Will mortgage rates continue to drop?

[sgip]

Remember, the 10yT is an indicator, not a driver of mortgage rates. A helpful article:

http://www.mortgagenewsdaily.com/consumer_rates/919972.aspx

My .02c

 

[irvinebullhousing]

I'm sure 10-year ARM rates are getting towards 3% so why not get a 10-year ARM and have flexibility of paying as if it's a 15 year fixed rate when you can and want to?

A good strategy for sure. However, from my observations and experiences, is that when payees are not forced into a restrictive payments, they often will find other ways to use that money that would?ve gone into making the principals and spending more. Now, that list are endless. Great for the ever consumer driven economy. But disciplines is hard to come by when there are too much materials and toys flaunting in front of you.

 

[meccos12]

I'm sure 10-year ARM rates are getting towards 3% so why not get a 10-year ARM and have flexibility of paying as if it's a 15 year fixed rate when you can and want to?

If one can get a 15 year fixed at 3%, why would one take a 10 year ARM at 3%?  Am I missing something?

 

[Kings]

I'm sure 10-year ARM rates are getting towards 3% so why not get a 10-year ARM and have flexibility of paying as if it's a 15 year fixed rate when you can and want to?

If one can get a 15 year fixed at 3%, why would one take a 10 year ARM at 3%?  Am I missing something?

10 year arm is amortized over 30, which would provide for a lower monthly payment

 

[Mety]

Surprisingly, many people don't know what ARM loans are. I'm not saying meccos12 doesn't know, but I've run into home owners go like, "What's ARM? Do you have to pay everything in 7 (or 10) years?"

 

[sgip]

You can pay a 30 year 10/1 ARM as you would a 15 year fixed. In 10 years theoretically you'd be at the same balance level as you would if you closed a refinance on the 15 year fixed rate.

Somewhere along the 10 year scenario, a job / life event / sale of property event will occur. At that time, would you rather pay $2,762.33 on a $400k fixed rate, or opt temporarily for the $1,668.42 ARM payment? Look backwards 10 years.... Ever had a cash squeeze of any kind? Ever had a "sure thing" bonus not get paid? Ever had to catch a zero hour flight home for an emergency? A terrific number of things can happen within a decade, so why be compelled to pay more during those times of an emergency?

To paraphrase "Chance favors the prepared.."

My .02c

 

[usctrojancpa]

I'm sure 10-year ARM rates are getting towards 3% so why not get a 10-year ARM and have flexibility of paying as if it's a 15 year fixed rate when you can and want to?

If one can get a 15 year fixed at 3%, why would one take a 10 year ARM at 3%?  Am I missing something?

Provides the borrower flexibility on the payment while having the same interest rate.

 

[meccos12]

I understand the lower payments and the possibility of a cash crunch, however one would be paying a lot more in the long run for the flexibility of these lower payments.  Furthermore if an ARM is the only way to afford a house, then I would argue that one cant really afford that house.  I feel that the only scenario where ARMs would be better if one doesnt plan to stay in the house long.  However how would one know that they would not stay for long and if they did know, why would they even buy a house?

Correct me if I am wrong, but assuming one stays in the house for at least 10 years, at the end of the 10 years the person who took the 15 year fixed would have only half the loan balance compared to the person who took the 10 year arm with the numbers previously suggested.  With any rate increase in those ten years, the disparity would only be worse and since rates are so low, there seems to be a lot more room for it to go up than down.

Perhaps I do not know enough about ARM, so I am welcome to be educated here. 

 

[zubs]

The macro idea we pondered on TI back in 2009 was which is better, ARM or fixed? 
The conclusion to that debate was that interest rates would always be low forever...because raising them would be a cataclysmic event that destroys the world economy.  Now it's 2019...and so far we are right.

The question is how and why would the FED ever raise interest rates?

 

[irvinehomeowner]

You make the same payment on the 10 year ARM as the 15 fixed. So 10 years in the balance may actually be the same or lower since you are paying down principal.

But you have the flexibility to pay less in case of cash flow issues.

 

[eyephone]

I understand the lower payments and the possibility of a cash crunch, however one would be paying a lot more in the long run for the flexibility of these lower payments.  Furthermore if an ARM is the only way to afford a house, then I would argue that one cant really afford that house.  I feel that the only scenario where ARMs would be better if one doesnt plan to stay in the house long.  However how would one know that they would not stay for long and if they did know, why would they even buy a house?

Correct me if I am wrong, but assuming one stays in the house for at least 10 years, at the end of the 10 years the person who took the 15 year fixed would have only half the loan balance compared to the person who took the 10 year arm with the numbers previously suggested.  With any rate increase in those ten years, the disparity would only be worse and since rates are so low, there seems to be a lot more room for it to go up than down.

Perhaps I do not know enough about ARM, so I am welcome to be educated here.

I say do 15 fixed. Think of this way you will pay off your house. (You don?t have to worry about mortgage payment or rent when you retire or at a younger age. Another idea, if you can rent it out after the house is paid off. You will get max profit/cash flow.)

