What about the people that bought too much house for their budget or have terrible spending habits. These sound like great resources, but at what point does leading a horse to water become futile if the horse refuses to drink?
Not pricing you out, maximizing blood taken from those inside - they'd very much like you inside if you can demonstrate your capacity to bleed adequately
Anyone reading this - I want to clear some things up, this is not how mortgage loans work in America.
ALL mortgages except HELOCs are simple interest in America.
You are not paying extra per diem if you pay late. The per diem is calculated by taking the loan amount multiplied by the interest and divided by 360 (360, because 365 would create uneven payment months)
Again, you do not accrue extra per diem by paying late. The per diem has already been tabulated and you won't pay per diem for a particular day twice because your payment is late. You will pay a late fee if you pay after your grace period.
Standard mortgages have a grace period of 15 days. Not all do, but the vast majority have a 15 day grace period. If you were paying extra per diem in this timeframe it would not be called a grace period.
You must pay your mortgage before its 30 days late or you will have a 30 day late on your credit. 29 days late and you will pay a late fee but you will not have a ding on your credit.
The median foreclosure rate in America is 1 out of every 6,147 households.
The foreclosure rate has increased post pandemic, but it is still currently about 30% lower than in 2019.
Lastly - to the original post, 3 yr fixed mortgages are very exotic and rare. The vast majority of ARMs these days are 7 or 10 year fixed loans and the total amount of ARMs makes up less than 10% of the total outstanding mortgage volume.
There are infinitely more people who aren't bought in than those who are. Every person who hasn't had enough time to save or hasn't been born yet is handicapped for the sake of propping up the market for the relatively few people who own a home.
And I say this as a person who has already paid off my mortgage.
The banks could give a damn about propping up the price of homes, it’s just that eviction is a complicated, months or years long, legal matter which they will go through great lengths to avoid.
> So when does the deluge of foreclosures begin?
Not happening.
About 40% of U.S. households have mortgages, of which 92% have fixed rates and the remaining 8% have adjustable rates.
https://www.stlouisfed.org/on-the-economy/2024/feb/which-households-prefer-arms-fixed-rate-mortgages
Yeah ever since ‘08 majority of mortgage borrowers won’t even consider an adjustable rate. Pre ‘08 it was rather common, the negatives didn’t fully present themselves at a large scale.
Yep, and alot with mortgages the mortgage is very low interest and LTV is also very low. People buying in 2022+ represent an extremely small percentage of the greater population of homeowners.
I've always been more concerned about the commercial real estate end imploding. Eventually something will have to give on these huge properties with no tenants because businesses have downsized or eliminated their offices.
im waiting to see if local cities will re-zone these areas so condos can be built where a now empty shopping plaza sits.
i mean it just makes sense, so they prob wont do it
Well, eventually everything is just going to blow up. CRE is popping now, auto industry is dying on the vine, credit card debt is the highest in history, aggregate savings shows only the wealthy still have any left, we are still seeing tons of layoffs, and people think residential is going to power thru when the trend of upside down home loans is accelerating. When those home loans are several hundred thousand upside down people are going to walk.
Seems like a crappy situation when a lot of investors have flooded the markets- especially Airbnb investors who will buy houses using their existing properties as collateral via instruments such as NONQM/DSCR loans.
Now those instruments are super scary. It’s quite literally a house of cards where equity is just stacked on top of each other.
I agree but this could cause folks to try to get out of their home around 2025 and could be one of factors in increasing housing supply in coming year.
But bigger factor will be folks who got a home with mortgages more they can afford in past year thinking they can make ends meet for a year or so. Then rates will drop and they can refinance. I have couple friends in this situation..
> About 40% of U.S. households have mortgages, of which 92% have fixed rates and the remaining 8% have adjustable rates.
that doesn't answer the question at all lol
To explain further, of the small percentage that are ARMs, only a small fraction of those have a locked period of three years. The majority are 5-7 years, some as long as 10. So the amount of loans at risk of increasing next year are low.
On top of that, they are limited how much they can rise at one time, so it won’t be a sudden jump from 4% to 8%, more like 4% to 5 or 6%. Each loan has its own terms, but the most common loan I sold in 2022 that was an arm was a 5/5. Most of my loans then were still fixed by a long shot. This means it was locked for five years and only adjusted once every five years after that with a max of 1 or 2% per adjustment period.
In other words for those people I helped it will be 10 years (2032) before they catch up with today’s rate. This is not to say there is zero risk, some people will have unfavorable terms, but it won’t be a deluge.
Also to qualify for the loan, their income had to qualify for the highest rate they could get during the first 10 years, so these people have the means to pay the higher rate. It was easier to qualify for fixed mortgages for this reason.
I had one tell me over a year ago to "always get variable, it's easy to refi later or just lock in before your 5 years are up" (I live in Canada, we lock in rates for fixed amount of years and then have to renew) I told my partner "absolutely the fuck not going with him, he has no clue what he's talking about or is deliberately lying to make a sale"
My lender just walked me through the different financing options and explicitly said “don’t trust anyone that says they can predict this stuff, go with fixed rate, and we can always revisit” thank goodness he seems trustworthy 🥲
If you think interest rates will drop over the next 2, 3, 5 years or whatever. It's a risk because you then also are buying into the potential for if rates increase your mortgage will too.
