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Up in ARMs

May 16th, 2008 at 02:43 pm

We have an ARM and our interest rate will readjust at the beginning of June. Although many people have gotten burned by ARMs we have done well. There was actually a strategy behind the ARM, and it paid off for us.

We bought our house 11 years ago when we were both working. The strategy was to pay down the ARM during the first three years before it adjusted. When it adjusted our payment would be lower. As we paid down more and more it would enable us to live on one income.

We were able to do this, and I think the following is why:
* We bought a relatively small, inexpensive (for our area) house. The bank was willing to give us about twice the mortgage that we ended up with, but I didn't want to be tied to my corporate job forever.
* Our mortgage is through a credit union. There has been no upheaval with the mortgage being sold to another entity. I've heard all kinds of horror stories about what happens when loans get sold.
* We actually DID pay down the mortgage during the first three years, and have paid more to the principle since then. Our contract includes language that allows us to pay extra towards the principle and pay off the mortgage early with no penalty.
* With nine different rate adjustments (including the upcoming one) only two have been higher than the initial loan rate. The rest have been lower, including one year during which the rate was almost four percent lower than the initial rate. This was totally outside our control and was just good fortune on our part.
* We did not tap into our equity with a line of credit.

Most of the time our financial strategy feels like a house that people added to randomly. There are doors that open up to walls, rooms with no windows and a porch you can't get to from the inside of the house. But our ARM strategy is a nice, comfortable living room.

4 Responses to “Up in ARMs”

  1. dtjunkie Says:

    Awesome to hear!!! I'm glad you had something positive to say about this loan product.

  2. aevans1206 Says:

    I don't think ARMs are necessarily bad if you have a handle on your finances or use them for a specific purpose. People, however, do not plan for the increase or use them properly. They use them as a temporary fix (as I certainly would have done before I got control of myself). Good for you! Gives me hope in mankind!

  3. creditcardfree Says:

    Excellent! I had never thought of that strategy. It is something I may consider with our next home. We are military beginning to move every few years. Why pay for fixed if you get can lower rates for the few years we would live in a home.

  4. Carolina Bound Says:

    I bought my house with an ARM, but refinanced as quickly as I could to a fixed-rate mortgage. Rates were still good, but it gave me peace of mind.

    Glad your ARM is working out well for you, and I hope it continues!

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