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From: jeff@wjvax.UUCP (Jeff Albom)
Newsgroups: net.invest
Subject: Re: mortgages
Message-ID: <400@wjvax.UUCP>
Date: Tue, 2-Apr-85 12:27:32 EST
Article-I.D.: wjvax.400
Posted: Tue Apr  2 12:27:32 1985
Date-Received: Fri, 5-Apr-85 03:12:27 EST
References: <1659SGL@PSUVM>, <3512@alice.UUCP>
Organization: Watkins Johnson, San Jose, Calif.
Lines: 40

.
In choosing an ARM over a conventional fixed rate, you have several advantages
and disadvantages.
   
  Advantages of ARM
  1) Interest rate is usually lower than that for a fixed rate. (Typical
     difference in the bay area right now is 1-1.5 points).
  2) Assumibility of the ARM by a new buyer (most fixed rates have due
     on sale clauses and even some ARM's do).
  3) Going in rates for ARM's can be several points lower than the set
     rate of the loan, thus making it easier to qualify for the loan
     (of course, you have to pay the set rate so the lower going in rate
     may result in a lumped payment at the end of the going in term or
     adding the sum to the balance of the loan).
  4) Loan initiation points are usually lower for an ARM (I'm not sure
     why...does anyone have an explanation?).
  
  Disadvantages of ARM
  1) Interest rate can increase depending on what money indicator the loan
     is pegged to (get a cap on the loan that you can handle financially).
 
4 to 1 in favor of the advantages... so why go with a fixed rate loan?

1) You don't have to worry about nasty little increase in your monthly         
   payments should the interest rates go higher.
2) If you are planning to own your house (as opposed to an investment)
   and do not intend to sell it before the end of the loan period, you
   don't have to worry about assumability. Remeber, 30 years is typical
   for a mortgage and a lot of things can change in that time.
3) Right now, in the bay area, fixed rates do not exceed ARM rates by
   a sufficient amount to justify the chance (my opinion) of rate
   increases.  In fact, more people are taking out fixed rates now than
   in previous years as compared to ARM's due to the small difference
   in the rates.
  
 THE CHOICE IS UP TO YOU.  Just remember that foreclosure lurks around
 the corner if you make a very bad choice
                                   jeff@wjvax