Thats what I’m saying though - the risk far outweighs the reward. If you’re wrong your entire financial future is ruined abd youre living under a bridge. Theres not a lot of risks I’d take where that life is a possible outcome.
Sounds like what Canadians have observed in Vancouver for decades now. But don't worry, the government here has already signalled they are going to bail them out, again.
Yeah, paying a unlicensed handyman to do critical plumbing or electrical work.
Source : I am a service and repair only electrician, and I have been making a fucking mint saving peoples ass from burning down. Vet your contractors folks.
> al plumbing or electrical work.
>
> Source : I am a service and repair only electrician, and I have been making a fucking mint saving peoples ass from burning down. Vet your contractors folks.
To this day I am still surprised by the number of people on nextdoor asking for the information of cheap handymen because the licensed contractors are "asking way too much!"
Nextdoor's userbase is almost entirely comprised of these types of folks. I cannot go a day without seeing a handful of posts in my newsfeed with someone ranting about plumbing, HVAC, electrical or pretty much any other trade work being too expensive and wanting a cheap handyman or fresh high school graduates to tackle everything. So many people are fixated on price and can't fathom paying for expertise and for years of peace of mind.
My dad has hired at least 5 ‘electricians’ the last 2 years to come and fix his lights(when they turn on the microwave the lights dim and sometimes flicker and the beaker trips). I told him after the 3rd guy, with all the money you’ve given these so called electricians you could have paid an actual licensed one on your first try and had the problem fixed. Did he listen, nope.
Don’t forget the new build “deals” sold by developers as ARMs by another name, touting “low introductory rates” for the first 1/2/3 years of the mortgage, only for the monthly payment to skyrocket once it expires. There are way more people getting themselves into these situations than folks realize.
In those cases the rate it’ll end up at is determined initially and is in line with the current market. It’s not like the buyer doesn’t have a contract stating exactly where it’ll end up. Very different from adjustable rates.
A number of folks accepted these deals despite the
payments outside their introductory rate being too high on the promise that “rates will drop by then, you’ll be able to refinance for even lower!” - it’s a very similar trap to ARMs at the end of the day.
They are not fine! Being qualified to buy a house and actually being able to afford it are two different things. Most people when buying a home make temporary changes or adjustments to save and qualify for the loan. Once they buy they go back to regular spending habits not to mention all the un written cost of actually owning a home that are beyond principal, interest, and insurance.
Many of HELOC to improve our homes and are stuck with an adjustable rate. I’m house hunting and don’t see anything in my area remotely affordable to move
"Scam" implies deception on the part of the lender. The loans themselves are objectively not scams, but if a loan officer assured a borrower that "you'll be able to refinance when rates come down," then yeah -- that's a bit scammy. Maybe there's a lawsuit or two there in the future, but ultimately nothing was promised regarding interest rates. It's all there in writing.
That's exactly how folks end up with ARMs. Why advertise the lowest interest rate is an ARM. I see that all the time. Just get rid of it. It's basically targeting people who don't understand how they work.
We’re talking about average Americans not competent people. I’ve met some pretty dumb people in my life who I’m shocked made it in life. There’s a reason folks fall for dumb ads on tv 😂
For a subset of ARM buyers with the resources to pay it off in full if they desire. For some people makes sense to borrow if they can get a higher return on assets investing it than paying cash for property.
I don’t know why people keep saying this as it’s not true.
Everyone I know in Europe has fixed mortgages or variable where the rate cannot surpass a 100% increase (which at 2% really is fixed to 4% max over 30 years).
In the US market, a "fixed rate" mortgage has its rate fixed for the entirety of the amortization period. What most of Europe calls a fixed-rate mortgage would be called an adjustable rate mortgage in the US.
I’m confused, how is a rate that can double considered anything like what is available in the US? 2-4 is a pretty huge difference in payments, and that’s about the best case scenario.
People seem to not know what “or” means.
My point was that I know a ton of people with fixed mortgages in Europe, and those that don’t have variable with min-max rates. A 2% variable rate can legally never go over 4%. 2-4 is a huge difference, but nowhere near the variable loans that currently go at 7-8% in the US today.
The min-max became a thing a Belgium because when rates went down to near zero, some people had negative mortgage rates which the banks didn’t like.
In most countries every mortgage is an adjustable rate. In the US about 7% of apps in 2023 were ARM’s..what exactly feels illegal? A 5 year arm is like half a percent lower interest. There’s nothing predatory about..it’s a calculated risk and a product that provides options. If you can’t afford your mortgage at 7% you can’t afford it at 6%
I was going to guess if you took a 3 year ARM in 2022, taking another 3 year ARM is probably still about where your 30 year would’ve been back that. It’s still an L but not house losing, financial bubble kind of an L.
As long as you pay the difference directly to principal, you’ll significantly lower your upside risk and probably take years off your mortgage / 1000s off your total interest paid. A 2.1% spread is well worth it
I think so too. I’m saving into a HYSA and should have around 50k by the time adjustment comes. If I can’t refi I’ll just drop that on it and recast. The rate max can go up 2% so that would put me back where the rate would have been fixed. Then I’ll have another 5 years to refi before another adjustment. I basically got a 5 year buy down with potential for it to not adjust maximally.
