One hiccup from Asian central banks and the Fed will be forced to jack up the base rate. Any sudden shock to the value of the dollar would have the same effect.

With interest rates as low as they are right now, the small benefit obtained by choosing an ARM hardly makes up for the potential risk of an economic crisis.

Scenario 2: you get an ARM. Inflation jumps to 10%, interest rates to 15-20%. The housing market in your area tanks. You are forced to sell and cannot find a buyer. Outcome: you have lost (no quotes) your life.

Scenario 2 sound far-fetched? Essentially that happened to my father in the 1970s, and plenty of other people we knew.

Greenspan’s advocacy of ARMs is absolutely disgusing and immoral: another attempt to shift the risks of our society to those who can least afford them and suck the money out of their threadbare wallets to line the pockets of the Trumps, Bushes, Lays, etc.

Cranky

Fixed rate mortgages aren’t that rare in the UK any more; they’re about a quarter to a third of the stock and more like 40% of the flow of new deals.

The reason why UK developed along this line was that the UK mortgage market grew out of the building society movement. The building societies made mortgage loans out of their own deposits, and in general as small local institutions they weren’t at all well placed to manage interest rate risk.

Especially not if rates were politicially controlled, Daniel, which they still are in some way, aren’t they?

One wonders how UK home-owners reacted when rates were upwards adjusted several times in one day just to rescue the government ERM policy (which they couldn’t).

It seems to be risky owning property in the UK, if you don’t mind my saying so.

I picked it because the terribly low monthy payments allow me to contribute much more pricipal every month so that in theory by the time it start fluctuating I will have payed off a good chunk of the principal. I think that makes quite a bit of sense, but I do agree that many people may be lured in by the low rates unaware of the overalll danger that they can pose if you choose to pay the minimum.

Except that the prices you pay for everything from loans (after the 7-year period) to auto insurance to groceries will go up for the rest of your life, which is a bit of a cost.

Cranky

One reasons ARMs are attractive is that if they have an initial lower rate, the monthly payments are more affordable. This means that persons who might otherwise not be able to afford to carry a mortgage can do so. Since people tend to earn more as they get older, this gives them time to ramp up their incomes so that, when the initial phase is up, they are more capable of making higher payments, if the rate adjusts upwards. Since owning a home is a great way to generate long-term personal wealth, and if ARMs make owning a home more affordable, they are to be applauded.

As to all the refinancing, with the exception of the unbelievably-dangerous new ability to borrow up to (or beyond) 100% LTV, I’d much, much rather have my debt rolled up into equity line ARM than to blood-sucking credit card companies’ terms. I would think, on this line, that the move to equity debt from other forms of credit is a long-term stabilizing move, no? (Except where, as I said, insanity allows you to borrow more than your house’s value—not to say realty fees, etcetera, if you need to get out.)