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.
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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