No. of Recommendations: 2
Even having that the mortgage that's 1x a person's annual income is not a choice most people would make.

At least I don't know anyone who says to themselves "You know what, I could buy a nice 3 bedroom house in a good neighborhood, but instead I'm going to buy a place in the trailer park."


Plus, many (most?) people buy a house to raise a family in, which means they generally want good schools, and the better schools are usually not in the neighborhood with the trailer parks.

I dunno, back in the day, I handled the fixed vs ARM by looking at the rates for a 30 year vs a 3/1, 5/1 and 7/1 ARM, then ran the numbers to see what the breakeven would be with various interest rate hypotheticals (from "worst case" where rates go up to the max caps allowed on the ARMs to more moderate interest rate scenarios). At first I thought we'd likely be in our house for under 8 years, and so went for a 5/1 ARM over a 30 yr FRM because the breakeven was roughly 7 years out at max rate increases and a little over 8 under some more realistic scenarios (obviously it could be longer). In under a year I realized we likely were NOT going to move in 8 years or fewer unless something really really great happened (and in that case I wouldn't care overly much if I "overpaid" a bit on my mortgage overall), so I changed to a 30 yr FRM with some very fortunate timing on the interest rate lock. I also figured that if rates went even lower that probably meant the economy would be hurting, which meant an increased chance of me or my wife losing our job and all the issues associated with that, in which case a slightly lower monthly payment on the mortgage would be small solace.

As it turns out, rates did go lower (the 5/1 ARM was tied to 1 yr treasuries, and we all know what happened with them), and the economy did go into the dumps, but fortunately enough my economic success was NOT correlated with that and I got lucky professionally, so now we're in the relocation process.

So the end result is yes, I wound up paying a little bit more under 30 yr FRM than I did under the 5/1 ARM. So Dave can use this as an example of why what I did was a bad idea.

From a risk management perspective, I'd do the exact same thing all over again, and given the way my life is going so far I'll stick to that.

-synchronicity, possessor of a little bit of skill and whole bucketful of luck
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