Friday, October 06, 2006

ARMs - Kicking And Screaming

An interesting topic as of late in personal finance has been home mortgages. Especially, mortgages with adjustable rates or with ARMs that start out with fixed rate for a few years, and then adjustable rate kicks in. And when it does kick in, the consumer will be kicking and screaming on how high the rate is.

The housing market slowed down significantly, even here in Florida. It's not all that bad because of the baby boomers still moving here for their retirement. So, there will always be a demand for houses. But, not as much as in the past few years. Plus, older people prefer condos, which are built in every corner of Florida.

What will happen to all those people who bought houses with ARMs mortgages? Once their fixed rate expires, and they are forced to pay more per month, they will be forced to sell their houses. Yet, in a slowing housing market, they won't be able to. They will be forced to foreclose and lose their house.

Do I feel bad for these people who signed up for the ARMs mortgages? Somewhat. I don't feel bad for people who are stupid enough to sign on the dotted line, knowing the risks of adjustable interest rate. I do feel bad for people who didn't get the explanation of what will it mean when their adjustable rate kicks in - their mortgage payment will be significantly higher.

These people wanted to live in a house that they can't afford, i.e. not within their means. They enjoyed the good life for a while. Now, the reality sets in, as they figure out where to get more money for their monthly mortgage payment.

If only they bough a cheaper house, got a fixed mortgage rate, they wouldn't have these problems. But, why should they live in a smaller house, when they could 'buy' a bigger house? After all, a typical American's mentality is 'if I can get away with buying a bigger house right now, why should I worry about how I will pay for it later?' This is strikingly similar to the credit card mentality. Go figure?

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