. So what about 30K after taxes in 10 years?

 

[ps99472]

a lot of folks have gambled with ARMS and lost.

these folks that 'lost', given the same predicament, how would a 30 yr mortgage save them?  As discussed above, lots of creative scenarios to get out of any bad situations.  Unless you lose your job, get divorced, etc. all in the same year, I still don't see how $30-50k is worth my 'peace of mind'.  In fact, I would be tossing and turning nightly thinking about the money I could've saved. 

So if you were to refi today, what mortgage would you do?  If your goal is to pay off your principal, and have the confidence to, wouldn't the lowest interest payment be the wisest?  The amount of interest paid on a 5/1 ARM is even lower than a 15 yr conv after the 5 year mark. 

 

[qwerty]

a lot of folks have gambled with ARMS and lost.

these folks that 'lost', given the same predicament, how would a 30 yr mortgage save them?  As discussed above, lots of creative scenarios to get out of any bad situations.  Unless you lose your job, get divorced, etc. all in the same year, I still don't see how $30-50k is worth my 'peace of mind'.  In fact, I would be tossing and turning nightly thinking about the money I could've saved. 

So if you were to refi today, what mortgage would you do?  If your goal is to pay off your principal, and have the confidence to, wouldn't the lowest interest payment be the wisest?  The amount of interest paid on a 5/1 ARM is even lower than a 15 yr conv after the 5 year mark. 

ive thought about refinancing into a ARM.  while i do have the confidence that the mortgage will be paid off in 8.5 more years, that is just a plan. things could change that could derail my plan, if my company gets bought out, which is always possible, ill likely have a tough time replacing my comp package in OC, etc.  like i said, its likely not the best financial move, but like i also said, im not going to sweat 17K over 5 years and 30K over 10 years.  for me, i dont always make the best financial decision, but im completely ok with that. i make whatever financial decision im the most comfortable with, even it costs me a little more.

 

[Irvinecommuter]

Is there really a right or wrong answer here?  We all make financial decisions based on our personal situations. This is no different.

yeah, def no right or wrong. but i think PS9 was just trying to find any scenarios under which a 30 year fixed could make sense.

Agreed.  There is no right or wrong in making the decision.  I just don't like the narrative that if you take out a 30 year fixed rate loan, you are a financial dummy.

BTW:  Wholesale prices went up 0.4% this month and is up 2% Year-over-year.  This is a good thing as it indicates raising wages and a better economy.  It also indicates that rate could be going up. 

Yellen testified yesterday that the Fed is already looking to ease up on the gas pedal and may start raising rates if the economy continues.

While continuing to stress that "a high degree of monetary policy accommodation remains appropriate," Ms. Yellen's acknowledgment that rates could rise sooner than planned marks a notable new hedge. She made a similar comment at a news conference in June, but without pointing out that the unemployment rate and other job-market measures were improving more quickly than officials expected.

http://online.wsj.com/articles/feds...rove-but-recovery-not-yet-complete-1405432838

 

[bones]

[quasdf