Charlottesville Virginia Real Estate

The Washington Post has an article about fixed vs. variable mortgages that highlights a Charlottesville man.  The article notes a resurgence of fixed rate loans: 

In recent months, adjustable-rate loans have accounted for about 20 percent of all mortgage applications, after peaking at 36 percent during the height of the housing boom in early 2005, according to the mortgage bankers group.

I think that this is probably a very good trend.  I hear the stories in the news about deceptive mortgage practices and people losing their homes… fixed rate mortgages insulate people from a lot of that.  I have two thoughts about the issue of mortgage defaults and the fixed vs. variable debate. 

I’ve heard a couple of stories on NRP about people being thrown out of their homes after 25 years because they refinanced and couldn’t afford the new APR after it readjusted.  What that tells me, is that someone who should have already (or very nearly) completely paid for their house, opted instead for the instant gratification of sucking out all that equity and spending it now.  Those people chose to go to Europe or drive a new car, or something, rather than live within their means and when the house is paid for, live a little better with the money that previously went to servicing debt.  I don’t have a lot of sympathy for that.  If you had to pay medical bills or something like that, I understand.  If you just wanted more expensive toys, shame on you.  Don’t pilfer your future so you can drive the same car that your neighbor does.

My other thought about the fixed vs. variable debate is that you shouldn’t overlook the long ARM (5-7 years).  This can change day to day, but for one of the three mortgages I got, the 7 year ARM (locked for the first 7 years of the mortgage) was 2% less that the fixed.  I wasn’t sure how long I’d be in the home, but Americans buying homes are only likely to stay there for about 5 years.  I felt comfortable with 7 years and was reassured by knowing that I am early in my career and would likely be making considerably more money in 7 years anyway (That turns out to be false, but I thought it would be true at the time).  And I could always refinance along the way if it looked like a good time to do so.  I was talking this week to a coworker who had only heard of a 2 year ARM and was (rightly) hesitant.  The 5-7 year ARM may not be the best or even appropriate for everyone, but for me in 2005, it was best.

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