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<blockquote data-quote="BigBrownSanta" data-source="post: 458620" data-attributes="member: 11097"><p>I may be completely wrong on this, but my understanding of an ARM is that it allows someone to purchase a house that is more expensive than a person could normally afford by having a lower intial interest rate. The purchaser chooses this type loan to get a more affordable payment believing that their financial position will improve in the near future. At that point, they will sell the home or refinance with a more more conventional type loan with a standard interest rate. Many people get ARM loans because they do not plan to stay in the home for more than 3-5 years.</p><p></p><p>I think the part everyone is forgetting is the drop in property values. These people couldn't sell their homes for what they needed to pay off their loans, then the interest rates adjusted which put them upside down on their loan. You can't refinance a $300,000 loan with a $250,000 house.</p></blockquote><p></p>
[QUOTE="BigBrownSanta, post: 458620, member: 11097"] I may be completely wrong on this, but my understanding of an ARM is that it allows someone to purchase a house that is more expensive than a person could normally afford by having a lower intial interest rate. The purchaser chooses this type loan to get a more affordable payment believing that their financial position will improve in the near future. At that point, they will sell the home or refinance with a more more conventional type loan with a standard interest rate. Many people get ARM loans because they do not plan to stay in the home for more than 3-5 years. I think the part everyone is forgetting is the drop in property values. These people couldn't sell their homes for what they needed to pay off their loans, then the interest rates adjusted which put them upside down on their loan. You can't refinance a $300,000 loan with a $250,000 house. [/QUOTE]
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