So basically it`s 2008 part 2. There is a way to do adjustable rate loans under certain limitations. The problem that US banks are not restricted to normal plans. Be careful guys, these loans will bankrupt you.
What do you mean? ARM loans require the same items to qualify as a fixed rate loan. The only difference being your rate could increase years down the road. So if rates in 2027 are 10-12% then we will see a bump n foreclosures
@@abrahamflores2566 Thats the whole issue. I will be frank here, i dont live in the US, but we do have 3 types of loans: 1) Fixed rate loan - usually the most pricey in terms of the interest (depends on the amount taken and the period of the loan). 2) Adjustable rate loans - Tied to the "prime" interest of the central bank (when the fed raises the interest in the US, thats what it ties itself to - only in our case, to our central bank rate). These adjustable loans are more risky because if it goes up, so do your payments. But the initial rate you are given is "cheaper" than in fixed. 3) Adjustable rate loans tied to inflation - The cheapest initial rate but also the most dangerous loans when it comes to mortgage. If the inflation goes up 8.5% in a year then you will pay (only on that year) your initial rate+8.5%. and the banks (our lenders are only banks and not private firms or investment firms) usually mix those 3 types of loans into a nice "salad" for you to take. They give you 30% fixed, 35% adjustable by interest and 35% adj. by inflation. (that's the classic mix) My issue is that in the US, and i dont mean to insult anyone here, the public is less math aware of the percentage tricks the lender employs to "shove" the higher interest into your loan. Also there is hardly any supervision by the central bank (fed) on the behavior of the lenders. If our banks tried to do what happened in 2008 in the US they would have been nationalized on the spot and all of their managements and investors would have lost everything since the central bank has a tight grip on their freedom on how to loan funds to the population and they are obligated to hold at least 30% cash deposits as a guarantee against market crash events.
@@SoWeird4U I understand the concept and how it's tied to other parts of the economy but I can still see the benefit and strategy of an ARM loan in certain scenarios. For example if you are offered a 3% rate on the first five years of an ARM vs a 4% fixed rate mortgage you can always pay the difference to the principal so if your goal is to pay off your house fast an ARM loan could be a great choice. If you are overleveged and desperate for a house then an ARM loan is not for you but right now lenders are strict on guidelines so the people getting ARM loans are good borrowers with stable job histories so another 2008 is not likely unless you insert other factors. It's all about educating the masses on ARM loans so they plan ahead. No one was educated in 2008
I bought my first home in 2002, a brand new Dominion home in one of the dozen communities they were building at the time. No money down and some kind of voodoo ARM mortgage. The qualification for the loan was based on the first years payment, which was the lowest rate. I remember the second year the rate jumped and so did my payment, I refinanced and all was fine. Around 2006 -10 our brand new community was half full of foreclosures. Thanks to ARM's all these people thought they could afford a home they couldn't really afford.
Javier thank you for bringing this to light! I asked you about a few video ago to cover this because a report came out about them being on the rise. As far as your statement at 4:30…it’s easy to say that when you already have a home(s). Interest rates are high, home prices are still very high and some folks rents are doubling or not being renewed. Folks are desperate so getting into a home (even with predatory loans) feels like their best option. Everyone can’t move to the middle of nowhere Mississippi or Kansas to find a home. I wish this wasn’t the alternative suggestion.
Getting an ARM loan now is like taking off your seat belt right before you crash. Just get a conventional loan and then refinance when (if) the rates drop.
You’re just risk averse. I save thousands of dollars and then refinance when rates drop while you pay thousands more and still end up refinancing like me.
We bought our home in 2000 with a traditional loan. Refinanced into an ARM and then refinanced the heck out of it. Just hearing ARM and remembering 2008 along with it's lasting effects is enough to make me shudder.
ARMs are actually good if you plan on purchasing a home well below what you’re qualified for and plan to pay extra on the mortgage. LIKE A LOT EXTRA. You use the teaser rate to hammer down on the principal, and by the time it readjusts in year 5 or 7, the new rate will be based on a much lower principal that your payment might actually go down. If you can project and plan being able to pay off the home within 7-10 years ARMs are amazing. If not, better get a fixed rate for 15-30 years I used to write mortgages, and I always offered ARMs to people who have the desire and income to get the loans paid off within 7-10 years. Not for everyone, but a great option for some
I’m in this boat but was thinking 15 year because I’m just scared of the whole ARM idea, like what if I lose a job in the future, have a major set back, etc. But I do plan to pay a house off in less than 10 years.
I have friend who swears by ARM. He purchased his last 3 homes with ARM. The benefit of ARM is getting lower rate BUT I think the caveat is….the home you’re purchasing is NOT your “forever home”. If you plan on staying in the home beyond your ARM…then that’s where you can get into trouble. If the idea is that it’s a short-term home then you have to be sure then put yourself in a financial position to make that move when the time comes, which is easier said then done. You can prepare for your future but you can’t predict it. A lot of people plan for purchasing a home but once that do, they ease of on the things they do to get themselves into a position to buy. You have to stay diligent with your finances. I’m considering ARM (5/6 or 7/6) for this reason. We purchasing a townhouse with the intention to upgrade to a house in a few years.
I got a 6.1575 arm loan because I was self employed..to buy my 1st house...with a 10%down...a year later...refinanced to conventional 2.75 Totally worth it...but must keep finances in check.
There are only a couple of reasons to get an ARM loan: 1. You plan on paying down SO MUCH of the principal in the loan within just the next few years, the rate increase will be nothing since you're not paying down much. 2. You plan on staying in the home for just a few years, then sell it and move into your "forever" home. This is pretty risky, though, because you have NO idea what the home market will be when you decide to sell. But if an ARM loan is the only way you can get financing...wait.
