Adjustable Rate Mortgages - Is it Doomsday for American Real Estate?
Tom Jandt
April 01, 2006
An Adjustable Rate Mortgage, or otherwise known as an A.R.M or Variable Mortgage, is a great financial tool for homeowners and investors. As a matter of fact, I have provided my services as a speaker on the topic, "How to Use Your Mortgage as a Financial Planning Tool". I use to illustrate ways to use interest only loans, ARMs, Reverse Mortgages and even 30 Yr. fixed rate loans in a financial plan.
Homeowners can use an Adjustable Rate Mortgage to finance their home or investment property, allowing for low monthly payments which makes it possible for those homeowners to put more money into investment savings, retirement, college savings or to even to pay down high interest rate debt.
However, even though over 60% of homes are financed with an A.R.M, no more than 10% of these homeowners are wisely investing the savings. Most of these homeowners are spending this money on vacations, new cars, clothes and other consumer discretionary items. This does not bode well for the economy if rates keep rising. As mortgage balances increase and savings decreases, an increase in monthly mortgage payment could be devastating to most borrowers in variable rate loans and foreclosures are going to soar.
I believe America will have the largest foreclosure rate in history over the next 10 years and the real estate crash in the United States will make the stock market "Dotcom Crash" of 2000-2001 look like a blip on the screen. Ironically, I believe this will make the stock market go back up and even make all time highs.
Up to a year ago when adjustable rates were very low, I was a big proponent of ARMs; however, I recently changed that view in light of the accelerated interest rate increases by the Fed. I anticipate double digit interest rates on "A" Paper 30 Yr Fixed Mortgage within 5-7 years. This huge increase in the long term rates will be due to the war in Iraq, the relief efforts from natural disasters and high oil & gas prices.
Gold is a good leading indicator of high inflation and when new money enters circulation that shows some signs of inflationary pressure as well. Take a look at a chart of Gold prices and then look in your wallet. Gold's near the highs and I bet your wallet has a new $10 or $50 in it. If both of these statements are valid, then look for rates to continue upward.
I am an investment professional, so my expertise is in creating and managing wealth, as well as utilizing various financing tools to increase cashflow and protect investments. I'm not an expert on specific mortgages, as I am more proficient on matters of economics, analyzing investments and predicting interest rate moves.
So, in order to allow my readers to have tools to analyze their risk and evaluate their current mortgage, I have partnered with a mortgage company to provide information and a website on my behalf for informational purposes. You can compare ARMs vs. Fixed Rate Loans and do calculations, etc...Just go to www.quickclosenow.com and compare your mortgage to Quick Close Now's 30 Year Fixed rate loan at 5.875%. Surely you're adjustable mortgage will be cheaper today, but then calculate how much your monthly payment will be if rates go up and you end up at 9% over the next 3 years, which is my estimate for 2009.
Tom Jandt
President
The Private Client Group
www.privateclient.org
Homeowners can use an Adjustable Rate Mortgage to finance their home or investment property, allowing for low monthly payments which makes it possible for those homeowners to put more money into investment savings, retirement, college savings or to even to pay down high interest rate debt.
However, even though over 60% of homes are financed with an A.R.M, no more than 10% of these homeowners are wisely investing the savings. Most of these homeowners are spending this money on vacations, new cars, clothes and other consumer discretionary items. This does not bode well for the economy if rates keep rising. As mortgage balances increase and savings decreases, an increase in monthly mortgage payment could be devastating to most borrowers in variable rate loans and foreclosures are going to soar.
I believe America will have the largest foreclosure rate in history over the next 10 years and the real estate crash in the United States will make the stock market "Dotcom Crash" of 2000-2001 look like a blip on the screen. Ironically, I believe this will make the stock market go back up and even make all time highs.
Up to a year ago when adjustable rates were very low, I was a big proponent of ARMs; however, I recently changed that view in light of the accelerated interest rate increases by the Fed. I anticipate double digit interest rates on "A" Paper 30 Yr Fixed Mortgage within 5-7 years. This huge increase in the long term rates will be due to the war in Iraq, the relief efforts from natural disasters and high oil & gas prices.
Gold is a good leading indicator of high inflation and when new money enters circulation that shows some signs of inflationary pressure as well. Take a look at a chart of Gold prices and then look in your wallet. Gold's near the highs and I bet your wallet has a new $10 or $50 in it. If both of these statements are valid, then look for rates to continue upward.
I am an investment professional, so my expertise is in creating and managing wealth, as well as utilizing various financing tools to increase cashflow and protect investments. I'm not an expert on specific mortgages, as I am more proficient on matters of economics, analyzing investments and predicting interest rate moves.
So, in order to allow my readers to have tools to analyze their risk and evaluate their current mortgage, I have partnered with a mortgage company to provide information and a website on my behalf for informational purposes. You can compare ARMs vs. Fixed Rate Loans and do calculations, etc...Just go to www.quickclosenow.com and compare your mortgage to Quick Close Now's 30 Year Fixed rate loan at 5.875%. Surely you're adjustable mortgage will be cheaper today, but then calculate how much your monthly payment will be if rates go up and you end up at 9% over the next 3 years, which is my estimate for 2009.
Tom Jandt
President
The Private Client Group
www.privateclient.org
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