When we lose the government’s helping hand, we’ll look for a helping ARM

Contrary to popular belief, Beelzebub did not invent adjustable-rate mortgages in an attempt to destroy America.  Shocking news, I know.  Seems like something he would do.

I’m quite sure I’m going to receive some criticism for this, but I am predicting that a major lifeline for real estate will be the return of the dreaded ARMs (adjustable rate mortgages).  Here’s what’s keeping housing numbers positive right now:

                           1)  Low fixed interest rates due to government interference (which is not maintainable)

                           2)    A gigantic $8000 first time homebuyer tax credit (which is not maintainable)

The world of international business is very audibly telling the U. S. government that the methods being applied to the American housing market absolutely must end.  Already interest rates have begun their upward movement.  So, the question remains: without these two lifelines, what will keep home de­mand moving forward?

Answer: mortgage choices-and that means more than your standard vanilla 30 year fixed.

The 30 year fixed is the tried-and-true staple of mortgage lending, but it isn’t the only way to skin a cat.  Now, I’m not saying that ARMs and exotic mortgages were not misused and overly marketed back in the frenzy of ‘04-’06.  I think we can all agree that those tactics caused a ton of harm.

But you can’t look me in the eyes and tell me that a young person coming out of college who lands a job with a lot of room for growth couldn’t benefit from a mortgage that was 1/2 to 1 1/2 full percent­age points lower than the going 30 year fixed rate and stays fixed for 5 years.  The man could have a kid or get transferred to another firm out of town or simply get promoted and desire a bigger house or WHATEVER.  The fact is no one knows what the next 5 years will hold.  However, I’d go out on a limb and say that we could pretty safely guess in a lot of instances.

Did ARMs mess a bunch of people up?  Yup.  Pretty badly, I’d say.  But that is chiefly due to an in­ability to refinance caused by plummeting home values. 

Can I promise home values will rise in the next 5 years?  Nope.  I would bet all four of my limbs that they will rise, but I can’t promise it.  But, if the economy gets messed up in that timeframe badly enough to cause even lower home prices, I can guarantee you’ll have bigger troubles than a lower home value.

And am I suggesting we all start calling me to refinance into 5 year ARMs?  Nope.  30 year fixed rates are absolutely rocking right this second.  But, it’s artificial and will not stick around permanently.  When 2010 and beyond comes and fixed rates are back up in the 6’s, options that previously scared us until our socks turned yellow may start to make a bit more sense.

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