SO glad you did this video! There was a news channel that did a real estate segment where the realtor and the reporter were promoting ARM loans I was like oh hell no
I did something similar 5 years ago. My 30 yr fixed was at 4.25%. I refinanced with my credit union to a 5-5-5 deal where my first 5 yrs my interest would be 2.9% next 5 yrs would be capped at 2.9 so it could only go up by 2% every 5 yrs. So my 5 yrs came up not too long ago my interest rate for the next 5 yrs is only 3.15 but I only owe 10k so it worked out for me. You just have to do the math for your situation and look at worst case scenario if you can afford it. Good luck
At the start of the housing crisis, people who had just bought would have needed to pay $100,000 to sell their house or wait many years until the price went back up to what you paid for it. If you also had an ARM, you could have been ruined.
I have a 10/1 ARM loan at 4% interest. Fixed rate for 10 years then adjusted once annually. The thing is, I make a lot of money and only got the loan because I didn't have money for a down payment coming out of school. So if I'm still in the house in ten years and the rate is going to go up to what I deem an untenable amount, I'll just pay off the house. That is and always has been my plan. However, most people don't have that option so I still recommend people know the ins and outs of their contract with regards to pre payment penalties, how often the rate is adjusted, and what the fixed rate term is before considering an ARM loan, because they are overall inferior to a fixed rate conventional loan.
@@JavyVidana Javier I’ve read that 30 year fixed rate mortgages are some of the most attractive ways to leverage money in the financial world. Would that make 40 year mortgages even MORE attractive?
I just spoke to my credit union about ARM loans. They mentioned it’s fixed for 3 years but there’s a possibility the rate will adjust if interest rates are lower at that time (wishful thinking) or could always refi . Food for thought!
I did a 7/1arm back in 2012 with 2.7 plus a 0.25 annual cap after 7 when the avg was 3.5, and later I refined in to a fixed. l think 7/1arm is a good product because a typical economic cycle is between 7 to 10 years. The rate will drop again when we hit the next grow period. Do 7/1 with an annual cap is pretty safe imo.
This is actually the option i will be going with through my credit union, in my situation it is fixed for 5 years, at that point it can go up or down up to 1.5%, and then that's the new rate fixed for the next 5 years, and repeat every 5 years, and it's capped so it can never go over 5% higher than what it started at.
I’m here considering ARM now due to interest rate % 7.20. I found a historical interest rate sheet and I don’t see high-interest rates lasting for more than 3 years it’s not sustainable
Honestly, it's scary that people are actually thinking of doing this. You might get a lower interest rate off the bat, but you never get to lock in a rate.
I don't think is will be a 2008 collapse because you still need to be income a verified for mortgage vs 2008 where everybody was getting loan by just saying they make an X amount money without verifying your income. Also, if you do get an ARM usually the borrower will sell within the teaser rate or refinance before the teaser rate expires. Just remember you don't need to refinance back to a 30 year fix. There are multiple shorter term fixed options that would have a lower rates. Typically 25, 20, 15 year fixed have lower fixed rates. For example, if you get a 10/1 ARM you should refinance to a 20 year fixed. Your loan life will still be 30 years and you would be saving on interest.
I had a weird situation during my home purchase. We got beat out pretty much every offer we put in and finally found a home that checked all boxes and wasn’t a flip and updates galor good school garage yada yada, so we put in an offer with the max monthly budget would allow… they accepted our offer (march 10) and we were stoked. They turned around and told us they were not able to move out and are closing on their new home in June… being naive FTHB we thought ok, sure we can save a bit more and buy furniture, while my attorney and agent wrote up an addendum for them to stay… they dragged their heels to sign contract and we were not able to lock in our original 4.1% or something interest rate. My agent, attorney, and LO we’re going back and forth with the sellers party, and by the time it was all said and done (April 10) the best rate I got was 5% it sucked because we were already at our max budget had to pay pmi so now we’re going a couple hundred above… my LO mentioned ARMs and it sounded amazing, but after doing research it scared me and the wife we decided to to just eat it. We have stable healthcare jobs with growth and we didn’t want to risk finding a new home and maybe rates being even higher. We closed yesterday and we’re excited! I have to admit 15/1 arm did peak my interest. Still I’m ok with what I got. I enjoyed your videos watched them through out the stressful home buying process thank you!
What you could have done is bought the house at that moment in time and let them rent back until they were able to move out. That's what happened with my parents. The buyer of their old house was an investor so it wasn't a big deal to her, but we were renting back month to month on a home we had lived in for 21 years. You would have fixed your rate, but just had to wait until they moved out. It's already in the past. You have your home now, but I'm surprised that no one told you that was an option... 🤔🤔
@@ashleykbarks oh that was the plan. we closed yesterday and they are renting back from us for one month. the thing is that without a signed contract I was not able to lock in the rate. the sellers, I assume, were figuring their next home purchased and did not sign the contract right away. but yes its in the past, were very exctied
I’m a loan officer and our ARM products are very popular. We have a 5/5 where it’s at 2.875% for the first 5 years and at year 6, it can only adjust at most 2% (worst case scenario 4.875) and stays the same for another 5 years. The loan estimate will explain best and worst scenario for the life of the loan (30 years) and lifetime cap is at 5% making worst case scenario at 7.875%. We also have a 7/1 that starts at 3%. Most people end up refinancing their loans in the first 10 years anyway. The first 10 or 7 years is still gonna be a lower rate than all the current fixed rates (we are at 5.125%). So if fixed rates ever go down, you can always refinance to a lower rate or if it’s getting to the end of your term, refinance to a 15 year fixed because you have bound to save 10 of thousands of dollars of interest anyway or you can even refinance into another great arm product (our 5/5 pays closing costs). I work in the San Diego area and see people save almost a grand a month from just interest, put that in a 84 month perceptive. It’s a lot different than what 2008 use to be and we are only approving off the qualifying rate which is usually about 6% so not everyone qualifies because things are a lot more regulated. At the end of the day, loan officers need to be good people and learn how to explain their products where their members (I work for credit unions) are comfortable with their decision and not just trying to make a sale.
