I know we have some posters who deal with mortgage

[John from Riverside]

I am going to feel like such a maroon if this is true because I have been paying on this citi corp equity biulder for over a year barely making it from month to month at 8.5 percent.....

 

I just got done talking to a lender who offered a different scenario to pay off my house early and drastically lower my payment.

 

- It is a 5 year fixed very low rate

- For instance (these are not the numbers)

-- My current payment is rouphly $680 every two weeks

-- With the new rate the amount per month is $700

-- I pay 1K per month so the extra $300 goes straight to principle

-- Since the payment per month is lower I also free up almost $400

-- I do this every 5 years.....with a promise in writing that I never pay

refinance charges....ever.

 

So wouldn't this pay my balance down just as quickly (or in that vicinity) as the loan I am now with more flexibility?

[stuckincincy]

I am going to feel like such a maroon if this is true because I have been paying on this citi corp equity biulder for over a year barely making it from month to month at 8.5 percent.....

 

I just got done talking to a lender who offered a different scenario to pay off my house early and drastically lower my payment.

 

- It is a 5 year fixed very low rate

- For instance (these are not the numbers)

-- My current payment is rouphly $680 every two weeks

-- With the new rate the amount per month is $700

-- I pay 1K per month so the extra $300 goes straight to principle

-- Since the payment per month is lower I also free up almost $400

-- I do this every 5 years.....with a promise in writing that I never pay

refinance charges....ever.

 

So wouldn't this pay my balance down just as quickly (or in that vicinity) as the loan I am now with more flexibility?

386684[/snapback]

 

Wow, who knows in that wacky California market. If you haven't done so, call all the banks (those that actually have buildings and branches) for some info. There is a huge trend afoot for the low monthly payment stuff, but AFAIK they are a variation of the balloon loan- pay the interest and then the Grim Reaper shows up legally demanding the principal after a few years.

 

Hopefully, somebody with experience in this will give you a reply.

[Crap Throwing Monkey]

-- I do this every 5 years.....with a promise in writing that I never pay

refinance charges....ever.

 

386684[/snapback]

 

I'd be highly skeptical of that. My wife does real estate closings and works with a lot of lenders, and I've heard plenty of horror stories about "ironclad" agreements like that being anything but. I know of one buyer who purchased a luxury condo with a $600k bridge loan (i.e. due in full in six months) from a lender that promised her in writing that she'd qualify for a 30-yr mortgage before the six months was up. Six months later, the lender took her condo.

 

Now that I give it more thought, I can actually think of a lot of ways that promise of no refi charges is bull sh--, in writing or no. For example: technically, even if a written agreement is binding the first time you refinance, it's probably not the second time, since it would likely originally bind to your first loan, not your second (first refi). Ergo, you'd need a new agreement every time you refinance...and there's no promise of THAT, is there?

[Crap Throwing Monkey]

Wow, who knows in that wacky California market. If you haven't done so, call all the banks (those that actually have buildings and branches) for some info. There is a huge trend afoot for the low monthly payment stuff, but AFAIK they are a variation of the balloon loan- pay the intrest and then the Grim Reaper shows up legally demanding the principle after a few years.

386693[/snapback]

 

That's another thing...sounds like an interest-only loan. Those are bad news for most people...you start out paying interest only, but after a few years you suddenly have to pay the principal, and your payments go WAY up. I know a few people who lost their houses on that, too, after the lenders told them "This is the only way you can afford the loan...but don't worry, you'll be able to afford it when the principal comes due."

 

I'm actually waiting a few years to buy a house, because everyone in this overheated DC market is buying with interest-only loans. In about three years, they'll all suddenly find they can't afford their payments. In about four years, there's going to be a glut of foreclosures...

[HopsGuy]

I am not a homeowner, but since this is a mortage thread I thought I'd supply a link to a market blogger. Today he wrote about the housing bubble and an interesting WSJ article.

 

I have heard many times over that Interest Only mortgages are for RE flippers, not for middle-class homeowners. ARMs entice you with what appear to be low monthly payments, but the FED seems to be intent on raising rates to offset the 'inflation' that high oil prices will set-off. (Yes, I know that inflation is actually an increas in money supply, but most see the word inflation and think 'higher prices' which is what they'll get anyway).