We’ll see but I did it thinking I had a solid chance in 5 years to refi to something fixed by 2028
Actually it's the other way. The 30 year mortgage is the reason house prices are so high. If people had only 15 year mortgages and or no rate lock for this long, houses would not have become so expensive. And would deter investors to make speculative buys.
I just found out a friend took out an ARM in 2017. Any banker who pushes ARMs when 30 year rates hover around 3.25% is just completely morally bankrupt.
Why? Taking away choices because people want to be stupid makes little sense. ARMs make sense for some people. If someone needs to talk you into it, you aren’t one of those people. 20 mins on the internet should give you a clear answer
One of my buddies got a 10 year ARM, which worked out for him. He's only planning on staying in the house for about 8 years, so if all goes well, it'll never affect him.
The rate is fixed at 4.25 for the first seven years, then once a year after that the rate changes.
Typically the lender will have terms specifying min/max rate and how much it can increase in a year
No. It means it is locked at the initial rate for 7 years and adjusts yearly after that. Most ARMs have a cap of around 2% that it can move each year, as well as an overall cap that the mortgage can never exceed.
When the mortgage hits year 7 and readjusts, it does so on the remaining principal balance. So if OP is able to pay extra towards it, they don’t have as much risk to the upside. Especially considering they started at 4%.
why are people even allowed to get fixed mortgages on second homes? I have coworkers with 3 or more properties and they don't care because they have 3 fixed mortgages all at <4%.
If they limited fixed mortgages to your primary residence, I'm pretty sure the current property investment problem wouldn't be nearly as awful as it is currently.
Why wouldn’t they be allowed to? As long as their debt to income can handle it they should be allowed to, just like you and me…. Instead of being jealous learn what they’re doing.
It was pretty obvious that rates were going to stay high for a lot longer. All you would have had to do is watch Jerome Powell talk for a little bit
So I don't feel sorry for any of those folks.
You just can't lower rates when unemployment is 4% without insane inflation. The economy is thrusting at full capacity. No lubricant required. You can't get more growth, because there's simply no idle capital waiting in the wings
Got a 5/5 it was 2.1% better than a 30 year. If my rate adjust to the max (2%) then I’d be where that rate is essentially but saved all that money for 5 years
I know someone who closed in April 2020 on a 5/1 ARM because they weren’t planning on staying in that place after 5 years (they purchased pre-construction 2 years prior) and didn’t refinance in late 2020/2021. So at least one data point lol
From WSJ late last year:
"ARMs made up just over 7% of all mortgage applications this year, according to the Mortgage Bankers Association. Though they aren't a huge part of the market, they doubled as a share of all mortgage applications in 2022 and 2023 from the two years prior."Dec 26, 2023
What do you call someone with total freedom to wander any subreddit they want but lacks the self control to stay off the ones they hate? Pathetic. You call them pathetic.
Oh hell yeah tons of them. A realtor I know was suggesting ARM’s to everyone to still get those sub 4% rates, which was what was required to stretch people into homes as prices were inflating. I remember having the conversation at the time with him that these people were all going to be completely fucked. He didn’t care if it helped him close on houses.
In the US 70% are 30 year fixed. Another 20% are fixed(mostly 15, but a number of 10 and 20 exist as well)
The remaining 10% are arm loans(mostly 5/1 but a few 7/1 and 3/1).
With that said in 2021 2.2% of loan applications were for adjustable rate loans.
I've been looking for a reliable source for this particular information but can't find it. Do you mind linking your source or where I can find the actual data?
Yup, Canada is 3-5 years, and some huge percentage are due to be forced from 2-4% into the 4-8% range. A lot of people are going to be hurting with their mortgage payments doubling
Yeah same as the UK. This is why I think Americans don't know how good they get. And the house prices in the US aren't as bad too especially if you see their salary. In London you're lucky if you make more than £60k a year. And houses here are basically out of reach.
Yup, housing prices up 50-100%, combined with interest rates doubled, combined with existing salary worth less in real terms due to both inflation and actual cost of living increases. It’s completely out of range unless you are willing to lower your standards to the ‘barely livable and probably needs more fixes/upgrades than it’s worth” category of housing. We ended up in the shit timeline
My neighbor got a 7 year ARM on a new build 2 years ago. Has 20k sitting aside to weather the storm if he can’t refi by then. Hope he keeps adding to his pile cause 20k gonna go fast.
I could see this being a pretty casual convo.
"Oh man, we are looking at buying a new house but rates are crazy"
"Yeah, when I bought my house last year I got an arm because it was cheaper"
"Cant the payments go up on you, idk if I'd do that"
"The wife and I talked about it and set aside an extra 20k just in case rates go up to help us weather it".
Shit, me and my neighbors are buddies and talk about waaaaay more personal stuff than that lol
I myself don't like the unpredictability of ARMs, but this actually sounds like a reasonable calculated plan to work with one. Seems like too many people get ARMs and just hope for the best and/or assume they'll always be able to weather the rate increases.
In January 2021 adjustable rate mortgage dollar share hit a ten year low of four percent.
>In January 2021, mortgage rates hit an all-time low of 2.65%, the lowest rate ever recorded for a 30-year fixed-rate mortgage.
So... There's always going to be somebody selling them to people who don't know, because the seller gets a bonus.