If there are up to 10 years of teaser rate, why not just hop on that and then refi to a lower interest late 6-8 years down the line or whenever interest rates go back down. Interest rates are cyclic.
ARM's are more relevant. I was just watching a video from yahoo finance about Phoenix titled "Inflation: phoenix and Atlanta see costs surge the most". ARM's make up 11% of loans now which is the highest it's been since march 2008. One of the main contributors to 2008 housing crash, I remember this very well. This effected many of my family members who lost their houses in CA.
Arms are 30 year loans that you can get with a 5 year arm witch is fixed the first 5 years / 7 yr and 10 yr arms… mostly you see only people with millions using this as they travel and sell houses frequently or need to transfer cash with cheap debt this could also be a good alternative for a flipper who is holding for 12 to 24 months
I’d take the gamble if I knew the worst case scenario. I think the majority of ppl would just have to get rid of their 400-500 car payment during that “low rate” lock to make up the difference.
Great video Javier! Folks still stay away from arm loans as everyone believes that they are "the devil". Rates are still low, but as they go up to 6% and maybe 7% later this year, it might be an option. So far only a few clients asked about them. If anyone is interested in these, please make sure you work with a reputable lender. I agree with everything you said brother!
I think people getting arm loans means they are being desperate to get a home. Desperation is never a good thing. It could make the market crash in the future and foreclosures would be on the rise. Just my opinion.
This. And we have to Remember. They're bidding over asking. So, budgets get stretched even thinner. If this doesn't convince anyone of the cluster that's coming our way, idk what more proof people need. This won't end well.
Can ARM be refinanced before the period comes to raise the interest rate or is there a clause preventing this? If not… what prevents people from refinancing?
For some you can. I just refinanced an arm from 4.375 to a new arm 2.75. My loan is with my local credit union and they have limits on how high the loan can go (2 percent change every 5 years). Sadly i missed the boat to refinance on a low fixed rate, but refinancing the ARM was very good for my circumstance.
I was wondering the same thing. It seems beneficial to go with an ARM loan over a fixed rate at the current interest rates, especially if your planning on refinancing anyway. Now if there’s a penalty of some sort then that changes the situation.
We are looking at buying, because we have a hefty savings and rent is higher than buying at this point. We will likely be moving cross country for my wife's PhD program. We have talked to our bank and ARM loans were brought up right away. I'm unsure on them, but depending on what we have as options when we get to that point it is an option.
From my understanding it works if: 1. You know you’re not going to stay in that house long term. 2. There is a Cap to that. 3. You know you can afford even the worst case scenario. But yeah you have to be on top of your finances.
Worst case scenario is the market crashes like it did in 2008 and you are upside down 100k and the ARM goes up. People need to understand housing is going to come down in most cities that grew by 50% in 2 years. If you can’t afford the loss or the rate hike then wait.
well that’s where the cap is helpful. I believe in 2008, there were no caps on these types of loans. And true, I believe there is artificial inflation in a lot of cities that’s created due to Covid era hype. Luckily I live in an area that has been having organic population growth even before Covid and is projected to continue to grow. You definitely have to evaluate on your own circumstances for these kinds of loans
Hey hi Javier I liked your show and I’m Learning a little bit more about houses mortgages and the best way to purchase and this bad time I want to be a homeowner by the new year hopefully these rates go down if not by the time I want to purchase I will have to buy because of my family is anyway that I can contact you and pay for your service for some advices please contact me and let me know I would like to be you you are very smart and talent .
I’ve seen some channel saying HELOC mortgage might be a slightly better option if you can pay it off fast (10years compare to fix rate of 10years), because of paying principal first. Even less people would be able to do so now, but is that true?
No offense, but it’s not the 90s anymore. Y’all really need to stop talking about how these are still record low interest rates when these are astronomically record high prices. what worked then won’t work now. Interest rates should never be 8% again at these prices
If you have no income, no assets to liquidate or have multiple income streams ARMS are not for you. I personally prefer ARMS because I can buy multiple at the same time and the cashflow is more than enough to cover interest only payments for years. Plus you get massive tax rights offs on it. I just got approve for 10 yr arm at 2.5 for the first 2 years then after it'll jump to prime rate. These are great if you know what you're doing. If its your first house DO NOT do it... period.... you'll lose your home ......
It is not like 2008... remember that that was the wild wild west....now... you still have to qualify! I wanted to use it.... but you can't with FHA and you cannot use downpayment assistance.....just FYI These are both things I feel safer using it. I was disgusted that these sellers since the pandemic were selling their homes over asking with no upgrades and unsafe conditions because buyers were using conventional. I qualify for conventional.... but it does not have the safety nets that FHA requires, hence, the reason why sellers hated them!
“What” kind of loans isn’t important here, nor does an ARM automatically equate an ‘08 scenario. It’s “HOW” the loans are being acquired. Remember the concept of over leveraging: NINJA loans that gave huge amounts of debt to anyone with a pulse, multiple loans on a single property, multiple properties with one or more loans on them, etc. you have to take into account the underlying circumstances of you want to compare to 08. Buyers today are so well qualified you’re running into people where even an ARM can’t help them qualify. A couple people here referenced “The Big Short” where a stripper had multiple homes and multiple loans on each home as a “1099” income. Or the guy that put a loan in his dog’s name (which is a true story apparently). None of those are happening today. Now, are todays buyers maybe house poor? Yes. But we’re not seeing nearly as much gross negligence as 08.