 

In short, I have no advice for you.

 

[John from Riverside]

I'd be highly skeptical of that.  My wife does real estate closings and works with a lot of lenders, and I've heard plenty of horror stories about "ironclad" agreements like that being anything but.  I know of one buyer who purchased a luxury condo with a $600k bridge loan (i.e. due in full in six months) from a lender that promised her in writing that she'd qualify for a 30-yr mortgage before the six months was up.  Six months later, the lender took her condo. 

 

Now that I give it more thought, I can actually think of a lot of ways that promise of no refi charges is bull sh--, in writing or no.  For example: technically, even if a written agreement is binding the first time you refinance, it's probably not the second time, since it would likely originally bind to your first loan, not your second (first refi).  Ergo, you'd need a new agreement every time you refinance...and there's no promise of THAT, is there?

386694[/snapback]

 

 

Well...they will certainly have to agree to it before I sign anything......

[John from Riverside]

That's another thing...sounds like an interest-only loan.  Those are bad news for most people...you start out paying interest only, but after a few years you suddenly have to pay the principal, and your payments go WAY up.  I know a few people who lost their houses on that, too, after the lenders told them "This is the only way you can afford the loan...but don't worry, you'll be able to afford it when the principal comes due."

 

I'm actually waiting a few years to buy a house, because everyone in this overheated DC market is buying with interest-only loans.  In about three years, they'll all suddenly find they can't afford their payments.  In about four years, there's going to be a glut of foreclosures...

386697[/snapback]

 

 

If it is an interest only loan I will keep looking for the right solution....somebody is going to have a hard time selling me an interest only loan when I want to pay off my house early.

[stuckincincy]

In about four years, there's going to be a glut of foreclosures...

386697[/snapback]

Likely less than 4 years. Greenspan spoke to the issue a month or two ago. These interest-only purchases (they are something like 30 to 40% of all transactions these days IIRC) are like a swelling zit on a teen, biding it's time until it pops and spews the pus.

[erynthered]

I am not a homeowner, but since this is a mortage thread I thought I'd supply a link to a market blogger.  Today he wrote about the housing bubble and an interesting WSJ article.

 

I have heard many times over that Interest Only mortgages are for RE flippers, not for middle-class homeowners.  ARMs entice you with what appear to be low monthly payments, but the FED seems to be intent on raising rates to offset the 'inflation' that high oil prices will set-off.  (Yes, I know that inflation is actually an increas in money supply, but most see the word inflation and think 'higher prices' which is what they'll get anyway).

 

In short, I have no advice for you.

 

386710[/snapback]

 

 

You just hit a One Iron, nice work.

[IDBillzFan]

John, this has bad written all over it. No one should make you go back to them every five years, regardless of the circumstances.

 

You could go to my credit union right now and refinance to a three-year fixed rate adjustable loan at 5.125% and ALREADY you're saving money over your 8.5%. And that's with no points. If you pay one point, the rate drops to 4.85 percent...almost four percentage points below your current mortgage.

 

Plus, if you need to, the bank will roll your closing costs into the loan and you just pay for things like credit check.

 

Consider if you're carring a $180K 30-year loan at 8.5%, your mortgage payment is approximately $1384/month. But at 4.85% your payment drops to about $950, saving you over $430/month. And you're in Hemet, so your mortgage is probably quite a bit higher than that.

 

You don't need a magician to do this for you. Just a good bank.

[Crap Throwing Monkey]

Well...they will certainly have to agree to it before I sign anything......

386712[/snapback]

 

I don't know that it matters. Regardless of what they agree to, what the note says itself should supercede it. Ergo, they can say "Yeah, sure, whatever you want...", even in writing, and if the note you sign or the Deed of Trust on file with the county say something else, you're screwed. Just because they agree to it, it doesn't mean they're legally bound by it.

 

Unfair? Sure. Slimy? You bet. Welcome to mortgage banking.

 

If you're going to do something like that, get yourself a good real estate attorney to go over the loan and the side agreement carefully. And even then, don't count on your lawyer's knowledge; another thing I've learned from watching my wife is that there's FAR more bad real estate attorneys out there than good ones. Ultimately, what it'll likely come down to is whether or not you think the risk of their welching on the agreement is less than the potential reward you get out of it - but if you do accept it, be prepared for your lender to screw you over at some point down the line.

