Nonsense. Mortgages are subject (by law) to a limit in interest rate increases, so the most you could see after the 5 year term is up is about 2%. It is not in the interest of the business of the mortgage company to always put the highest legal rate up every year, because you will just sell your mortgage to a more reasonable company. Sure your interest can go up, but it is not unmanagable, plus you can re- mortgage.
http://mortgages.interest.com/content/firsttime/ed-ab09.asp HOW CAN I REDUCE MY RISK? ""Besides an overall rate ceiling, most ARMs also have "caps" that protect borrowers from extreme increases in monthly payments. Others allow borrowers to convert an ARM to a fixed-rate mortgage. While these may offer real benefits, they may also cost more, or add special features, such as negative amortization. Interest-Rate Caps An interest-rate cap places a limit on the amount your interest rate can increase. Interest caps come in two versions: Periodic caps, which limit the interest rate increase from one adjustment period to the next; and Overall caps, which limit the interest-rate increase over the life of the loan. By law, virtually all ARMs must have an overall cap. Many have a periodic interest rate cap. Let's suppose you have an ARM with a periodic interest rate cap of 2%. At the first adjustment, the index rate goes up 3%. The example shows what happens. ARM Interest Rate Monthly Payment ------------------ --------------- First year @ 10% $570.42 2nd year @ 12% (without cap) $717.12 2nd year @ 12% (with cap) $667.30 Difference in 2nd year between payment with cap and payment without = $49.82 Secondly: You can always sell your house to a rich Arab or a rich Canadian or a rich German (Germany is much stronger than people are saying in the media) --- In [email protected], akasha_108 <[EMAIL PROTECTED]> wrote: > > San Diego Housing Bubble Pops > > Tuesday, October 04, 2005 > > Option Arm mortgages now account for over 75% of all mortgage > originations for the month of September. I have never seen anything > like this before. > > I attended two mortgage conventions this month and every broker I > talked to said they were experiencing the same thing. > > Add fuel to the fire because the San Diego housing bubble has finally > popped and I am sure much of the rest of the country will soon follow. > The damage will be the worst disaster in recent U.S. history. > > The fixed rate refinance boom has transformed into the Option ARM > refinance boom. This is the negative amortization loan that your > monthly payment is based on a 1% loan for 40 years for the first 3 to > 5 years and then it recasts at normal adjustable rates. This allows > someone to purchase a $700,000 home with $35,000 down using a $560,000 > first mortgage with a starting payment of $1,415.99 plus an interest > only second of $105,000 with a payment of $613.00. > > Put this together and you can buy a $700,000 home with $35,000 down > and a monthly payment of $2,028.99. The same house would rent for > around $2,500 a month, so the person buying justifies the purchase. > The problem is when this loan recasts in 3 to 5 years, depending on > how quickly interest rates rise, the new payment will be around > $4,711.26 a month. That's right, the payment jumps from $2,028.99 to > $4,711.26 in less than 5 years, and if interest rates rise the payment > could be higher! This is justified by "I am planning on moving in less > than 5 years anyway." > > This is only the beginning of the problem > > Then because the house just sold for $700,000, an appraiser uses this > house as a comparable on the next door neighbors refinance and this > person only owes $250,000 because they bought several years ago when > prices were lower. This person decides to tap into this inflated value > and due a loan for $350,000 using an Option ARM so he can take out > $100,000 to fuel the consumer spending bubble. His payment on his old > mortgage was $1,500 per month, but because of this new super duper > Option ARM loan he can get his $100,000 cash out and his new payment > is only $885 per month. Now he can really blow up consumer spending > and even use this extra money to "invest in real estate". How about a > nice condo in Florida? > > And the 3 to 5 year recast? (Which will be around $2,200 per month if > rates don't rise) He figures he has another $350,000 in equity in his > home so he can just keep refinancing every few years and knock his > payment back down and don't forget "real estate always goes up, so in > ten years or so his house will be worth millions" and he will probably > just cash in and move into his Florida condo anyway. > > I disagree with all the "experts" I don't see a "soft landing". With > all this funny money being pumped into the American consumers pockets, > all you can expect to see if a drastic end to consumer spending. If > you really think about it, this extra money is fueling a bubble now > not just in housing, but everything of value. If people stop buying > cars, TVs, appliances, etc. then all those stocks will drop in value > and everyone of those companies will cut back on spending and labor > which will spiral undemployment out of control, which will cause more > deflation. Credit Card accounts will begin defaulting because people > won't be able to refinance out of credit card debt and now with the > new bankruptcy rules (Effective Oct 15) there is no way out. > Additionally, the banks and all these mortgage pools will go bust > holding all these underwater loans and a massive government bail out > will put everyone including the government into massive debt. Then the > government will start the presses and print more money in order to > combat deflation, which will cause more deflation because the money > will enter the broken banking system instead of the consumers pockets > and then we will have a prolonged depression like Japan. > > Maybe I am crazy, that is just how I see it playing out. > > Anyway, back to the housing bubble This thing is over in San Diego, > September last year we had 67 loans coming from real estate agents, > this month we have had 8. I am being told that the buyers have > vanished and all that is left is people trying to sell. Some of these > sellers are dropping prices by as much as 30% and they are still > sitting. Luckily, these Option ARM loans are very profitable and the > refinance business continues to boom. > > I hope all of my fellow mortgage brokers have managed to stash some > cash under the mattress. I just sold my last piece of real estate and > I am going to watch the storm roll in from the side lines. > > > > > ==================== > > --- In [email protected], akasha_108 <[EMAIL PROTECTED]> wrote: > > > > Manhattan home prices drop > > > > A report shows luxury apartments took hit in third quarter amid > lower sales activity > > > > October 4, 2005: 8:11 AM EDT > > Latest home prices for 149 markets > > > > Refinance Rates Hit Record Lows > > > NEW YORK (CNN/Money) - Homes in Gotham got a little more affordable > in the third quarter...or rather, prices dropped, but they still > remained in nosebleed territory for most people. > > > The price declines followed two consecutive record quarters in which > real-estate prices saw gains of at least 10 percent. > > > > > > ================= > > > Prices in London fell by 0.1 per cent in September, according to the > latest report from Hometrack... > > > > London The average house price in London now stands at £261,000, down > from £274,200 in July 2004, an annual decline of -4.6 per cent. > > > > Out of all 33 London boroughs, only six saw house price rises, 18 > remained static and nine recorded falls. The best results were seen in > Hounslow (0.5 per cent), Tower Hamlets (0.5 per cent) and City of > London (0.3 per cent). > > > > > > =============== > Home prices top out? > > > > > Cost of new houses levels off in area after meteoric rise > By Andrew LePage -- Bee Staff Writer > Published 2:15 am PDT Friday, October 7, 2005 > Story appeared on Page A1 of The Bee > > > > > > > > > Price appreciation for new homes in the Sacramento area has slowed > to a crawl, with more builders tempering or skipping price > increases and offering greater incentives to attract buyers. > > > > > The median price of a new home sold in the capital region was > $459,990 in the third quarter, unchanged from the previous quarter > and up 3.4 percent from one year ago, according to the Gregory Group, > a Folsom-based market research firm. > > > > > > > > > > > > ========================= > > > > > ----------- > > > > > October 08, 2005 > > > > > Asking prices drop by nearly 15% in 16 suburban Boston towns > > > > > > > > > > Price_reducedHomeowners in Greater Boston and elsewhere continue > to expect "big real estate gains" despite a stunning revelation this > week: "asking prices in 16 MetroWest towns have dropped by nearly 15 > percent" since August, according to MLS statistics. > ------------------------ Yahoo! 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