So basically the real estate is super high is/will explode very soon, and arms will take it to rock bottom 2-5 years from now and the real estate will recuperate in 2026ish pretty much
So, lots of people are saying this is a 2008 repeat. I would say, probably not that bad. Lenders were doing shady things - I didn't know any better, I had an arm in 2003 and then again in 2004. Never did it again (and the thing is, I didn't need to - I had enough income to qualify for fixed but I listened to the broker). Shouldn't surprise anyone that the loans were funded and serviced by Countrywide. 😒 It doesn't seem like lenders are as shady as they were back then (and I think there are more rules in place? Or did those get rolled back again, I feel like Dodd-Frank did some stuff for this). But it's also been 14 years and nearly all millennials don't have experience with this situation, so they don't have the memory that Gen X has around it. I do think there will be some problems around this though, there will be people that made unwise decisions and as rates go up (bc inflation), they will end up in a foreclosure situation.
Funny to hear folks talk about 5 and 6% rates being so high! My first mortgage in 1995 was right around 8%. It was not because I had low credit, that was the average rate at that time
Everyone should do an ARM! My grandfather is the only person I have ever met that has kept a loan for 30 years. Millennials (the largest buying group right now) are very unlikely to be in the same house in the same financial situations for 30 years. You will most likely move or refinance within that timeframe. So looking at a 10/1 or 10/6 ARM is going to be the same as fixed if you move within 10 years or refinance since the house's value will be so different in 10 years.
Yeah absolutely this is the most stupid advice out there. Just because your are not going to stay in the same house for 30 years does not mean you shouldn’t take a 30 year loan out….. it’s basically inflation insurance….
@@patrick553 lol right know there is a lot of of uncertainty and that has hurt buying power but if you own a home your housing expenses have stayed fix and other words inflation insurance…. Imagine having to take out about loan now because your ARM is up.
Ya of course you can refinance ARMs but only if the refinance rate is lower - that’s what happened in 08 people thought they could refinance but they couldn’t because rates went up
You're making it sound like ARM is a bad thing. An ARM loan is a bet on yourself. You have 3/5/7 years to get your shit together and refinance your loan to a fixed rate, or hope that the market rate drops from where it is currently. Interest rate on Renting is always 100% my friends. If the only option for you to get into purchasing a home is ARM go for it.
Hmmmm 🧐🧐🧐🧐 interesting. Wait for the housing crash or buy a house in the next months. By, December , I am going to have 20% down payment for a 350k house.
ARMs are actually not as bad as people make them out to be. No one stays in their home for 30 years anymore. The average time, in my circle of friends, is maybe 5 years. I recommend ARMs to anyone who can qualify and has a plan of action. If it boils down to you renting and taking an ARM, 100% of the time, go with the ARM. It beats making your landlord richer any day. You also get to write off the interest, which helps lower taxable income.
You are just trying to find ways how to keep your channel 😄 you are totally a different individual then 3 months ago... Where is your position of homes will never go lower???😅😅😅
@@JavyVidana Javier, I sure can, I'm just not at the right place, let's be in touch in the near future, what about after the people who made the purchase of their life with the lowest %interest ever!, -2 75%, only to find out their property has devalued 30-40% and there will be no hopes to ever refinance...at the opposite people who will buy at 30-40% discounted prices would be able within a couple of years to refi and lower their discounted mortgage property payment?
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So basically it`s 2008 part 2. There is a way to do adjustable rate loans under certain limitations. The problem that US banks are not restricted to normal plans. Be careful guys, these loans will bankrupt you.
What do you mean? ARM loans require the same items to qualify as a fixed rate loan. The only difference being your rate could increase years down the road. So if rates in 2027 are 10-12% then we will see a bump n foreclosures
ARMs were not the problem. Balloon loans and NINJA loans were the issue.
@@abrahamflores2566 Thats the whole issue. I will be frank here, i dont live in the US, but we do have 3 types of loans: 1) Fixed rate loan - usually the most pricey in terms of the interest (depends on the amount taken and the period of the loan).
2) Adjustable rate loans - Tied to the "prime" interest of the central bank (when the fed raises the interest in the US, thats what it ties itself to - only in our case, to our central bank rate). These adjustable loans are more risky because if it goes up, so do your payments. But the initial rate you are given is "cheaper" than in fixed.
3) Adjustable rate loans tied to inflation - The cheapest initial rate but also the most dangerous loans when it comes to mortgage. If the inflation goes up 8.5% in a year then you will pay (only on that year) your initial rate+8.5%.
and the banks (our lenders are only banks and not private firms or investment firms) usually mix those 3 types of loans into a nice "salad" for you to take. They give you 30% fixed, 35% adjustable by interest and 35% adj. by inflation. (that's the classic mix)
My issue is that in the US, and i dont mean to insult anyone here, the public is less math aware of the percentage tricks the lender employs to "shove" the higher interest into your loan.
Also there is hardly any supervision by the central bank (fed) on the behavior of the lenders. If our banks tried to do what happened in 2008 in the US they would have been nationalized on the spot and all of their managements and investors would have lost everything since the central bank has a tight grip on their freedom on how to loan funds to the population and they are obligated to hold at least 30% cash deposits as a guarantee against market crash events.
Big difference: there was lots of supply back in 2008. Not so much today.
