Why do I Harp on ARMs?
Because I don’t want you to end up like Sonny Liston – tempted to get up again, but destined to be knocked out.
A Mismatched Bout
Banks sell the opposite of what’s good for you – they’ll sell you an adjustable rate mortgage with a fixed teaser rate at a time when 30 year fixed date mortgages are at an all time low. Why? Because your interests are mismatched from theirs. Think about it from the Bank’s perspective – when rates are at historic lows, it’s more likely that you’ll stick with your 30 year fixed rate once you take it down. So why would the bank want to hold onto a 30 year 4.5% mortgage when rates are likely to go up? It’s better to suck you into the lower payment that comes with the ARM and then refinance you out of it when rates go up. This keeps the cash register ringing, and if you can’t pay…..well – you’ll know who to give your keys to.
Opposing Sides in a Losing Battle
What’s good for you is to lock in long-term fixed rate financing when rates are low and to take a 5/1 ARM (fixed for five, then adjustable) when rates are high. In the second scenario, you’ll refinance out of it when rates drop (and enjoy a discount from long term fixed rates in the meantime). In the first scenario you’re done – unless rates drop further and it makes sense to take down another 30 year fixed.
Alas, they’ll sell you the opposite in an effort to knock you out: tease you with ridiculously low rates on the 5/1 to keep you astray from the better long term solution offered by the 30 year fixed loan…..and later, they’ll sell you a 30 year fixed rate loan when rates are high by appealing to the pain caused by the adjustable rate mortgage they sold you when rates were low!
End the Bout
Do the opposite of what your opponent thinks you’ll do. Then you’ll be the one staring at the Bank – laid out on the canvas unable to breath.
