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Soylent Green Is People said:
I recommend ARM loans where appropriate. ARM loans in today's environment are a reasonable risk choice for some.

Sub $417k ARM's are at 3.75% (Conforming, 1.0 point or so...) with a 2% cap per year. Assuming worse case scenario 3.75, 5.75, 7.75 the average rate over 7 years is 4.6% - lower than today's 5.0% 30 fixed. Seven years is a long, long time. If the rate goes to 9.75, it's cap, the average is 5.25%. Depending on circumstance an ARM can be a correct choice.

I've said earlier that handguns aren't for everyone, neither are ARM loans. Both handguns and ARM loans can work well in the right circumstance. Informed and educated buyers are best served when given all choices, including ARM's.

That said, the ARM cost to buy rate down is tossing good money after bad. If the break even point is 4 years or longer. Pass.

My .02c

Soylent Green Is People
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But, in most central SoCal locations (that is, not the Inland Empire or Palmdale/Lancaster), wouldn't it be cheaper to rent if one is only going to be in a property for seven years or less?

That is, it seems to me that an ARM only makes sense if property values are increasing and/or monthly costs are below rental parity, and you plan on living in the house short term. Otherwise, renting (if you are going to be there for a short period) or a 30 year fixed (if you are going to be there until you die) make more sense, IMHO.
 
what about 10/20 interest only loans? I saw these at 5.5 yesterday. Is 10 years a safe enough hedge against price declines/future interest rates?
 
stepping_up said:
what about 10/20 interest only loans? I saw these at 5.5 yesterday. Is 10 years a safe enough hedge against price declines/future interest rates?
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usually 2 problems. The interest only period is the only lock you get on the interest rate, so 10 years of interest only, then the interest rate is adjusted. A double whammy when considering the loan is recast for 20 years fixed at a rate you cannot predict. Which of course is interest + principal.

like IR said, it depends on your needs. But if anything, the housing crisis proves you cannot predict anything, and shouldn't gamble with your home. Something has to happen after the first 10 years. Can you sell, who knows... only time.
 
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