@@SoWeird4U I understand the concept and how it's tied to other parts of the economy but I can still see the benefit and strategy of an ARM loan in certain scenarios. For example if you are offered a 3% rate on the first five years of an ARM vs a 4% fixed rate mortgage you can always pay the difference to the principal so if your goal is to pay off your house fast an ARM loan could be a great choice. If you are overleveged and desperate for a house then an ARM loan is not for you but right now lenders are strict on guidelines so the people getting ARM loans are good borrowers with stable job histories so another 2008 is not likely unless you insert other factors. It's all about educating the masses on ARM loans so they plan ahead. No one was educated in 2008
I bought my first home in 2002, a brand new Dominion home in one of the dozen communities they were building at the time. No money down and some kind of voodoo ARM mortgage. The qualification for the loan was based on the first years payment, which was the lowest rate. I remember the second year the rate jumped and so did my payment, I refinanced and all was fine. Around 2006 -10 our brand new community was half full of foreclosures. Thanks to ARM's all these people thought they could afford a home they couldn't really afford.
Javier thank you for bringing this to light! I asked you about a few video ago to cover this because a report came out about them being on the rise.
As far as your statement at 4:30…it’s easy to say that when you already have a home(s). Interest rates are high, home prices are still very high and some folks rents are doubling or not being renewed. Folks are desperate so getting into a home (even with predatory loans) feels like their best option.
Everyone can’t move to the middle of nowhere Mississippi or Kansas to find a home. I wish this wasn’t the alternative suggestion.
Getting an ARM loan now is like taking off your seat belt right before you crash. Just get a conventional loan and then refinance when (if) the rates drop.
Well said
That's what I'm going to do
You’re just risk averse. I save thousands of dollars and then refinance when rates drop while you pay thousands more and still end up refinancing like me.
We bought our home in 2000 with a traditional loan. Refinanced into an ARM and then refinanced the heck out of it. Just hearing ARM and remembering 2008 along with it's lasting effects is enough to make me shudder.
It’s unfortunate that people don’t heed the warnings of the ARM debacle from those that lived the nightmare. I never did but have heard the stories.
ARMs are actually good if you plan on purchasing a home well below what you’re qualified for and plan to pay extra on the mortgage. LIKE A LOT EXTRA.
You use the teaser rate to hammer down on the principal, and by the time it readjusts in year 5 or 7, the new rate will be based on a much lower principal that your payment might actually go down.
If you can project and plan being able to pay off the home within 7-10 years ARMs are amazing. If not, better get a fixed rate for 15-30 years
I used to write mortgages, and I always offered ARMs to people who have the desire and income to get the loans paid off within 7-10 years. Not for everyone, but a great option for some
If you can afford to pay a lot extra, a 15 year loan might offer a better rate.
I’m in this boat but was thinking 15 year because I’m just scared of the whole ARM idea, like what if I lose a job in the future, have a major set back, etc. But I do plan to pay a house off in less than 10 years.
Yes, the 15 yr gives you a better rate and much lower risk then an ARM
@@monicarenee7949
That makes no sense. You could lose a job with fixed mortgages too
I have friend who swears by ARM. He purchased his last 3 homes with ARM. The benefit of ARM is getting lower rate BUT I think the caveat is….the home you’re purchasing is NOT your “forever home”. If you plan on staying in the home beyond your ARM…then that’s where you can get into trouble. If the idea is that it’s a short-term home then you have to be sure then put yourself in a financial position to make that move when the time comes, which is easier said then done. You can prepare for your future but you can’t predict it. A lot of people plan for purchasing a home but once that do, they ease of on the things they do to get themselves into a position to buy. You have to stay diligent with your finances. I’m considering ARM (5/6 or 7/6) for this reason. We purchasing a townhouse with the intention to upgrade to a house in a few years.
Arms are only good if you plan to either sell/pay off your debt
Thanks for this brake down.
I got a 6.1575 arm loan because I was self employed..to buy my 1st house...with a 10%down...a year later...refinanced to conventional 2.75
Totally worth it...but must keep finances in check.
Big emphasis must keep finances in check!
The ways things are now it's impossible for most to keep their finances in check
There are only a couple of reasons to get an ARM loan:
1. You plan on paying down SO MUCH of the principal in the loan within just the next few years, the rate increase will be nothing since you're not paying down much.
2. You plan on staying in the home for just a few years, then sell it and move into your "forever" home. This is pretty risky, though, because you have NO idea what the home market will be when you decide to sell.
But if an ARM loan is the only way you can get financing...wait.
This
Can you refinance an Arm loan before the fixed period is up?
SO glad you did this video! There was a news channel that did a real estate segment where the realtor and the reporter were promoting ARM loans I was like oh hell no
Thank you Camaya!
It's really sad that news channels are compelled to sell products, as opposed to providing news.
Two tickets to the gun show?
💪🏼
I did something similar 5 years ago. My 30 yr fixed was at 4.25%. I refinanced with my credit union to a 5-5-5 deal where my first 5 yrs my interest would be 2.9% next 5 yrs would be capped at 2.9 so it could only go up by 2% every 5 yrs. So my 5 yrs came up not too long ago my interest rate for the next 5 yrs is only 3.15 but I only owe 10k so it worked out for me. You just have to do the math for your situation and look at worst case scenario if you can afford it. Good luck
ARMs can be ok just as long as theres a cap on how high your payment can adjust when the time comes.
At the start of the housing crisis, people who had just bought would have needed to pay $100,000 to sell their house or wait many years until the price went back up to what you paid for it. If you also had an ARM, you could have been ruined.
just another way to attempt to keep housing elevated....keep the FOMO going!!!! pay over asking!!! buy buy buy!!!! lol
I have a 10/1 ARM loan at 4% interest. Fixed rate for 10 years then adjusted once annually. The thing is, I make a lot of money and only got the loan because I didn't have money for a down payment coming out of school. So if I'm still in the house in ten years and the rate is going to go up to what I deem an untenable amount, I'll just pay off the house. That is and always has been my plan. However, most people don't have that option so I still recommend people know the ins and outs of their contract with regards to pre payment penalties, how often the rate is adjusted, and what the fixed rate term is before considering an ARM loan, because they are overall inferior to a fixed rate conventional loan.
