10/5    Just read in an article in today's WSJ that 10-15% of new mortgages
        today are interest only ARM, and the percentages are even higher
        in regions where housing prices have soared.  After say 5 years,
        these people would suddenly face much higher payments due to the
        principle payments kicking in and potentially higher interest
        rates.  It uses an example of a $350k loan where the home owner
        currently pays about $1900 monthly but would have to pay about
        $3700 when the principle kicks in and assuming a higher interest
        rate of 7%.  Historically, the percentage of these interest only
        loan is about 2% of total number of loans, and most of it is used
        by very well-off people for tax / invesment purposes, but now it
        is often used to entice people to buy a bigger house than they
        can afford.
        \_ And in the Bay Area the precentage is quite a bit higher, like
           30% and even higher in The City, like 60%
        \_ And in California the precentage is quite a bit higher, like
           50% and even higher in The City, like 60%
           \_ Overall in the Bay Area it's about 65% for ARM, but I do not
              know what percentage of that is interest-only.
              \_ Oops, misread it. I thought you meant all ARMs.
        \_ Statistically, the average stay of a first house is about 3.5 yrs.
           Getting a ARM for your first house makes sense.  There's no
           point of paying more interest for a 15 yr loan when you know
           you won't stay for more than 5 years on your first house.
           \_ with big bubbles and its aftermath, you can throw history out
              the window.
              the window.  there's this thing called negative equity.
           \_ Most people keep their house for 7 years before selling.
                \_ If that's the case a 5yr ARM and a 15 year fixed are
                   same.
               \_ First time home buyers keep theirs shorter, especially
                  those who buy condos and townhouses.
        \_ Can these people refinance after 5yrs and get a new interest-only
           ARM?
           \_ Yes.
        \_ I get a 15yr fixed mortgage when I bought my first home 4yrs ago.  I
           guess I'm conservative compared to the average Bay Area homeowner.
           \_ I got a 30yr fixed when I bought our first house last year (and
              am Bay Area).  I guess I'm more conservative than you.
              Well... poorer, I guess.
           \_ I got a 30 year fixed too when I bought my house 2 years ago
              in the south bay. Often loan agents advocate ARM because if
              everyone gets 15/30 year fixed, then they will have less business.
        \_ the problem  with this is if housing prices collapse, these people
           will be completely and royally screwed as they wont even be able to
           sell the house to recover the mortgage debt.
           \_ I recently met a dude from HK who said he still has a condo in
              HK with negative equity.  The price got halved after they
              bought it a few years ago.
              HK with negative equity.  The price got halved after he and his
              wife bought it a few years ago.
              \_ And if he bought in Bumfuck, Arkansas, it would have cost
                 1/20th as much, been 5x larger and the price wouldn't have
                 changed at all.  So?
                 \_ that's not the point.  the point is he and his wife
                    would rather have bought after the price came down.