WC Varones

Don't lend your hand to raise no flag atop no ship of fools

Some things should be obvious

You'd have to be pretty stupid not to have seen this coming... or to have taken Alan Greenspan's advice and gotten an adjustable-rate mortage.

3 comments:

Anonymous said...

Enough harping on rising interest rates. Greenspan’s point is that people were paying a premium (around 0.5%) to lock in an interest rate for 30 years for no reason. If there is a 90%+ chance that you will not keep the loan for more than 10 years, you do not need a 30 year fixed loan. You are paying a premium for protection from rising interest rates that is a waste. That being said, Greenspan’s advice was not aimed at people who have 900% leverage in their homes. It was aimed at the traditional 20% down + 30 year fixed mortgagee.

W.C. Varones said...

Your first point is true, at least partially. If you know you're going to sell the house within a few years, and you're can tolerate the possibility of having to sell at a loss in a rising rate environment, then ARMs may be appropriate.

But your second point is not correct.

"Greenspan’s advice was not aimed at people who have 900% leverage in their homes. It was aimed at the traditional 20% down + 30 year fixed mortgage."

First of all, Greenspan never made this caveat. Second, there are almost no 20% down, 30-year fixed-rate loans being sold any more. Everyone is smoking the Greenspan chronic. Third, even if you did put 20% down, that doesn't insulate you from rising rates. Your payments still go up significantly. And if you can't afford the new payments, you'll have to sell or do a cash-out refinance... which only works until we have a down market.

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