Mood of the Market
Also, the rate is so low to start that their annual adjustment caps and lifetime rate caps are much lower than those taken out in 2006-07. And the current popularity of these loans seems to be heavier in areas where the market hasn't been completely decimated by foreclosures, places where homeowners are optimistic about where their home values will be in five years.
But I think this is still "have it both ways" thinking. Unless you know you'll be selling, moving or paying your loan off in the next five years, to forgo the ability to lock in today's insanely low rates for the life of your loan to try to get the sub-4 percent current rates on a 5/1 ARM -- even though you could probably have gotten on a 30-year loan a few months ago if you hadn't allowed the fixation on even lower rates to cause you to wait too long -- seems like the worst kind of cake-eating-and-having fantasy.
Today's market conditions minimize the possibility of too much damage from taking a 5/1 ARM. On the FHA version, the lifetime cap would be in the high 8 percent range today and it would be 10 years from now before it could get there.
Nevertheless, it behooves us all to watch and ferret out this kind of thinking and prevent it from controlling our real estate decisions. Rates won't always be low enough to protect us from ourselves.
Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
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What's Your Home Worth?
Think inside the Box