Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (4024)	4/9/2004 1:30:17 PM
From: Tommaso	Read Replies (1) \| Respond to of 116555

I have been trying to figure out how Gross talked himself into that advice about ARMS, and the only thing I can see is that he has so much money himself that he is forgetting what it might mean to a family with a household income of $80,000 to be stuck with a $350,000 mortgage and find that over a three year period rates have risen by 6%. The only way his advice makes sense is if you are in a position to pay off the mortgage as soon as rates really start to rise. For most people, getting into an ARM is a very bad idea and Gross ought to have known better than to have said that.

To: mishedlo who wrote (4024)	4/9/2004 1:41:14 PM
From: Tommaso	Respond to of 116555

Actually I think what Gross is suggesting is a very short term mortgage as a way of obtaining very low-priced capital. Again, I think he is forgetting that not many people are in a position to pay off large loan in seven years--a loan several times their annual income. But I don't think he should have touched the subject at all, since he certainly didn't put in all the qualifications and warnings. I sometimes think that it would be smart for me to take out, say, a $250,000 fifteen-year mortgage on my house and put the money into energy trusts. But I don't think I will.

To: mishedlo who wrote (4024)	4/9/2004 2:14:44 PM
From: Canuck Dave	Respond to of 116555

Bill makes good sense if..... The borrower isn't running close to the edge of financial ruin. Unfortunately, a lot of ultra-leveraged consumers are totally dependent on cheaper and cheaper money. An ARM and a leg up would tip them over into insolvency. My son wants to buy a place and I keep telling him to wait until after the crash. March 2005? His real estate friend is of course painting the picture of "Buy now before the prices go higher again". How can you argue with someone who's been right for 3 years? CD

To: mishedlo who wrote (4024)	4/9/2004 2:28:48 PM
From: DOUG H	Respond to of 116555

The way for homeowners to borrow close to 1% is to finance their home via an adjustable rate mortgage geared to the short rate. I have an ARM who's index is 12 mo average of 1 yr T's. W/ margin, my rate is 4%. Those T's need to go to 3% AND be there 1 year before I match a 6% fixed rate. Till then, it's gravy over fixing now. I take the opposite view by recognizing that a 15-year mortgage, which is longer than most homeowner’s horizons anyway, comes with yields 50 basis points or lower than the 30-year alternative. This would be driven somewhat by household cash flow but if you could make the ratios work a shorter amortization period reduces LT risk to the lender and results in a better rate. Presently it appears to be around 1/2% better. monstermoving.monster.com