More high balance adjustable rate mortgage activity: haven’t we learned our lesson?

I can think of two reasons to take out a one year adjustable rate loan.  (1) when you anticipate a fall in rates in the near future, or (2) you really can’t afford the home and the lower rate will help you get in.

I don’t think anyone believes rates are going down.  So here we are again.  Home buyers purchasing homes they can not afford with loans likely to default when rates rise or prices fall.  Why buy a house you can’t afford?  If you are a wannabe 1%er.  You extend yourself to keep up with the Jones’ even though your salary has not.  By the way, “the wealthy barber” advises against over extending to buy a home.

The irony is our attempts to keep up with the 1% ultimately puts us further behind.  The banks are going to make money on us and/or get bailed out if they don’t.  Either way wealth is transferred from the 99% to the 1%.

My recommendation: don’t do it.

http://stream.wsj.com/story/latest-headlines/SS-2-63399/

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One thought on “More high balance adjustable rate mortgage activity: haven’t we learned our lesson?

  1. Agreed. Even if you anticipate a decrease in rates in the near future, I would advise to take a fixed at no cost now and re-fi when, or if, the rates fall. We will likely never see rates like these again. 30 year fixed rates are back below 4%!

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