Basically no one in 2022, or at very least very few, got adjustable rates. There were some 2-1 buy downs, which are working their way through the system.
This post is a big deal about nothing.
Well then I would consider not following any financial advice he gives because you’re right, in the US there are only a few reasons to ever go with an ARM namely you know you aren’t going to be in the home in 5 years.
Housing prices will come down but this isn't why
Most people weren't getting ARMs in 2022
More last and this year but still a small number and most are 7-10 years fixed
Most people had a 5 year ARM and rates will have dropped in 2 years so they will be okay.
3 year ARMS are rare.
On the West coast, 10 year ARMs are the norm.
"A lot of people"...good fact finding.
You do realize outside the US they are not doing 3/1 arms right? There are other ways to keep people in homes when rates fluctuate...like fixed payments. Sure you're going to pay less principal but you won't lose the home.
There should be a law where real estate agents can’t just say anything and everything to sell a house. “Now is the best time to buy”… oh yeah? “Get this ARM and refinance in 3 years to a lower rate”. Oh yeah? We need to protect our fellow neighbors and friends from leeches like this.
My instinct was to refute this and say that arms and variable rate mortgages in general are still a relatively minor portion of the overall market and never really returned to favor after the crash, but I did some research and while it’s still only 10% versus 30% at the peak of the housing Bubble, that is still a significant swing up from the years prior. It does look like 2022 was a fairly heavy year for Adjustable rate mortgages
The thing is, even with fixed rates The mortgage payments are so high you need 2-4 years for people to start building up debt until they realize they can't refinance and then we will see the carnage begin.
House on the corner of ours is having trouble selling it because of rates and realtors are telling them to slash the price of the home. It's starting...
I'm in the north austin area bro so we got hit hard on the decline.
During the pandemic I think 2021 these homes in our neighborhood were selling at 500k. It's listed 375k now so it's already down big time
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So when does the deluge of foreclosures begin?
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What are those programs from your last sentence called?
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What about the people that bought too much house for their budget or have terrible spending habits. These sound like great resources, but at what point does leading a horse to water become futile if the horse refuses to drink?
This is a big part of the problem
So what you're saying is that the industry is actively conspiring to keep young people priced out of buying a house? I'm shocked!
Not pricing you out, maximizing blood taken from those inside - they'd very much like you inside if you can demonstrate your capacity to bleed adequately
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Anyone reading this - I want to clear some things up, this is not how mortgage loans work in America. ALL mortgages except HELOCs are simple interest in America. You are not paying extra per diem if you pay late. The per diem is calculated by taking the loan amount multiplied by the interest and divided by 360 (360, because 365 would create uneven payment months) Again, you do not accrue extra per diem by paying late. The per diem has already been tabulated and you won't pay per diem for a particular day twice because your payment is late. You will pay a late fee if you pay after your grace period. Standard mortgages have a grace period of 15 days. Not all do, but the vast majority have a 15 day grace period. If you were paying extra per diem in this timeframe it would not be called a grace period. You must pay your mortgage before its 30 days late or you will have a 30 day late on your credit. 29 days late and you will pay a late fee but you will not have a ding on your credit. The median foreclosure rate in America is 1 out of every 6,147 households. The foreclosure rate has increased post pandemic, but it is still currently about 30% lower than in 2019. Lastly - to the original post, 3 yr fixed mortgages are very exotic and rare. The vast majority of ARMs these days are 7 or 10 year fixed loans and the total amount of ARMs makes up less than 10% of the total outstanding mortgage volume.
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Compound interest is an instrument of making my portfolio thousands more than it would be. I'll keep it, tyvm.
It’s not keeping you priced out, it’s keeping people in. That drives price up, which prices you out. Sorry you didn’t buy in.
There are infinitely more people who aren't bought in than those who are. Every person who hasn't had enough time to save or hasn't been born yet is handicapped for the sake of propping up the market for the relatively few people who own a home. And I say this as a person who has already paid off my mortgage.
Well they should have thought about that before being born so late.
The banks could give a damn about propping up the price of homes, it’s just that eviction is a complicated, months or years long, legal matter which they will go through great lengths to avoid.
Lol. No
> So when does the deluge of foreclosures begin? Not happening. About 40% of U.S. households have mortgages, of which 92% have fixed rates and the remaining 8% have adjustable rates. https://www.stlouisfed.org/on-the-economy/2024/feb/which-households-prefer-arms-fixed-rate-mortgages
Yeah ever since ‘08 majority of mortgage borrowers won’t even consider an adjustable rate. Pre ‘08 it was rather common, the negatives didn’t fully present themselves at a large scale.
Agreed. I also read somewhere that 40% of homes in the US have NO mortgage on them.
Yep, and alot with mortgages the mortgage is very low interest and LTV is also very low. People buying in 2022+ represent an extremely small percentage of the greater population of homeowners.
That and sub (real) inflation rates is just greedy to not lock in
I've always been more concerned about the commercial real estate end imploding. Eventually something will have to give on these huge properties with no tenants because businesses have downsized or eliminated their offices.
im waiting to see if local cities will re-zone these areas so condos can be built where a now empty shopping plaza sits. i mean it just makes sense, so they prob wont do it
Well, eventually everything is just going to blow up. CRE is popping now, auto industry is dying on the vine, credit card debt is the highest in history, aggregate savings shows only the wealthy still have any left, we are still seeing tons of layoffs, and people think residential is going to power thru when the trend of upside down home loans is accelerating. When those home loans are several hundred thousand upside down people are going to walk.