Road to financial freedom.

 

[Mety]

I understand the lower payments and the possibility of a cash crunch, however one would be paying a lot more in the long run for the flexibility of these lower payments.  Furthermore if an ARM is the only way to afford a house, then I would argue that one cant really afford that house.  I feel that the only scenario where ARMs would be better if one doesnt plan to stay in the house long.  However how would one know that they would not stay for long and if they did know, why would they even buy a house?

Correct me if I am wrong, but assuming one stays in the house for at least 10 years, at the end of the 10 years the person who took the 15 year fixed would have only half the loan balance compared to the person who took the 10 year arm with the numbers previously suggested.  With any rate increase in those ten years, the disparity would only be worse and since rates are so low, there seems to be a lot more room for it to go up than down.

Perhaps I do not know enough about ARM, so I am welcome to be educated here.

People in Irvine usually move up to a bigger house every 5-7 year or so. Some move even in shorter terms. Irvine is a family driven city and as the family grows, they tend to move to bigger homes. This is not always planned from the beginning, but usually they start with a flat to a condo to a detached to an SFR (this is not an accurate order but just to illustrate the point). I'm excluding foreign investors/owners since they are usually all cash buyers who don't need loans. Some folks bought SFRs from the beginning since they had large chunk of money from parents or in-laws, but even those guys usually move up every 10 year or so.

Between 10yr ARM and 15yr fixed, 10yr ARM would have a significantly lower monthly payment. But if you're comfortable and qualified to do 15yr fixed, then why not? It's just a matter of peacefulness in your mind.

 

[meccos12]

You make the same payment on the 10 year ARM as the 15 fixed.

Wrong.  payments are lower with a 10 year.

So 10 years in the balance may actually be the same or lower since you are paying down principal.

Wrong.  Balance will be higher in a 10 year since you are making less payments

But you have the flexibility to pay less in case of cash flow issues.

Wrong.  You do not have the flexibility to change your payments and pay less in case you have cash flow problems.  You simply just pay less from the beginning.

Amazing how everything you wrote could be wrong. 

 

[meccos12]

I understand the lower payments and the possibility of a cash crunch, however one would be paying a lot more in the long run for the flexibility of these lower payments.  Furthermore if an ARM is the only way to afford a house, then I would argue that one cant really afford that house.  I feel that the only scenario where ARMs would be better if one doesnt plan to stay in the house long.  However how would one know that they would not stay for long and if they did know, why would they even buy a house?

Correct me if I am wrong, but assuming one stays in the house for at least 10 years, at the end of the 10 years the person who took the 15 year fixed would have only half the loan balance compared to the person who took the 10 year arm with the numbers previously suggested.  With any rate increase in those ten years, the disparity would only be worse and since rates are so low, there seems to be a lot more room for it to go up than down.

Perhaps I do not know enough about ARM, so I am welcome to be educated here.

People in Irvine usually move up to a bigger house every 5-7 year or so. Some move even in shorter terms. Irvine is a family driven city and as the family grows, they tend to move to bigger homes. This is not always planned from the beginning, but usually they start with a flat to a condo to a detached to an SFR (this is not an accurate order but just to illustrate the point). I'm excluding foreign investors/owners since they are usually all cash buyers who don't need loans. Some folks bought SFRs from the beginning since they had large chunk of money from parents or in-laws, but even those guys usually move up every 10 year or so.

Between 10yr ARM and 15yr fixed, 10yr ARM would have a significantly lower monthly payment. But if you're comfortable and qualified to do 15yr fixed, then why not? It's just a matter of peacefulness in your mind.

Sorry Mety, I dont buy that people move up every 5-7 years typically.  I would love to see where you get that data.  From what Ive seen is that Irvine families move every 13.5 years on average with a median years at 11.1
https://www.valuepenguin.com/how-long-homeowners-stay-in-their-homes#nogo


I truly think there is a benefit of the 15 year fix vs 10 year ARM if you do not have plans to move and its more than just peace of mind.  Yes having a fixed rate and not worrying about potential rate hikes is great, but you just end up paying way less in interest even if the rates dont change at all. 

So if on average people stay over 10 years in a typical Irvine home, I see the 15 year being a superior product than a 10 year ARM at this point for various reasons:  no worries of higher rates, quicker pay down and thus much less interest paid.  Again this does not apply to those who stretch and cannot really afford 15 year fixed payments.   

 

[irvinehomeowner]

You make the same payment on the 10 year ARM as the 15 fixed.

Wrong.  payments are lower with a 10 year.

That's not what I'm saying. Say the 15-year fixed payment is $3000/mo and the 10-year ARM is $1000/mo. You *choose* to still pay $3000/mo on the 10-year ARM, so the extra $2000 is going towards principal.

So 10 years in the balance may actually be the same or lower since you are paying down principal.

Wrong.  Balance will be higher in a 10 year since you are making less payments

See above. I'm saying the same thing that others are saying.

But you have the flexibility to pay less in case of cash flow issues.