What’s a lot of money?
Big Gut Energy™️ is telling me this won’t end well
Big gut never leads us the wrong
@@JavyVidana Javier I’ve read that 30 year fixed rate mortgages are some of the most attractive ways to leverage money in the financial world.
Would that make 40 year mortgages even MORE attractive?
I just spoke to my credit union about ARM loans. They mentioned it’s fixed for 3 years but there’s a possibility the rate will adjust if interest rates are lower at that time (wishful thinking) or could always refi . Food for thought!
2008 called, they want their ARM's back
I did a 7/1arm back in 2012 with 2.7 plus a 0.25 annual cap after 7 when the avg was 3.5, and later I refined in to a fixed. l think 7/1arm is a good product because a typical economic cycle is between 7 to 10 years. The rate will drop again when we hit the next grow period. Do 7/1 with an annual cap is pretty safe imo.
True but the shorter term the lower rates
This is actually the option i will be going with through my credit union, in my situation it is fixed for 5 years, at that point it can go up or down up to 1.5%, and then that's the new rate fixed for the next 5 years, and repeat every 5 years, and it's capped so it can never go over 5% higher than what it started at.
I’m here considering ARM now due to interest rate % 7.20. I found a historical interest rate sheet and I don’t see high-interest rates lasting for more than 3 years it’s not sustainable
Honestly, it's scary that people are actually thinking of doing this. You might get a lower interest rate off the bat, but you never get to lock in a rate.
Mhmm…. Would not recommend this
Your logic is to lock in a rate at 7-8% rather than get 4-5 percent and refinance to fixed when rates drop again
I don't think is will be a 2008 collapse because you still need to be income a verified for mortgage vs 2008 where everybody was getting loan by just saying they make an X amount money without verifying your income. Also, if you do get an ARM usually the borrower will sell within the teaser rate or refinance before the teaser rate expires. Just remember you don't need to refinance back to a 30 year fix. There are multiple shorter term fixed options that would have a lower rates. Typically 25, 20, 15 year fixed have lower fixed rates. For example, if you get a 10/1 ARM you should refinance to a 20 year fixed. Your loan life will still be 30 years and you would be saving on interest.
I had a weird situation during my home purchase. We got beat out pretty much every offer we put in and finally found a home that checked all boxes and wasn’t a flip and updates galor good school garage yada yada, so we put in an offer with the max monthly budget would allow… they accepted our offer (march 10) and we were stoked. They turned around and told us they were not able to move out and are closing on their new home in June… being naive FTHB we thought ok, sure we can save a bit more and buy furniture, while my attorney and agent wrote up an addendum for them to stay… they dragged their heels to sign contract and we were not able to lock in our original 4.1% or something interest rate. My agent, attorney, and LO we’re going back and forth with the sellers party, and by the time it was all said and done (April 10) the best rate I got was 5% it sucked because we were already at our max budget had to pay pmi so now we’re going a couple hundred above… my LO mentioned ARMs and it sounded amazing, but after doing research it scared me and the wife we decided to to just eat it. We have stable healthcare jobs with growth and we didn’t want to risk finding a new home and maybe rates being even higher. We closed yesterday and we’re excited!
I have to admit 15/1 arm did peak my interest. Still I’m ok with what I got.
I enjoyed your videos watched them through out the stressful home buying process thank you!
What you could have done is bought the house at that moment in time and let them rent back until they were able to move out. That's what happened with my parents. The buyer of their old house was an investor so it wasn't a big deal to her, but we were renting back month to month on a home we had lived in for 21 years. You would have fixed your rate, but just had to wait until they moved out.
It's already in the past. You have your home now, but I'm surprised that no one told you that was an option... 🤔🤔
Or pay to lock your rate in. That’s what I did.
@@ashleykbarks oh that was the plan. we closed yesterday and they are renting back from us for one month. the thing is that without a signed contract I was not able to lock in the rate. the sellers, I assume, were figuring their next home purchased and did not sign the contract right away. but yes its in the past, were very exctied
@@RoqueExclusives how much was the lock in fee
So you’re above max budget and still got approved? Sound lending practices my ass
Great information, but the best is your sense of humor! You always make me laugh! Thank you!
I’m a loan officer and our ARM products are very popular. We have a 5/5 where it’s at 2.875% for the first 5 years and at year 6, it can only adjust at most 2% (worst case scenario 4.875) and stays the same for another 5 years. The loan estimate will explain best and worst scenario for the life of the loan (30 years) and lifetime cap is at 5% making worst case scenario at 7.875%. We also have a 7/1 that starts at 3%. Most people end up refinancing their loans in the first 10 years anyway. The first 10 or 7 years is still gonna be a lower rate than all the current fixed rates (we are at 5.125%). So if fixed rates ever go down, you can always refinance to a lower rate or if it’s getting to the end of your term, refinance to a 15 year fixed because you have bound to save 10 of thousands of dollars of interest anyway or you can even refinance into another great arm product (our 5/5 pays closing costs). I work in the San Diego area and see people save almost a grand a month from just interest, put that in a 84 month perceptive. It’s a lot different than what 2008 use to be and we are only approving off the qualifying rate which is usually about 6% so not everyone qualifies because things are a lot more regulated. At the end of the day, loan officers need to be good people and learn how to explain their products where their members (I work for credit unions) are comfortable with their decision and not just trying to make a sale.
If there are up to 10 years of teaser rate, why not just hop on that and then refi to a lower interest late 6-8 years down the line or whenever interest rates go back down. Interest rates are cyclic.