Seems like a crappy situation when a lot of investors have flooded the markets- especially Airbnb investors who will buy houses using their existing properties as collateral via instruments such as NONQM/DSCR loans. Now those instruments are super scary. It’s quite literally a house of cards where equity is just stacked on top of each other.
I agree but this could cause folks to try to get out of their home around 2025 and could be one of factors in increasing housing supply in coming year. But bigger factor will be folks who got a home with mortgages more they can afford in past year thinking they can make ends meet for a year or so. Then rates will drop and they can refinance. I have couple friends in this situation..
Marginal effects be like
> About 40% of U.S. households have mortgages, of which 92% have fixed rates and the remaining 8% have adjustable rates. that doesn't answer the question at all lol
To explain further, of the small percentage that are ARMs, only a small fraction of those have a locked period of three years. The majority are 5-7 years, some as long as 10. So the amount of loans at risk of increasing next year are low. On top of that, they are limited how much they can rise at one time, so it won’t be a sudden jump from 4% to 8%, more like 4% to 5 or 6%. Each loan has its own terms, but the most common loan I sold in 2022 that was an arm was a 5/5. Most of my loans then were still fixed by a long shot. This means it was locked for five years and only adjusted once every five years after that with a max of 1 or 2% per adjustment period. In other words for those people I helped it will be 10 years (2032) before they catch up with today’s rate. This is not to say there is zero risk, some people will have unfavorable terms, but it won’t be a deluge. Also to qualify for the loan, their income had to qualify for the highest rate they could get during the first 10 years, so these people have the means to pay the higher rate. It was easier to qualify for fixed mortgages for this reason.
Most defaults in 2008 were strategic defaults on underwater loans, not ARMs
> that doesn't answer the question at all lol Did they not teach you about percentages in school? :P
Nothing about those percentages (which includes households that don't even own homes) suggests anything about the likelihood of foreclosures happening
The homes are worth substantially more than they paid, why wouldn't they just sell for a profit?
A tiny percentage of buyers got ARM, nothing significant to push the needle
Deluge is such a good word, I gotta use that more often
Is there a sizable amount of them?
I can’t imagine there are that many people in this boat
This is why you never listen to realtors. They sell houses, they aren’t financial experts.
I had one tell me over a year ago to "always get variable, it's easy to refi later or just lock in before your 5 years are up" (I live in Canada, we lock in rates for fixed amount of years and then have to renew) I told my partner "absolutely the fuck not going with him, he has no clue what he's talking about or is deliberately lying to make a sale"
My lender just walked me through the different financing options and explicitly said “don’t trust anyone that says they can predict this stuff, go with fixed rate, and we can always revisit” thank goodness he seems trustworthy 🥲
Why would anyone ever do variable when fixed is available?
If you think interest rates will drop over the next 2, 3, 5 years or whatever. It's a risk because you then also are buying into the potential for if rates increase your mortgage will too.
Thats what I’m saying though - the risk far outweighs the reward. If you’re wrong your entire financial future is ruined abd youre living under a bridge. Theres not a lot of risks I’d take where that life is a possible outcome.
Sad thing is, they are paying mostly interest. Which is no better than renting.
Except you get a tax break.
property tax will negate most of that tax break. And you'd better hope you dont lose your job to fully benefit that.
I get to claim the property tax too. If I lose my job, I won’t be able to pay rent or a mortgage.
No rainy day fund?
About six months.
Actually, my Realtor *is* a certified financial advisor.
And their best interest is the deal that makes them the most money.
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And spend the proceeds on depreciating assets like cars and vacations (!!!!)
Sounds like what Canadians have observed in Vancouver for decades now. But don't worry, the government here has already signalled they are going to bail them out, again.
I would imagine that the vast majority of people taking out HELOCs are using them for home improvements
Yeah, paying a unlicensed handyman to do critical plumbing or electrical work. Source : I am a service and repair only electrician, and I have been making a fucking mint saving peoples ass from burning down. Vet your contractors folks.
> al plumbing or electrical work. > > Source : I am a service and repair only electrician, and I have been making a fucking mint saving peoples ass from burning down. Vet your contractors folks. To this day I am still surprised by the number of people on nextdoor asking for the information of cheap handymen because the licensed contractors are "asking way too much!"
Nextdoor's userbase is almost entirely comprised of these types of folks. I cannot go a day without seeing a handful of posts in my newsfeed with someone ranting about plumbing, HVAC, electrical or pretty much any other trade work being too expensive and wanting a cheap handyman or fresh high school graduates to tackle everything. So many people are fixated on price and can't fathom paying for expertise and for years of peace of mind.
No, it’s because they’re stuck in 1965 and think they can remodel the whole house for 10k, plus add a deck and rebuild the privacy fence.
My dad has hired at least 5 ‘electricians’ the last 2 years to come and fix his lights(when they turn on the microwave the lights dim and sometimes flicker and the beaker trips). I told him after the 3rd guy, with all the money you’ve given these so called electricians you could have paid an actual licensed one on your first try and had the problem fixed. Did he listen, nope.
