Quoted: The first thing you need to do is have someone boot you in the rear-end for getting a balloon mortgage, especially considering how drastically interest rates have risen in the past two years. Two years ago, the only way the interest rate would ever go is up!
-James
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Well, everyone's situation is unique...I got a MONTHLY LIBOR interest only adjustable rate mortgage 2 years ago. Yeah, I knew interest rates could only go up, but it allowed me to stay in my house which gained equity up the ass for those 2 years. Now, I'm refi-ing into a yearly interest only ARM, so I'll be able to stay here for at least another year. Trust me, I'd love to have the 5.35% fixed loan I had a while back, but I couldn't afford the $2000 a month payments, along with the $500 a month in taxes.
BTW, my last appraisal was $625K when I did the monthly arm. I though that was way low at the time, but this time, the assessment is $983K. Even if that first one was low, I've gotten $300K in equity in those 2 years by doing the LIBOR ARM.
There's no way I'll be able to stay in this house for more than a couple more years...between my health insuracne ($424/mo) and my real estate taxes ($520/mo and counting...they haven't announced this years rate yet), I won't be able to afford it. So, a minimum monthly payment is all I'm looking for, and I got piles of equity in the house.
Now, I agree with you that people who buy their house with these loans run the risk of becoming "upside down" in the house as rates go up. But for re-fiers with lots of equity, and short term plans, they can make sense.