Sounds great if it works. If you are unemployed 6-8 years from now you don’t qualify for a new mortgage
ARM's are more relevant. I was just watching a video from yahoo finance about Phoenix titled "Inflation: phoenix and Atlanta see costs surge the most". ARM's make up 11% of loans now which is the highest it's been since march 2008. One of the main contributors to 2008 housing crash, I remember this very well. This effected many of my family members who lost their houses in CA.
Arms are 30 year loans that you can get with a 5 year arm witch is fixed the first 5 years / 7 yr and 10 yr arms… mostly you see only people with millions using this as they travel and sell houses frequently or need to transfer cash with cheap debt this could also be a good alternative for a flipper who is holding for 12 to 24 months
You’re very optimistic.
I’d take the gamble if I knew the worst case scenario. I think the majority of ppl would just have to get rid of their 400-500 car payment during that “low rate” lock to make up the difference.
Can you do a updated video on ARM in todays market! Thank you 🙏
Do a video with Lizy on these loans.
In the UK, all you get is ARM mortgages, there's no option for a "fixed" rate
Thank you,Javi.
7 year arms are great. That’s a long time to play the market and lock a refi rate when cost of money improves.
This is how I know we've reached the top and the bubble is about to burst. Real estate agents promoting ARMs now?
Also, a lot of ARM has fees if you try to pay it off early or won’t allow you to pay off the loan early.
This is a good point! Will ask if there’s an prepayment penalty.
Could you do a video on 2-1 buydown?
Great video Javier! Folks still stay away from arm loans as everyone believes that they are "the devil". Rates are still low, but as they go up to 6% and maybe 7% later this year, it might be an option. So far only a few clients asked about them. If anyone is interested in these, please make sure you work with a reputable lender. I agree with everything you said brother!
I think people getting arm loans means they are being desperate to get a home. Desperation is never a good thing. It could make the market crash in the future and foreclosures would be on the rise. Just my opinion.
This. And we have to Remember. They're bidding over asking. So, budgets get stretched even thinner. If this doesn't convince anyone of the cluster that's coming our way, idk what more proof people need. This won't end well.
I heard it was more difficult to refinance arm loans before the benchmark is up.. is this true?
Help !!!
Wich loan is best for disabled people. Want to fix my 1940 paid off old house. I have no downpay right now
Or, prices can come down because people can't afford the homes...
Can ARM be refinanced before the period comes to raise the interest rate or is there a clause preventing this? If not… what prevents people from refinancing?
For some you can. I just refinanced an arm from 4.375 to a new arm 2.75. My loan is with my local credit union and they have limits on how high the loan can go (2 percent change every 5 years). Sadly i missed the boat to refinance on a low fixed rate, but refinancing the ARM was very good for my circumstance.
I was wondering the same thing. It seems beneficial to go with an ARM loan over a fixed rate at the current interest rates, especially if your planning on refinancing anyway. Now if there’s a penalty of some sort then that changes the situation.
@@Jrtowns1 I wish Javier could make another video to answer this lol
Just had this convo with my lender on Thursday...
We are looking at buying, because we have a hefty savings and rent is higher than buying at this point. We will likely be moving cross country for my wife's PhD program. We have talked to our bank and ARM loans were brought up right away. I'm unsure on them, but depending on what we have as options when we get to that point it is an option.
From my understanding it works if: 1. You know you’re not going to stay in that house long term. 2. There is a Cap to that. 3. You know you can afford even the worst case scenario. But yeah you have to be on top of your finances.
Worst case scenario is the market crashes like it did in 2008 and you are upside down 100k and the ARM goes up. People need to understand housing is going to come down in most cities that grew by 50% in 2 years. If you can’t afford the loss or the rate hike then wait.
well that’s where the cap is helpful. I believe in 2008, there were no caps on these types of loans. And true, I believe there is artificial inflation in a lot of cities that’s created due to Covid era hype. Luckily I live in an area that has been having organic population growth even before Covid and is projected to continue to grow. You definitely have to evaluate on your own circumstances for these kinds of loans
Yo that game ARMS for the Nintendo switch had a banger intro song though
Hey hi Javier I liked your show and I’m Learning a little bit more about houses mortgages and the best way to purchase and this bad time I want to be a homeowner by the new year hopefully these rates go down if not by the time I want to purchase I will have to buy because of my family is anyway that I can contact you and pay for your service for some advices please contact me and let me know I would like to be you you are very smart and talent .
I’ve seen some channel saying HELOC mortgage might be a slightly better option if you can pay it off fast (10years compare to fix rate of 10years), because of paying principal first. Even less people would be able to do so now, but is that true?
Stay away from ARMs. If you can’t afford then wait for housing to come down. My first house was at 8% in the 90’s. Be patient.
No offense, but it’s not the 90s anymore. Y’all really need to stop talking about how these are still record low interest rates when these are astronomically record high prices. what worked then won’t work now. Interest rates should never be 8% again at these prices
and the house was 1/3 of the price lol...
@@rhondac.891, LOL. You're not getting it. This is a repeat of what many experienced before. Keep on believing what you will.
@@rhondac.891 If this is no longer the 90s…then suck it up.
@@rhondac.891 the more people can’t afford house at 8% the lower the asking price will go. Higher interest rates will make housing prices come down.
If you have no income, no assets to liquidate or have multiple income streams ARMS are not for you. I personally prefer ARMS because I can buy multiple at the same time and the cashflow is more than enough to cover interest only payments for years. Plus you get massive tax rights offs on it. I just got approve for 10 yr arm at 2.5 for the first 2 years then after it'll jump to prime rate. These are great if you know what you're doing. If its your first house DO NOT do it... period.... you'll lose your home ......
This is a ticking time bomb......