[Alaska Darin]

No one should EVER pay someone to help them make an extra mortgage payment every year. There's no magic to banking. They are all in it to make money and there's a reason they have the largest buildings in each town - they're alot better at using YOUR money than YOU are.

 

In this day and age, unless you have a credit score in the teens (kidding, but only a little), there's little reason to be paying over 5.5% mortgage. In that scenario and at that rate or lower, it's VERY BAD financial planning to pay down a mortgage. The extra money you put toward the principle on your house would work much harder in a variety of other investment vehicles.

 

Everyone who's eligible should be funding a ROTH IRA as fully as they can afford.

[Crap Throwing Monkey]

Likely less than 4 years. Greenspan spoke to the issue a month or two ago. These interest-only purchases (they are something like 30 to 40% of all transactions these days IIRC) are like a swelling zit on a teen, biding it's time until it pops and spews the pus.

386717[/snapback]

 

Around here, they've only been in vogue for about a year, and most of them start adding in principal after five years. Five minus one is...four. 2008-2009, the DC market should start seeing a LOT of foreclosures, since most of these people won't even be able to afford to sell their houses, since they'll have no equity built up and will have to shell out cash at the table to pay the fees.

 

Greenspan today was talking about low interest rates and the relatively easy availability of money fuelling the price inflation in the housing market. Interest-only loans are only a symptom, and a secondary one at that. Regardless, most of the people who've bought long-term with them are going to get kicked in the balls before 2010.

[stuckincincy]

Regardless, most of the people who've bought long-term with them are going to get kicked in the balls before 2010.

386728[/snapback]

Colorfully put.

[Live&DieBillsFootball]

I've been amazed at the number of people doing interest-only mortgages. There's probably a case for them with a few people, but so many are doing it to leverage the hell out of their real estate. I mostly worry about the inevitable bubble bursting. We already went through the savings and loan debacle that cost taxpayers billions. What is going to happen if long term rates rise quickly and housing prices start to go south?

[RunTheBall]

QUOTE(Alaska Darin @ Jul 20 2005, 08:30 PM

 

In this day and age, unless you have a credit score in the teens (kidding, but only a little), there's little reason to be paying over 5.5% mortgage. In that scenario and at that rate or lower, it's VERY BAD financial planning to pay down a mortgage.

 

[right)

386724[/snapback]

 

This depends on what type of mortgage you're looking at. Mortgage rates are still great historically but you aren't looking at 30 yr fixed rates below 5.5% without excellent credit.

 

RTB

[SDS]

The winner here is our frozen friend in the far NW....

 

Read this for some sensible advice on your mortgage:

 

http://www.ricedelman.com/planning/home/rule21.asp

 

Paying off your mortgage doesn't qualify as stupid, but it isn't the best thing to do with that money either. You want to create wealth, not eliminate debt.

 

I bought my house with a 30 yr. mortgage and refinanced with a fixed interest only 7 year arm (w/ an option to pay the variable rate in years 8, 9, and 10). So CTM can have my house in 6 years...

 

The key is what you do with that money that you are "saving". If you invest that wisely, interest only loans can be your friend...

[stuckincincy]

I've been amazed at the number of people doing interest-only mortgages.  There's probably a case for them with a few people, but so many are doing it to leverage the hell out of their real estate.  I mostly worry about the inevitable bubble bursting.  We already went through the savings and loan debacle that cost taxpayers billions.  What is going to happen if long term rates rise quickly and housing prices start to go south?

386734[/snapback]

 

There seems two or three things when the market adjusts. Homeowners who have conventional (be they fixed or ARM) contracts will see resale values fall - they will keep their domicile and perhaps kick themselves for not cashing in beforehand, but their roof will still be over their heads.

 

I'm not sure, but I think a lot of the iffy mortgage money is outside of the F.D.I.C. So me in Ohio won't take a whack if the MA, CA, FL, etc. folks get the knife to the throat. I could be completely wrong here.

 

The folks with the interest-only stuff will get possibly/likely get killed or will have to sign on to unfavorable terms from the swooping vultures (and the interest-only people are not all sharpies or flippers - a goodly number of decent folks who wanted to do good for themselves and their loved ones did these - it will be tragic to see those people get swatted).

