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Don't know numbers off hand but we had a <4% rate ARM because it was the lowest rate and we liked the flexibility of paying it off asap (or if something happene

Don't know numbers off hand but we had a <4% rate ARM because it was the lowest rate and we liked the flexibility of paying it off asap (or if something happened, paying it off over 30 years) versus a 15-year fixed. Plenty of other reasons. Others have bad credit or otherwise get significantly lower payments on an ARM compared to fixed. I guess there are other reasons, but ARMs are definitely not dead. I don't know the numbers or where to get them though. What are more dead are the "balloon payment" residential mortgages where they may amortize over 30 years but the principal is due in 5 or 10 years.

paulmd 4y ago
> Don't know numbers off hand but we had a <4% rate ARM because it was the lowest rate and we liked the flexibility of paying it off asap (or if something happened, paying it off over 30 years) versus a 15-year fixed. you can pay off a 15-year mortgage in less than 15 years - the lien will be released, etc whenever the principal is paid. Everything depends on the specifics of your contract of course but it would be extremely unusual to have a mortgage where this is not allowed. fixed vs ARM purely depends on how the interest rate is determined, that's it. In principle ARM should be a bit lower than a fixed rate financed at the same time - but if the prime rate goes up then your rate goes up too, where with a fixed it's locked-in forever. Fixed will have a higher interest rate because someone has to assume that risk of an increase in the prime rate, where with an ARM that someone is you. Taking an ARM vs a fixed is a bet on whether rates are going to stay the same or decrease, vs increase. And boy if you thought 2020-2021 rates weren't going to increase at some point in the future, uh... it's not every day you have a once-in-a-century pandemic that nukes the economy and drives demand for money almost to zero. I'm not quite sure what you're saying about balloon payments either, the balloon payment happens at the end of a balloon mortgage, with the intention that values will have gone up so you can refinance at that point - but of course, what if they don't?
- addaon 4y ago
  > Taking an ARM vs a fixed is a bet on whether rates are going to stay the same or decrease, vs increase It's also taking a bet on how long you're going to keep the mortgage. When a bank offers a lower rate for a 7 ARM vs 30 fixed, they're assuming that you will keep the mortgage for more than 7 years. If you pay it off fully before then, you win the bet.
- fdjjjkffkk2 4y ago
  Eh, I think we're talking past each other because none of what you said really applies to what I think I'm saying. A 30year ARM gives you a lot more flexibility then a 15-year anything. I mean, you can pay off the 30 year in 30 years or 15 years or 5. Regarding the balloon payment-- not sure what you're missing here. Residential mortgages with balloon payments aren't really offered any more because of huge risk of default when the balloon payment is due.
- bluGill 4y ago
  He wasn't worried about paying off the 15 year mortgage in 10 years. He was worried about getting a 15 year mortgage and then sometime happening so he couldn't afford to pay it off in 15 years. With a ARM you get the flexibility of lowering your payments to the minimum - which will pay it off in 30 years if bad times happen, while getting the lower interest rates of a 15 year loan (for the first X years, then who knows), and if you may the 15 year loan payment it is paid off in 15, while if bad times come you drop to the 30 year repayment amount and have more money to deal with whatever. It can be a very good idea for someone who plans to pay off their mortgage early. If all goes well it is no worse than a 15 year mortgage, but when (really, if is unlikely) something bad happens you have more flexibility. Of course if interest rates go up you will get burned, which is why I go with a 30 year fixed rate that I pay off. I could probably afford payments on a 15 year loan, but I'm not willing to risk it.

paulmd 4y ago

> Don't know numbers off hand but we had a <4% rate ARM because it was the lowest rate and we liked the flexibility of paying it off asap (or if something happened, paying it off over 30 years) versus a 15-year fixed. you can pay off a 15-year mortgage in less than 15 years - the lien will be released, etc whenever the principal is paid. Everything depends on the specifics of your contract of course but it would be extremely unusual to have a mortgage where this is not allowed. fixed vs ARM purely depends on how the interest rate is determined, that's it. In principle ARM should be a bit lower than a fixed rate financed at the same time - but if the prime rate goes up then your rate goes up too, where with a fixed it's locked-in forever. Fixed will have a higher interest rate because someone has to assume that risk of an increase in the prime rate, where with an ARM that someone is you. Taking an ARM vs a fixed is a bet on whether rates are going to stay the same or decrease, vs increase. And boy if you thought 2020-2021 rates weren't going to increase at some point in the future, uh... it's not every day you have a once-in-a-century pandemic that nukes the economy and drives demand for money almost to zero. I'm not quite sure what you're saying about balloon payments either, the balloon payment happens at the end of a balloon mortgage, with the intention that values will have gone up so you can refinance at that point - but of course, what if they don't?

addaon 4y ago
> Taking an ARM vs a fixed is a bet on whether rates are going to stay the same or decrease, vs increase It's also taking a bet on how long you're going to keep the mortgage. When a bank offers a lower rate for a 7 ARM vs 30 fixed, they're assuming that you will keep the mortgage for more than 7 years. If you pay it off fully before then, you win the bet.
fdjjjkffkk2 4y ago
Eh, I think we're talking past each other because none of what you said really applies to what I think I'm saying. A 30year ARM gives you a lot more flexibility then a 15-year anything. I mean, you can pay off the 30 year in 30 years or 15 years or 5. Regarding the balloon payment-- not sure what you're missing here. Residential mortgages with balloon payments aren't really offered any more because of huge risk of default when the balloon payment is due.
bluGill 4y ago
He wasn't worried about paying off the 15 year mortgage in 10 years. He was worried about getting a 15 year mortgage and then sometime happening so he couldn't afford to pay it off in 15 years. With a ARM you get the flexibility of lowering your payments to the minimum - which will pay it off in 30 years if bad times happen, while getting the lower interest rates of a 15 year loan (for the first X years, then who knows), and if you may the 15 year loan payment it is paid off in 15, while if bad times come you drop to the 30 year repayment amount and have more money to deal with whatever. It can be a very good idea for someone who plans to pay off their mortgage early. If all goes well it is no worse than a 15 year mortgage, but when (really, if is unlikely) something bad happens you have more flexibility. Of course if interest rates go up you will get burned, which is why I go with a 30 year fixed rate that I pay off. I could probably afford payments on a 15 year loan, but I'm not willing to risk it.