4 ms·

I’m actually surprised they have lasted so long... Watching ARM's repeatedly eat unsophisticated investors, it makes a certain sense why.

• seanmcdirmid 3y ago
  Oh, they are great products for consumers, but not for providers. Somehow they even out the rate for 30 years…but that doesn’t really work out so someone is caught holding the bag (owning loans whose interest rates are way too low vs current rates). Countries like Canada simply don’t have them (you can get one for 25 years, but at a rate that is pretty high compared to adjustables).
  • ip26 3y ago
    The fed holds the bag, which means those same consumers, but as a group. It works out because stability is generally in everyone’s interest.
    • seanmcdirmid 3y ago
      Everyone who has a home loan’s interest. Anyone who Can’t afford to take on so much debt…they just help pay for the bill.
• listenallyall 3y ago
  Adjustable rates obviously, occasionally, lead to spectacular blowups that make big headlines. But fixed rates "silently" steal hundreds of dollars from homeowners every month. It's a bit like avoiding auto insurance, if you total your car (typically a low-probability event) you're screwed, but in aggregate, most people pay a lot more for insurance than they receive back in claims. The ability to easily refinance usually tilts the decision towards fixed rates but banks and mortgage originators actually make a bunch of money when you do so.
  • red-iron-pine 3y ago
    > But fixed rates "silently" steal hundreds of dollars from homeowners every month. Not if you account for inflation it doesn't. And you're basically gambling with adjustable rates; it may be lower... now... but I can work with 1% more over 15-30 years, esp. if the pay rate stays the same but my salary gets occasional inflation-based adjustments.
    • seanmcdirmid 3y ago
      This only applies in America where fixed rate mortgages are incredibly cheap. The risk is transferred to the consumer in other countries by making them substantially more expensive.
    • listenallyall 3y ago
      By "silently steal" I'm talking about the fixed rate mortgage at 6% when rates have dropped to 5.25%. Not enough difference to refinance and might be another few years before it is. Yes of course it is a gamble as rates could rise but from about 1982 to 2021 -- almost 40 years -- the trend has been downward almost the entire time. But that's many millions of homeowners paying a lot of extra hundreds of dollars (in interest, not principal) every month for many, many months. This still doesn't mean ARMs are "better", just different.
  • xeromal 3y ago
    I'm open to being convinced the ARMs are better for the individual but I don't buy it with my current info. Having a lower fixed rate for the entire duration of the loan sounds like the most consumer friendly one to me. My current mortgage is 2.87$ APR fixed and I don't see how an ARM could benefit me one bit. Sounds like constant anxiety.
    • listenallyall 3y ago
      Of course, "having a lower fixed rate for the entire duration of the loan" is optimal... but most people don't initiate their mortgage at the lowest interest rate in history.