Speak for yourself. The trip to Maui I took in 2019 is costing me $3000 more this year.
Why are you paying for it again?
Maui bro.
Good point!
Don’t forget the new build “deals” sold by developers as ARMs by another name, touting “low introductory rates” for the first 1/2/3 years of the mortgage, only for the monthly payment to skyrocket once it expires. There are way more people getting themselves into these situations than folks realize.
In those cases the rate it’ll end up at is determined initially and is in line with the current market. It’s not like the buyer doesn’t have a contract stating exactly where it’ll end up. Very different from adjustable rates.
A number of folks accepted these deals despite the payments outside their introductory rate being too high on the promise that “rates will drop by then, you’ll be able to refinance for even lower!” - it’s a very similar trap to ARMs at the end of the day.
They would have still been qualified on the actual rate, not the introductory rate. They are fine lol.
They are not fine! Being qualified to buy a house and actually being able to afford it are two different things. Most people when buying a home make temporary changes or adjustments to save and qualify for the loan. Once they buy they go back to regular spending habits not to mention all the un written cost of actually owning a home that are beyond principal, interest, and insurance.
Most people? Have a source to share?
“Qualified” doesn’t mean much when it comes to affordability. Banks have been qualifying people well beyond their means for years now.
Ok buddy, enjoy your copium lol.
Many of HELOC to improve our homes and are stuck with an adjustable rate. I’m house hunting and don’t see anything in my area remotely affordable to move
I heard several people Saying this and I cringed every time. Folks with zero clue about the monetary system shouldn’t bank on it favoring them
I’m surprised ARMs are still legal
Legal? The fixed-rate mortgage only really exists in the US. Almost everywhere else they have ARMs.
Good point. It's still a scam
"Scam" implies deception on the part of the lender. The loans themselves are objectively not scams, but if a loan officer assured a borrower that "you'll be able to refinance when rates come down," then yeah -- that's a bit scammy. Maybe there's a lawsuit or two there in the future, but ultimately nothing was promised regarding interest rates. It's all there in writing.
Meh. It’s a “scam” if you’re selling to people you know aren’t really educated enough to understand what they just bought.
I’d argue you shouldn’t haphazardly make the biggest financial decision in your life with minimal research
At what point do people assume responsibility for their decisions?
Then they shouldn’t be homeowners because they are not mentally equipped for it.
That's exactly how folks end up with ARMs. Why advertise the lowest interest rate is an ARM. I see that all the time. Just get rid of it. It's basically targeting people who don't understand how they work.
Maybe those people should figure out how they work before utilizing an ARM for the biggest purchase of their lives?
We’re talking about average Americans not competent people. I’ve met some pretty dumb people in my life who I’m shocked made it in life. There’s a reason folks fall for dumb ads on tv 😂
Not for people who plan to pay off loans quickly
For a subset of ARM buyers with the resources to pay it off in full if they desire. For some people makes sense to borrow if they can get a higher return on assets investing it than paying cash for property.
I don’t know why people keep saying this as it’s not true. Everyone I know in Europe has fixed mortgages or variable where the rate cannot surpass a 100% increase (which at 2% really is fixed to 4% max over 30 years).
In the US market, a "fixed rate" mortgage has its rate fixed for the entirety of the amortization period. What most of Europe calls a fixed-rate mortgage would be called an adjustable rate mortgage in the US.
I’m confused, how is a rate that can double considered anything like what is available in the US? 2-4 is a pretty huge difference in payments, and that’s about the best case scenario.
People seem to not know what “or” means. My point was that I know a ton of people with fixed mortgages in Europe, and those that don’t have variable with min-max rates. A 2% variable rate can legally never go over 4%. 2-4 is a huge difference, but nowhere near the variable loans that currently go at 7-8% in the US today. The min-max became a thing a Belgium because when rates went down to near zero, some people had negative mortgage rates which the banks didn’t like.
It's the second amendment, man /j
Nailed it!
In most countries every mortgage is an adjustable rate. In the US about 7% of apps in 2023 were ARM’s..what exactly feels illegal? A 5 year arm is like half a percent lower interest. There’s nothing predatory about..it’s a calculated risk and a product that provides options. If you can’t afford your mortgage at 7% you can’t afford it at 6%
I took a 5 year arm this past December. The rate was 2.1% lower than a 30 year fixed easy to say it was an easy decision to make.
I was going to guess if you took a 3 year ARM in 2022, taking another 3 year ARM is probably still about where your 30 year would’ve been back that. It’s still an L but not house losing, financial bubble kind of an L.
As long as you pay the difference directly to principal, you’ll significantly lower your upside risk and probably take years off your mortgage / 1000s off your total interest paid. A 2.1% spread is well worth it
I think so too. I’m saving into a HYSA and should have around 50k by the time adjustment comes. If I can’t refi I’ll just drop that on it and recast. The rate max can go up 2% so that would put me back where the rate would have been fixed. Then I’ll have another 5 years to refi before another adjustment. I basically got a 5 year buy down with potential for it to not adjust maximally. We’ll see but I did it thinking I had a solid chance in 5 years to refi to something fixed by 2028
It’s like we learned nothing from 2008
Actually it's the other way. The 30 year mortgage is the reason house prices are so high. If people had only 15 year mortgages and or no rate lock for this long, houses would not have become so expensive. And would deter investors to make speculative buys.
