NYT: Re-refinancing, and Putting Off Adjustable Mortgage Pain

[DeepModem Mom]

Re-refinancing, and Putting Off Mortgage Pain
By VIKAS BAJAJ and RON NIXON
Published: July 23, 2006

....millions of Americans have turned to adjustable-rate mortgages, or A.R.M.’s, in recent years to afford a home as prices soared.

Typically set at artificially low rates in the first years of the loan, these mortgages are then reset at the prevailing interest rates. For borrowers, the bet was that interest rates would remain low.

Now, the first big wave of the mortgage boom is cresting as more than $400 billion worth of adjustable-rate mortgages, or about 5 percent of all outstanding mortgage debt, will readjust this year for the first time, according to Loan Performance, a research firm. Next year, another $1 trillion in loans will readjust.

When that happens, for instance, a typical borrower with a $200,000 A.R.M. could see his monthly payments increase nearly 25 percent when the A.R.M. adjusts from 4.5 percent to 6.5 percent. In total dollars, that is an increase from $1,013 a month to $1,254.

Yet instead of paying more now, many borrowers are refinancing into their second or third adjustable-rate mortgage, loan data indicate and industry experts confirm....

http://www.nytimes.com/2006/07/23/business/23mortgage.html?hp&ex=1153627200&en=48d3badc80108762&ei=5094&partner=homepage

[edhopper]

1. The NYT once again

does the bidding of the Real Estate industry.

http://beatthepress.blogspot.com/2006/07/bad-advice-on-mortgages-from-nyt.html

[Mayberry Machiavelli]

4. I read the article, and I don't see it as the NYT pimping the real estate

industry's line, or endorsing this practice.

It's pretty objective in my view. They point out the potential for disaster from rising rates and that the merry go round will stop spinning when housing values stop going up (refinancing ARM products will NOT be available any longer when that happens) or interest rate rise outpaces them.

They do include the viewpoint from some people quoted in the article that this MIGHT be OK, but ONLY as long as the housing bubble continues and prices keep going up up up. The Times does not state that they expect this to happen.

It is specifically stated that this amounts to putting off a day or reckoning, and is a gamble based on multiple assumptions on the part of some of the debtors: That housing prices will climb, that their income will grow and not decrease, that interest rates won't outpace housing value, etc.

I find it a bit hard to believe that the guy from Danville, CA (Perry) who refinanced one ARM with another, actually took out equity to put into his business. Roll Dem Bones! The smokehouse is empty and the baby needs new opera shoes!

[edhopper]

5. You're right,

I'm just so used to the Times Real Estate section, which does shill work for the RE industry, that I reacted too fast on this one.
I think the article I linked is still worthwhile.

[shrike]

2. "No one asks 'what's the quickest way to pay off my mortgage.'"

As a person who lives in a mortgage-free home, these people don't know what they're missing.

[DavidMS]

6. My parents are morgage free...

I plan to be morgage free as soon as possible after buying.

My home purchase plans rely on the housing market running into trouble and sellers having trouble selling. I have a friend who is sitting tight with plans to purchase when the prices start to fall.

It won't be pretty when the ride ends.

[shrike]

7. Good for you

I lucked out; I was able to use an inheritance to pay off my home.

The piece of mind is incredible. Best of luck to you.

[Mayberry Machiavelli]

3. "You mean, I can pay THIS credit card bill with a cash advance from

THAT credit card? Sweet!"