Are adjustable rates a good thing in your opinion?

Question

I think so. I have had adjustable rates for 7 years. The first three years were one year and they went down three years in a row. Then I signed up to a 3/1 arm and just received the adjusted new rate and again it went down!! My mortgage dropped 132 and some cents a month. I hear the doom and gloom and receive calls from mortgage companies saying the sky is falling......Subprime loans are bad but 7 years running says adjustable rates are great. Yes I could afford an adjustment the other way.

Answer 1

NOT unless you're a gambler.

You've gambled and you've done OK.

It's excellent that you are using decreased loan amounts to make extra principal payments. . .you save yourself tens of thousands of dollars over the life of the loan by making such payments for any length of time!

Depends on the ARM.  Is there floor and ceiling?  Is negative amortization possible?  What is the cap?  Is it per year/ per life of loan?  Are you staying put for any length of time?  Can you deal with sizeable upswings in payments.

Particularly with declining housing prices, ARMS can be bad for many people.  Particularly for those who put little or no money down.  Others like the security (ME) of knowing exactly what their monthly payments will be over the life of the loan.

Answer 2

Adjustable rates right now are low due to the bad market, but when the market picks-up so will your rate. Also, when the market is bad they probably wouldn't even allow you to lock the rate if you ever chose to. I guess if you can afford to and it isn't an interest only type loan then all is good!

Answer 3

One can only answer this by determining the legal clauses in the contract.  As a real estate investor, I DO keep a couple of adjustable rate mortgages, but the terms are clearly specified in that they relate to the Fed prime rate.  These are advantageous to me.  However, many of the subprime borrowers did not have such agreements included in their mortgages.  Many of those mortgages had NO reference to increased rates to coincide with Fed prime or other benchmarks.  They simply had clauses to heavily increase the rate once the initial period had expired.

As a note of caution, in my adjustable rate investment mortgages, I keep the monthly payment the same as it was at the highest rate.  The difference reduces the principal outstanding.  That way, I still cough out the same amount monthly, with a goodly amount being credited toward principal reduction.

Don't fall prey to the "I have more money to spend now" approach.  Reduce your outstanding principal as much as you can.

Answer 4

I wouldn't do it.  That's good if your rates went down, but obviously that's not the norm.