Thursday, November 8, 2007

"Historically Low 30-Year Fixed Mortgage Rates."

What part of Historically Low didn't they understand?

There is a lot of revisionist history going on. The now accepted wisdom that housing prices started to slump two or three years ago. I swear to God that most mainstream media would barely hint that there was a bubble as of just this last summer.'s as if they always knew.

The other is that house buyers were tricked -- duped I tell you! -- into accepting Adjustable Rate Mortgages.

Linda and I bought our house in early 2004. We'd had all the elements together before that, but we'd just opened the BookMark in Sept. 2003, and I wanted a few months of business under our belt. Finally, around January, I was ready.

One of the reasons I was ready was because the words "historically low" were being bandied about. I was leery of becoming house poor. I was willing to pay a higher percentage of our income on mortgage than was recommended, because I've ALWAYS spent more on housing than was recommended. But I wasn't willing to become a slave to my house.

But when we started looking, I knew that I was going to do it the tried and true method of my parents and their parents before them. Fixed mortgages, for a house I was planning to live in.

I never even considered an ARM.

In fact, I was shocked by a young guy in my store who was going to buy a 'cottage' on Columbia, (800 sq. ft. that cost exactly the same as the 1550 sq. ft. house we bought) who announced he was doing an ARM.

"Are you going to live in the house? Are you planning on staying?"

He said yes, but thought he could get even better rates down the road.

Maybe, maybe not. It a frakken gamble. If you're a flipper, and you buy on an ARM and you think housing prices will rise and you think you can sell the house before the ARM sets in....then maybe.

I'm certain that quite a few people did just that, and came away with a bundle. But it's still a frakken gamble. If you tell me that people win big bucks by betting black on the roulette wheel, that still doesn't mean its a good idea.

My thinking was, that once the rates hit 'Historically Low' that the chances were that they might go down a tiny bit, but were much more likely to go back up. That the tiny bit they might go down would cost more to renegotiate than I'd save. The term isn't Adjustable Down Rate Mortgage, after all, adjustable goes both ways.

As it turned out, we were very lucky. We bought our house on almost the last possible month we could've bought our house. We couldn't buy a house today, even with the same credit history, down payment and income.

One thing I have learned in my business. If you are a newbie, it's best to go by tried and true methods until you figure out all the angles. It's also best to do at least a little research. And to lock into the lowest price and rates possible.

Here's a bit of advice. If you can't afford the terms today, it is simply a gamble to assume you can afford the terms in a couple of years. I find that not only is it usually not easier a few years down the road, but usually -- life being what it is -- it is much harder.

When I started my business, I was immediately offered a 'bubble' lease (interesting term that had slightly different connotations back then) at the Mountain View mall. First year FREE, with increased payments in the second year on. I was just getting settled, feeling overwhelmed, so I declined.

Later, when I did a second store in the MT. View mall, I saw store after store crumble under bubble leases. The mall just wanted to fill up and sell out. Which they did several times before the banks finally put their foot down and said, no more deals. (Which was the beginning of the end.)

Anyway, I'll repeat. If you can't afford the terms now, don't assume you can afford the terms later.

If you can't understand the difference between Historically Low and Adjustable Rates, you shouldn't be driving heavy machinery or procreating, much less buying a house.

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