 

Any State and the subsidiary counties and municipalities that feed off of property taxes, that hasn't re-assessed property values before a bust will go absolutely ape. Most already have re-assessed, and you will earn a Nobel Prize in 10 fields before they roll back a dime.

 

But since they make the laws, they will find a way to peel any shortfall out of the general public's hide. Good luck finding a politician who will stop that, unless you would enjoy the jawboning from one running for election who in any event will tell you more lies than a high school guidance counselor and do squat once he feeds at the public trough.

 

But I'm optimistic!

[Crap Throwing Monkey]

The key is what you do with that money that you are "saving".  If you invest that wisely, interest only loans can be your friend...

386749[/snapback]

 

Problem is, most people aren't. The wife hears a lot of justifications for interest only loans along the lines of "Well, I couldn't afford the house otherwise." That's BAD risk management...they're basically betting a house against the odds that they make significantly more money in 5 years.

 

Your situation, as I recall, was different. As I recall, you refinanced to an interest only loan so you could put the money you saved into other investment vehicles. Personally, even were I in your situation I still wouldn't touch an interest only loan...but I can't say you're going to be foreclosed on for it either. Bottom line is that, while I disagree with your decision, that doesn't mean I think you're abusing it like so many people are these days.

[SDS]

Problem is, most people aren't.  The wife hears a lot of justifications for interest only loans along the lines of "Well, I couldn't afford the house otherwise."  That's BAD risk management...they're basically betting a house against the odds that they make significantly more money in 5 years. 

 

Your situation, as I recall, was different.  As I recall, you refinanced to an interest only loan so you could put the money you saved into other investment vehicles.  Personally, even were I in your situation I still wouldn't touch an interest only loan...but I can't say you're going to be foreclosed on for it either.  Bottom line is that, while I disagree with your decision, that doesn't mean I think you're abusing it like so many people are these days.

386759[/snapback]

 

true. all very true.

 

The link I referenced also talks about using the old debt ratios (21% and 28%), not the new 28% and 35%. My issue is that I keep getting laid off.

 

If I get a couple years in and I feel more secure about my emplyment, I'll revisit rates and see if 30 yrs doesn't make sense. Right now, I'm getting the itch, but 1 yr into the job just isn't enough. I'll wait until I get that clearance 1st,

[stuckincincy]

Problem is, most people aren't.  The wife hears a lot of justifications for interest only loans along the lines of "Well, I couldn't afford the house otherwise."  That's BAD risk management...they're basically betting a house against the odds that they make significantly more money in 5 years. 

 

Your situation, as I recall, was different.  As I recall, you refinanced to an interest only loan so you could put the money you saved into other investment vehicles.  Personally, even were I in your situation I still wouldn't touch an interest only loan...but I can't say you're going to be foreclosed on for it either.  Bottom line is that, while I disagree with your decision, that doesn't mean I think you're abusing it like so many people are these days.

386759[/snapback]

 

There are myriad ways to fiddle around with tangibles to maximize returns, but as you imply, the roof over your head should be not be up for grabs if you err or outside circumstances come into play.

[Live&DieBillsFootball]

The winner here is our frozen friend in the far NW....

 

Read this for some sensible advice on your mortgage:

 

http://www.ricedelman.com/planning/home/rule21.asp

 

Paying off your mortgage doesn't qualify as stupid, but it isn't the best thing to do with that money either.  You want to create wealth, not eliminate debt.

 

I bought my house with a 30 yr. mortgage and refinanced with a fixed interest only 7 year arm (w/ an option to pay the variable rate in years 8, 9, and 10).  So CTM can have my house in 6 years...

 

The key is what you do with that money that you are "saving".  If you invest that wisely, interest only loans can be your friend...

386749[/snapback]

 

What this guy says makes a lot of sense as far as using "other people's money" to accumulate wealth. This makes a good argument for interest-only mortgages as long as home values continue to rise.

 

The danger that I see in interest-only mortgages is that a lot of the people doing it are causing home prices to keep going up as people are willing to take larger and larger mortgages in order to buy a house. The big problem occurs if the housing market turms south and people have to sell and have negative equity in their homes.