Wrong.  You do not have the flexibility to change your payments and pay less in case you have cash flow problems.  You simply just pay less from the beginning.

Again, re-read what everyone else is saying. You can *choose* to pay more or pay the $1000/mo.

Amazing how everything you wrote could be wrong. 

I understand you have issues with me. But I believe this is clouding how you read my response.

 

[irvinehomeowner]

I did some simpleton math and paying a 15-year fixed payment on a 30-year 10/1 ARM doesn't quite match the balance 10 years in (I basically took the extra payments and subtracted it from the principal at year 10 on the 30-year amortization schedule).

But I don't know if 10/1 ARMs readjust the interest calculation every year so that if the principal is being paid down faster, the interest portion also goes down. In that case, balances might match up better at the 10-year mark.

Maybe SGIP or LL can chime in on this calculation.

 

[irvinehomeowner]

People in Irvine usually move up to a bigger house every 5-7 year or so. Some move even in shorter terms. Irvine is a family driven city and as the family grows, they tend to move to bigger homes. This is not always planned from the beginning, but usually they start with a flat to a condo to a detached to an SFR (this is not an accurate order but just to illustrate the point). I'm excluding foreign investors/owners since they are usually all cash buyers who don't need loans. Some folks bought SFRs from the beginning since they had large chunk of money from parents or in-laws, but even those guys usually move up every 10 year or so.

Sorry Mety, I dont buy that people move up every 5-7 years typically.  I would love to see where you get that data.  From what Ive seen is that Irvine families move every 13.5 years on average with a median years at 11.1
https://www.valuepenguin.com/how-long-homeowners-stay-in-their-homes#nogo

Yes. We agree on this. And thank you for finding that article.

 

[sgip]

P+I ARM loans work as fixed rates do. If you prepay you shorten the term, but not the payment. An IO ARM gives you an instant difference as the IO payment can change based on the principal balance.

Some lenders allow multiple recasting, others permit a recast once during the term, but most servicers only offer the "what's a recast?" option. What does a recast look like? If you prepay a loan with a $1,000 payment and ask for a recast in year 5 for example, your required payment might fall to $500. Make that $1,000 payment and the additional $$$ goes to principal, paying the loan back even quicker. It's possible to recast both a fixed rate and an ARM, servicer permitting. It's a $200-$750 cost depending on what is being done with the loan.

My .02c

 

[Mety]

People in Irvine usually move up to a bigger house every 5-7 year or so. Some move even in shorter terms. Irvine is a family driven city and as the family grows, they tend to move to bigger homes. This is not always planned from the beginning, but usually they start with a flat to a condo to a detached to an SFR (this is not an accurate order but just to illustrate the point). I'm excluding foreign investors/owners since they are usually all cash buyers who don't need loans. Some folks bought SFRs from the beginning since they had large chunk of money from parents or in-laws, but even those guys usually move up every 10 year or so.

Sorry Mety, I dont buy that people move up every 5-7 years typically.  I would love to see where you get that data.  From what Ive seen is that Irvine families move every 13.5 years on average with a median years at 11.1
https://www.valuepenguin.com/how-long-homeowners-stay-in-their-homes#nogo

Yes. We agree on this. And thank you for finding that article.

Maybe you guys with 3CWG SFRs don't move as often, but the trend is getting quicker and quicker of moving phases with condo (attached/detached) buyers. However, I can see once you settle in a big house like that with kids being 10+ years old, moving might not be required as often.

Back to the loan, I would do 15yr fixed also if I could.

 

[irvinehomeowner]

People in Irvine usually move up to a bigger house every 5-7 year or so. Some move even in shorter terms. Irvine is a family driven city and as the family grows, they tend to move to bigger homes. This is not always planned from the beginning, but usually they start with a flat to a condo to a detached to an SFR (this is not an accurate order but just to illustrate the point). I'm excluding foreign investors/owners since they are usually all cash buyers who don't need loans. Some folks bought SFRs from the beginning since they had large chunk of money from parents or in-laws, but even those guys usually move up every 10 year or so.

Sorry Mety, I dont buy that people move up every 5-7 years typically.  I would love to see where you get that data.  From what Ive seen is that Irvine families move every 13.5 years on average with a median years at 11.1
https://www.valuepenguin.com/how-long-homeowners-stay-in-their-homes#nogo

Yes. We agree on this. And thank you for finding that article.

Maybe you guys with 3CWG SFRs don't move as often, but the trend is getting quicker and quicker of moving phases with condo (attached/detached) buyers. However, I can see once you settle in a big house like that with kids being 10+ years old, moving might not be required as often.

Well... that data is pretty recent, 2018 but even with a delta of 20% error, you're still looking at a 9 year median. I think the lowest Cali city median was Temecula at 9.9 years. Close to Irvine cities like Costa Mesa, Anaheim and Santa Ana have an even higher median.

Back to the loan, I would do 15yr fixed also if I could.

Why not the 10-year ARM but still pay the 15-year fixed payment?