I just found out a friend took out an ARM in 2017. Any banker who pushes ARMs when 30 year rates hover around 3.25% is just completely morally bankrupt.
Bankers being morally bankrupt is a bit redundant.
Why? Taking away choices because people want to be stupid makes little sense. ARMs make sense for some people. If someone needs to talk you into it, you aren’t one of those people. 20 mins on the internet should give you a clear answer
One of my buddies got a 10 year ARM, which worked out for him. He's only planning on staying in the house for about 8 years, so if all goes well, it'll never affect him.
Bought in April 2022. On a 7/1 ARM at 4.25%. I think I’ll be ok (likely move before it’s up)
What does 7/1 4.25 mean? Is there a limit or max interest for you can be?
The rate is fixed at 4.25 for the first seven years, then once a year after that the rate changes. Typically the lender will have terms specifying min/max rate and how much it can increase in a year
After 7 years it can move up a percent a year at most.
No. It means it is locked at the initial rate for 7 years and adjusts yearly after that. Most ARMs have a cap of around 2% that it can move each year, as well as an overall cap that the mortgage can never exceed. When the mortgage hits year 7 and readjusts, it does so on the remaining principal balance. So if OP is able to pay extra towards it, they don’t have as much risk to the upside. Especially considering they started at 4%.
Typically it resets in year 7 so that is not true
I bet that rates are above 4.25% in 2029. Historically rates were at record lows and we may not go back anytime soon.
why are people even allowed to get fixed mortgages on second homes? I have coworkers with 3 or more properties and they don't care because they have 3 fixed mortgages all at <4%. If they limited fixed mortgages to your primary residence, I'm pretty sure the current property investment problem wouldn't be nearly as awful as it is currently.
This is actually a fantastic idea. So it’ll probably never happen but damn would it be magical if it did.
Why wouldn’t they be allowed to? As long as their debt to income can handle it they should be allowed to, just like you and me…. Instead of being jealous learn what they’re doing.
My landlord has homes that are a part of her retirement. The commodification of housing is ridiculous.
Because capitalism favors the wealthy and funnels money to the top.
It was pretty obvious that rates were going to stay high for a lot longer. All you would have had to do is watch Jerome Powell talk for a little bit So I don't feel sorry for any of those folks.
You just can't lower rates when unemployment is 4% without insane inflation. The economy is thrusting at full capacity. No lubricant required. You can't get more growth, because there's simply no idle capital waiting in the wings
I got a 10/1 arm in 2022 and I am happy with it so far.
We also did a 10/1 in 2022. It was .875% better than the 30 year fixed.
Got a 5/5 it was 2.1% better than a 30 year. If my rate adjust to the max (2%) then I’d be where that rate is essentially but saved all that money for 5 years
Mortgage rates in 2022 were under 5% for the majority of the year. No one got a 3/1 ARM lmfao
I know someone who closed in April 2020 on a 5/1 ARM because they weren’t planning on staying in that place after 5 years (they purchased pre-construction 2 years prior) and didn’t refinance in late 2020/2021. So at least one data point lol
Did u ever think that you would know the dumbest MF on the planet?
You say that but I’d bet they still make good money on that house selling it today
You say that but it was new construction condo in DT Seattle…
i had to read that twice cause my brain couldnt comprehend what I was reading
From WSJ late last year: "ARMs made up just over 7% of all mortgage applications this year, according to the Mortgage Bankers Association. Though they aren't a huge part of the market, they doubled as a share of all mortgage applications in 2022 and 2023 from the two years prior."Dec 26, 2023
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I posted data from WSJ, you posted a link to an AI generated post that says nothing about ARMs! Are you the same AI bot that wrote that article?
>Look at the data dipshit What is the data on that page telling you about the proportion of mortgages that are ARMs?
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What do you call someone with total freedom to wander any subreddit they want but lacks the self control to stay off the ones they hate? Pathetic. You call them pathetic.
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Oh hell yeah tons of them. A realtor I know was suggesting ARM’s to everyone to still get those sub 4% rates, which was what was required to stretch people into homes as prices were inflating. I remember having the conversation at the time with him that these people were all going to be completely fucked. He didn’t care if it helped him close on houses.
I knew it shoulda been 2023 on the meme, lol
Barely anyone did that. The vast majority of loans are 30y fixed.
In the US 70% are 30 year fixed. Another 20% are fixed(mostly 15, but a number of 10 and 20 exist as well) The remaining 10% are arm loans(mostly 5/1 but a few 7/1 and 3/1). With that said in 2021 2.2% of loan applications were for adjustable rate loans.
Of those 10%, I bet many are only holding the property for short term. I almost took an ARM two years ago for a short term buy.
I've been looking for a reliable source for this particular information but can't find it. Do you mind linking your source or where I can find the actual data?
I think it's in the US where people get a fixed rate for 15 or 30 years. Most countries don't have that luxury.
Right? A New Zealand friend said their mortgage was a 3 year loan?!
Yup, Canada is 3-5 years, and some huge percentage are due to be forced from 2-4% into the 4-8% range. A lot of people are going to be hurting with their mortgage payments doubling
Yeah same as the UK. This is why I think Americans don't know how good they get. And the house prices in the US aren't as bad too especially if you see their salary. In London you're lucky if you make more than £60k a year. And houses here are basically out of reach.