[Alaska Darin]

The winner here is our frozen friend in the far NW....

 

Read this for some sensible advice on your mortgage:

 

http://www.ricedelman.com/planning/home/rule21.asp

 

Paying off your mortgage doesn't qualify as stupid, but it isn't the best thing to do with that money either.  You want to create wealth, not eliminate debt.

 

I bought my house with a 30 yr. mortgage and refinanced with a fixed interest only 7 year arm (w/ an option to pay the variable rate in years 8, 9, and 10).  So CTM can have my house in 6 years...

 

The key is what you do with that money that you are "saving".  If you invest that wisely, interest only loans can be your friend...

386749[/snapback]

Thanks for finding an article to save me a ton of typing. There's alot that can be added to what that guy said, but his advice is pretty much dead on.

 

DON'T TRY AND PAY OFF YOUR FRIGGIN' HOUSE EARLY!

[Fan in San Diego]

Around here, they've only been in vogue for about a year, and most of them start adding in principal after five years.  Five minus one is...four.    2008-2009, the DC market should start seeing a LOT of foreclosures, since most of these people won't even be able to afford to sell their houses, since they'll have no equity built up and will have to shell out cash at the table to pay the fees.

 

Greenspan today was talking about low interest rates and the relatively easy availability of money fuelling the price inflation in the housing market.  Interest-only loans are only a symptom, and a secondary one at that.  Regardless, most of the people who've bought long-term with them are going to get kicked in the balls before 2010.

386728[/snapback]

 

Sell in the year 2008 !

[Stussy109]

That's another thing...sounds like an interest-only loan.  Those are bad news for most people...you start out paying interest only, but after a few years you suddenly have to pay the principal, and your payments go WAY up.  I know a few people who lost their houses on that, too, after the lenders told them "This is the only way you can afford the loan...but don't worry, you'll be able to afford it when the principal comes due."

 

I'm actually waiting a few years to buy a house, because everyone in this overheated DC market is buying with interest-only loans.  In about three years, they'll all suddenly find they can't afford their payments.  In about four years, there's going to be a glut of foreclosures...

386697[/snapback]

 

If and when they foreclose, you will still have to pay their remaining debt and back taxes. Basically what they paid for the house now. Why not buy now? In addition, people bid up the foreclosures to slightly under current market value. Basically you have to be lucky to be in a bidding situation with nobody bidding against you.

[Stussy109]

No one should EVER pay someone to help them make an extra mortgage payment every year.  There's no magic to banking.  They are all in it to make money and there's a reason they have the largest buildings in each town - they're alot better at using YOUR money than YOU are.

 

In this day and age, unless you have a credit score in the teens (kidding, but only a little), there's little reason to be paying over 5.5% mortgage.  In that scenario and at that rate or lower, it's VERY BAD financial planning to pay down a mortgage.  The extra money you put toward the principle on your house would work much harder in a variety of other investment vehicles.

 

Everyone who's eligible should be funding a ROTH IRA as fully as they can afford.

386724[/snapback]

 

Very good advice...Most people prefer the risk free gains though. "I'm guanranteed to make 5.5% on my extra $1,000 payment i make" vs. making 10% in the market over ten years. I find myself to be a lot like this guy, I hate having debt over my head, so I try to pay everything off as quickly as possible. Something my father taught me as good financial mgt., basically if you can't afford to buy it outright, you should not be buying it. In this day in age, its' tough, but it still flows through my blood. I'm debating on whether to buy a home in southern Nj area where real estate is "hot." Sick and tired of renting and having landlords, and eventually have to plant my feet somewhere. WIth rates at 5.5% its hard to not want to buy.

[BEAST MODE BABY!]

Here's what people who are interested in making money should do. Study the foreclosure market and learn how to do short sales. Right now in the hot markets you probably can't do them...however, when things go south you'll make a boat load of money and save lots of people from having a foreclosure on their record.

 

 

Something else to look at are making payments bi-monthly. Unless you have some funky mortgage or trust deed (ain't no mortgages out here in the west), paying 50% of your payment twice a month can have huge benefits. In some instances, it can turn a 30 year mortgage into a 22 year mortgage.

