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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127222  
Subject: Re: Thoughts on keeping 30 year FRM Date: 4/2/2013 11:04 PM
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But the idea that that is most of the people most of the time or that Fixed/Adjustable rate loans are some evil instrument of the devil created by banks to screw innocent borrowers is brainless, populist crap.

The only people who say that are ARM proponents who claim that ARM opponents are saying that.


Don't get me wrong, I think the 30yr has its place and is a great choice for someone who actually may be in their home and keep their loan for a very long time.

It's all about controlling your risk. A 30yr FRM rate and payment stays the same for 30 years. No matter what, you never have to pay more.

AFAIK, the 5/1 is the most popular ARM. With 2/5 caps, you rate could almost double in years 6 & 7, and the top possible rate is more than double the initial rate. You can poo-poo the risk of that happening, but it is a real risk. You can define it away by claiming that you'll sell before the rate goes up -- but defining it away doesn't mean that the risk goes away, you are just shutting your eyes to it.

Thing I find funny is that (some of) the same people who are blithely willing to accept that risk are deathly afraid of taking any risk in other investments and invest in something like an IUL because that has "no risk of ever losing any money in any month ever". (Looking at you, CCinOC)

Pay a large opportunity cost by getting an IUL, for "safety" -- yet borrowing money with an ARM which can more than double your payment, for "saving a few dollars in interest"?? Doesn't make sense. Not consistent.

Especially since we *know* that ARM rates will be going up, because the Fed won't keep rates at near zero for much longer.
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