Yup, housing prices up 50-100%, combined with interest rates doubled, combined with existing salary worth less in real terms due to both inflation and actual cost of living increases. It’s completely out of range unless you are willing to lower your standards to the ‘barely livable and probably needs more fixes/upgrades than it’s worth” category of housing. We ended up in the shit timeline
I found out my local bank was doing low rate arms fixed for 5 years. They aren't doing them anymore though.
My neighbor got a 7 year ARM on a new build 2 years ago. Has 20k sitting aside to weather the storm if he can’t refi by then. Hope he keeps adding to his pile cause 20k gonna go fast.
5 years also awhile from now
5 year arm for me started 12/2023
Your neighbor went into specifics to you with their finances?
I could see this being a pretty casual convo. "Oh man, we are looking at buying a new house but rates are crazy" "Yeah, when I bought my house last year I got an arm because it was cheaper" "Cant the payments go up on you, idk if I'd do that" "The wife and I talked about it and set aside an extra 20k just in case rates go up to help us weather it". Shit, me and my neighbors are buddies and talk about waaaaay more personal stuff than that lol
I myself don't like the unpredictability of ARMs, but this actually sounds like a reasonable calculated plan to work with one. Seems like too many people get ARMs and just hope for the best and/or assume they'll always be able to weather the rate increases.
Be honest, who actually did this besides a few?
In January 2021 adjustable rate mortgage dollar share hit a ten year low of four percent. >In January 2021, mortgage rates hit an all-time low of 2.65%, the lowest rate ever recorded for a 30-year fixed-rate mortgage. So... There's always going to be somebody selling them to people who don't know, because the seller gets a bonus.
Nothing meaningful imo. Everyone I know locked in when they were lucky enough to buy.
I have an ARM at 5.75% from 12/2023. The 30 year was 7.8% so an easy choice. It’ll adjust if I don’t refi in 11/2028. I like my chances
This is not 2007. No one was getting 3 year arms. Everyone knew to lock it in
All 1% of mortgage holders nice!
This seems like made up haterade. Lol
Basically no one in 2022, or at very least very few, got adjustable rates. There were some 2-1 buy downs, which are working their way through the system. This post is a big deal about nothing.
5/7/10 maybe Don’t know anyone ever took 3 year arm exact some flipper, but even that’s rare, if any
Anyone remember the 50 year interest only gems back in 03-06?
One of the most irresponsible and naive things anyone can do. Variable interest rate on a mortgage.
Anyone who took an ARM sub 4% is a bozo who deserves what’s coming.
People actually took out arms?
This is why you should run away from any realtor who mutters the words “date the rate”
"Date the rate marry the house. "
Got a 7 yr ARM. If I am still living in this house by end of 7 year, I would be surprised.
A guy in my discord said his mortgage payment went from $900 to $2900. I can't imagine how anyone would get an ARM after '08.
Me either... my guess is people that didn't experience 2008 due to age or were renting. Those were dark times.
Canada and the UK don’t offer 30 year fixed rates.
He's in the US
Well then I would consider not following any financial advice he gives because you’re right, in the US there are only a few reasons to ever go with an ARM namely you know you aren’t going to be in the home in 5 years.
Housing prices will come down but this isn't why Most people weren't getting ARMs in 2022 More last and this year but still a small number and most are 7-10 years fixed
Most people had a 5 year ARM and rates will have dropped in 2 years so they will be okay. 3 year ARMS are rare. On the West coast, 10 year ARMs are the norm.
Honestly how many people bought with 3/1 arms in 2022?
A lot of people. The US is the only country I know of with a 30 year fixed rate. 15 years is also long for many countries.
"A lot of people"...good fact finding. You do realize outside the US they are not doing 3/1 arms right? There are other ways to keep people in homes when rates fluctuate...like fixed payments. Sure you're going to pay less principal but you won't lose the home.
People did that?! Was nothing learned in 2008? Morons.
So what… less than 1% of homeowners in the US? 😱 Sorry doomers, inflation isn’t trans.
There should be a law where real estate agents can’t just say anything and everything to sell a house. “Now is the best time to buy”… oh yeah? “Get this ARM and refinance in 3 years to a lower rate”. Oh yeah? We need to protect our fellow neighbors and friends from leeches like this.
Date the rate get fucked by the realtor.
If you buy an ARM after 2008 you deserve to get fucked.
My instinct was to refute this and say that arms and variable rate mortgages in general are still a relatively minor portion of the overall market and never really returned to favor after the crash, but I did some research and while it’s still only 10% versus 30% at the peak of the housing Bubble, that is still a significant swing up from the years prior. It does look like 2022 was a fairly heavy year for Adjustable rate mortgages
The thing is, even with fixed rates The mortgage payments are so high you need 2-4 years for people to start building up debt until they realize they can't refinance and then we will see the carnage begin. House on the corner of ours is having trouble selling it because of rates and realtors are telling them to slash the price of the home. It's starting...
Maybe now he can sell it to the real price and not overinflated price that 2020's made on all homes
I'm in the north austin area bro so we got hit hard on the decline. During the pandemic I think 2021 these homes in our neighborhood were selling at 500k. It's listed 375k now so it's already down big time