[Stussy109]

Here's what people who are interested in making money should do. Study the foreclosure market and learn how to do short sales. Right now in the hot markets you probably can't do them...however, when things go south you'll make a boat load of money and save lots of people from having a foreclosure on their record.

Something else to look at are making payments bi-monthly. Unless you have some funky mortgage or trust deed (ain't no mortgages out here in the west), paying 50% of your payment twice a month can have huge benefits. In some instances, it can turn a 30 year mortgage into a 22 year mortgage.

386875[/snapback]

 

any advice n a good website for foreclosures, I get a kot of advertisements/junk email about them, all require a fee, which is worth the $?

[Alaska Darin]

Something else to look at are making payments bi-monthly. Unless you have some funky mortgage or trust deed (ain't no mortgages out here in the west), paying 50% of your payment twice a month can have huge benefits. In some instances, it can turn a 30 year mortgage into a 22 year mortgage.

386875[/snapback]

Terrible advice. Go back and read the thread.

[Alaska Darin]

Very good advice...Most people prefer the risk free gains though.  "I'm guanranteed to make 5.5% on my extra $1,000 payment i make" vs. making 10% in the market over ten years.  I find myself to be a lot like this guy, I hate having debt over my head, so I try to pay everything off as quickly as possible.  Something my father taught me as good financial mgt., basically if you can't afford to buy it outright, you should not be buying it.  In this day in age, its' tough, but it still flows through my blood.  I'm debating on whether to buy a home in southern Nj area where real estate is "hot."  Sick and tired of renting and having landlords, and eventually have to plant my feet somewhere.  WIth rates at 5.5% its hard to not want to buy.

386874[/snapback]

It's not a risk free gain. There are plenty of investments out there that are as safe as a home without the risk of having to move from where you live to get your money. SDS' link is VERY sound financial advice.

 

As I recommend to everyone who's willing to listen, get an emergency fund together in a safe place like INGDirect.com (3% return), but NEVER (and I mean NEVER) pay extra on your mortgage. You're costing yourself a ton of money down the road. An amazing amount.

[Albany,n.y.]

The one thing the article completely fails to address is that you want your mortgage paid by the time you retire. He states a mortgage is a loan on your income. When you retire, your income drops-so your best choice is to have your housing cost go down, not up. If you're still paying a mortgage at retirement, your housing cost is rising because taxes always go up. He completely ignored this issue.

Also, a 30 year unpaid mortgage isn't a good thing if you buy later than the average purchaser. I was almost 50 when I bought my 1st house. Having a 30 year loan was a guarantee that I would be carrying a mortgage well past retirement. I chose a 15 year mortgage to coincide with my anticipated retirement.

[SDS]

The one thing the article completely fails to address is that you want your mortgage paid by the time you retire.  He states a mortgage is a loan on your income.  When you retire, your income drops-so your best choice is to have your housing cost go down, not up.  If you're still paying a mortgage at retirement, your housing cost is rising because taxes always go up.  He completely ignored this issue.

Also, a 30 year unpaid mortgage isn't a good thing if you buy later than the average purchaser.  I was almost 50 when I bought my 1st house.  Having a 30 year loan was a guarantee that I would be carrying a mortgage well past retirement.  I chose a 15 year mortgage to coincide with my anticipated retirement.

386907[/snapback]

 

 

you missed the point of the article. The object is to accumulate wealth, not eliminate debt. Tiger Woods doesn't care if he has a $20M mortgage because Tiger Woods has accumalated enough wealth to handle his debt.

 

So, all that money you have invested becomes your income when you retire. Remember these are EXTRA investments (in leiu of paying off your mortgage). This money can then be used to pay your bills. You can't pay your bills if you stuffed the money in the walls of your house.

[Fan in Chicago]

you missed the point of the article.  The object is to accumulate wealth, not eliminate debt.  Tiger Woods doesn't care if he has a $20M mortgage because Tiger Woods has accumalated enough wealth to handle his debt.

 

So, all that money you have invested becomes your income when you retire.  Remember these are EXTRA investments (in leiu of paying off your mortgage).  This money can then be used to pay your bills.  You can't pay your bills if you stuffed the money in the walls of your house.

386929[/snapback]

 

I think the point he was making was to have a healthy cash flow. In businesses, that is the top of all evaluations.