It is not like 2008... remember that that was the wild wild west....now... you still have to qualify! I wanted to use it.... but you can't with FHA and you cannot use downpayment assistance.....just FYI These are both things I feel safer using it. I was disgusted that these sellers since the pandemic were selling their homes over asking with no upgrades and unsafe conditions because buyers were using conventional. I qualify for conventional.... but it does not have the safety nets that FHA requires, hence, the reason why sellers hated them!
Just wanted to say that the current CEO of Twitter looks like you😁
90-95% of home loans close or gets refinanced in less than 10 years, why pay extra for 30 fixed rate when you can do 10 arm at cheaper rate.
It’s like a game of cops and robbers… see who wins and see who loses. Sad.
i thought we saw the last of ARMs, hate that they are back..
“What” kind of loans isn’t important here, nor does an ARM automatically equate an ‘08 scenario. It’s “HOW” the loans are being acquired. Remember the concept of over leveraging: NINJA loans that gave huge amounts of debt to anyone with a pulse, multiple loans on a single property, multiple properties with one or more loans on them, etc. you have to take into account the underlying circumstances of you want to compare to 08. Buyers today are so well qualified you’re running into people where even an ARM can’t help them qualify. A couple people here referenced “The Big Short” where a stripper had multiple homes and multiple loans on each home as a “1099” income. Or the guy that put a loan in his dog’s name (which is a true story apparently). None of those are happening today. Now, are todays buyers maybe house poor? Yes. But we’re not seeing nearly as much gross negligence as 08.
How to crash an economy
Negative amoritizarion loans
I’m selling a share of my property comes with 1 week of use
So basically the real estate is super high is/will explode very soon, and arms will take it to rock bottom 2-5 years from now and the real estate will recuperate in 2026ish pretty much
I came here just to see Javi's cannons he calls ARMs 🥵
I would just continue to rent and save instead of getting an ARM
So, lots of people are saying this is a 2008 repeat. I would say, probably not that bad. Lenders were doing shady things - I didn't know any better, I had an arm in 2003 and then again in 2004. Never did it again (and the thing is, I didn't need to - I had enough income to qualify for fixed but I listened to the broker). Shouldn't surprise anyone that the loans were funded and serviced by Countrywide. 😒
It doesn't seem like lenders are as shady as they were back then (and I think there are more rules in place? Or did those get rolled back again, I feel like Dodd-Frank did some stuff for this). But it's also been 14 years and nearly all millennials don't have experience with this situation, so they don't have the memory that Gen X has around it.
I do think there will be some problems around this though, there will be people that made unwise decisions and as rates go up (bc inflation), they will end up in a foreclosure situation.
We might need Lizzie the 🦎 👸 to come and collab with you and better explain these ARMS especially the 10/6 ones.
I agree.
Ground Hog Day
Interest only loans.
LMAO the intro had me dying
Funny to hear folks talk about 5 and 6% rates being so high! My first mortgage in 1995 was right around 8%. It was not because I had low credit, that was the average rate at that time
Do you understand there’s two parts to the equation when talking about interest rates?
Everyone should do an ARM! My grandfather is the only person I have ever met that has kept a loan for 30 years. Millennials (the largest buying group right now) are very unlikely to be in the same house in the same financial situations for 30 years. You will most likely move or refinance within that timeframe. So looking at a 10/1 or 10/6 ARM is going to be the same as fixed if you move within 10 years or refinance since the house's value will be so different in 10 years.
Yeah absolutely this is the most stupid advice out there. Just because your are not going to stay in the same house for 30 years does not mean you shouldn’t take a 30 year loan out….. it’s basically inflation insurance….
@@theAppleWizz
No inflation insurance anymore when rates are 7 percent
@@patrick553 lol right know there is a lot of of uncertainty and that has hurt buying power but if you own a home your housing expenses have stayed fix and other words inflation insurance…. Imagine having to take out about loan now because your ARM is up.
can we refinance arms? I know there is timing factor but that could give flexibility!
Ya of course you can refinance ARMs but only if the refinance rate is lower - that’s what happened in 08 people thought they could refinance but they couldn’t because rates went up
You're making it sound like ARM is a bad thing. An ARM loan is a bet on yourself. You have 3/5/7 years to get your shit together and refinance your loan to a fixed rate, or hope that the market rate drops from where it is currently.
Interest rate on Renting is always 100% my friends. If the only option for you to get into purchasing a home is ARM go for it.
Not sure I’ve made a decision yet if it’s good or bad. People are still adjusting to the fact they have to pay their own closing costs.
Hmmmm 🧐🧐🧐🧐 interesting. Wait for the housing crash or buy a house in the next months. By, December , I am going to have 20% down payment for a 350k house.
Learn about ARMS before doing a video and how they work. Your way off on most of it
Variable interest rates lol go fixed rate guys
Why do you want current home buyers to suffer so much??. Don’t know if you notice it but you preach it in every video.. Including this video
😏
ARMs are actually not as bad as people make them out to be. No one stays in their home for 30 years anymore. The average time, in my circle of friends, is maybe 5 years. I recommend ARMs to anyone who can qualify and has a plan of action. If it boils down to you renting and taking an ARM, 100% of the time, go with the ARM. It beats making your landlord richer any day. You also get to write off the interest, which helps lower taxable income.
You are just trying to find ways how to keep your channel 😄 you are totally a different individual then 3 months ago...
Where is your position of homes will never go lower???😅😅😅
Can you specify where I said “homes will never go lower”?
@@JavyVidana Javier, I sure can, I'm just not at the right place, let's be in touch in the near future, what about after the people who made the purchase of their life with the lowest %interest ever!, -2 75%, only to find out their property has devalued 30-40% and there will be no hopes to ever refinance...at the opposite people who will buy at 30-40% discounted prices would be able within a couple of years to refi and lower their discounted mortgage property payment?
It shouldn't be later then Apri-l October 2023
You bring solid non bias information - this guy trolling