To the original poster, I suggest you put all the numbers in a spreadsheet and see how that compares to your current deal. Also, consider fixed interest home equity loans to pay off your credit card debt. It offers a lower interest rat &, may be tax deductible. Finally, to use a cliche, don't get into schemes that put more money in your pocket now simply so you can spend it. Sounds corny and cliched but this simple truth goes a long way - controlling expenses to match your income is the only way to long term financial stability (see cash flow statement above).

[Rubes]

Wow, that was a great article. I was very skeptical, but he did a pretty convincing job.

 

I'm afraid I still don't have the balls to go out and refinance, though.

[IDBillzFan]

Holy crap. That article was great.

[Crap Throwing Monkey]

If and when they foreclose, you will still have to pay their remaining debt and back taxes.  Basically what they paid for the house now.  Why not buy now?  In addition, people bid up the foreclosures to slightly under current market value.  Basically you have to be lucky to be in a bidding situation with nobody bidding against you.

386873[/snapback]

 

Back taxes, only if there's liens on the property for it (often, but not always). Remaining debt...no, unless there's something on there senior to the foreclosing note. But if a $200k note is foreclosing and you bid $150k on the property, you're not responsible for the remaining $50k.

 

Which is beside the point anyway. My point was that, once all these properties start hitting the market, it'll be much less a sellers' market and more a buyers'. Even if you don't buy at foreclosure (I probably wouldn't, unless I identified a REAL good deal), the sudden glut of supply will tend to drive down prices. That's actually already starting to happen in the townhouse market here; because people are taking advantage of low interest rates to buy single family homes rather than townhouses, it's tough to sell a townhouse. There's three in my development that have each gone for $75k under asking price the past several weeks, and I know of six more in a development down the street that have already come down $50-100k from the original ask with no takers...

[todd]

SDS is right, however there are other reasons to go with a interest-only loan. First, you can deduct that interest from your taxes. Of course, you'd need to balance how much this would save you by looking at your housing payment vs. your income.

 

Interest-only loans are also good if you are in a housing market where you can quickly build equity simply by the value of housing going up alone. I'm not sure this is the case any more given the bubble.

 

In some cases, interest only loans are banks trying to maximize profits while they can before they have to forclose on a ton of properties once the bubble bursts. Banks don't make much $$ on forclosures. They make more $$ on paid interest.

 

I bought my house with a 30 yr. mortgage and refinanced with a fixed interest only 7 year arm (w/ an option to pay the variable rate in years 8, 9, and 10).  So CTM can have my house in 6 years...

 

The key is what you do with that money that you are "saving".  If you invest that wisely, interest only loans can be your friend...

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[Alaska Darin]

Wow, that was a great article. I was very skeptical, but he did a pretty convincing job.

 

I'm afraid I still don't have the balls to go out and refinance, though.

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Why not? What's stopping you?

[John from Riverside]

Here's what people who are interested in making money should do. Study the foreclosure market and learn how to do short sales. Right now in the hot markets you probably can't do them...however, when things go south you'll make a boat load of money and save lots of people from having a foreclosure on their record.

Something else to look at are making payments bi-monthly. Unless you have some funky mortgage or trust deed (ain't no mortgages out here in the west), paying 50% of your payment twice a month can have huge benefits. In some instances, it can turn a 30 year mortgage into a 22 year mortgage.

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This was exactly what I was TRYING to get into......2 payments a month that added up to the same as one payment at the first of the month....

 

The problem is that it really isnt biweekly....its every 2 weeks which means more payments. And the interest rate sucks.....

 

Are you talking about a different kind of loan?

[gantrules]

Great article.

 

The only caution I have is that he didn't take PMI in to account and the example of Ed would decrease the amount of savings he would have if he was only putting 5% down, and PMI isn't tax deductible if you pay it on a monthly basis.That brings his net "savings" down to about 113 per month. That's where the borrower would have been better putting 10% down on a 30 year term and getting single premium PMI, financing it and having the write off on both your mortgage and your PMI. Freddie will not allow you to exceed a LTV of 95% with your MI policy so therefore you have to put at least 7-10% down in order to finance your PMI That would be the most effective use of down payment money while being able to invest wisely.