John from Riverside Posted July 20, 2005 Share Posted July 20, 2005 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? Link to comment Share on other sites More sharing options...
stuckincincy Posted July 20, 2005 Share Posted July 20, 2005 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. Link to comment Share on other sites More sharing options...
Crap Throwing Monkey Posted July 21, 2005 Share Posted July 21, 2005 -- 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? Link to comment Share on other sites More sharing options...
Crap Throwing Monkey Posted July 21, 2005 Share Posted July 21, 2005 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... Link to comment Share on other sites More sharing options...
HopsGuy Posted July 21, 2005 Share Posted July 21, 2005 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. Link to comment Share on other sites More sharing options...
John from Riverside Posted July 21, 2005 Author Share Posted July 21, 2005 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...... Link to comment Share on other sites More sharing options...
John from Riverside Posted July 21, 2005 Author Share Posted July 21, 2005 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. Link to comment Share on other sites More sharing options...
stuckincincy Posted July 21, 2005 Share Posted July 21, 2005 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. Link to comment Share on other sites More sharing options...
erynthered Posted July 21, 2005 Share Posted July 21, 2005 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. Link to comment Share on other sites More sharing options...
IDBillzFan Posted July 21, 2005 Share Posted July 21, 2005 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. Link to comment Share on other sites More sharing options...
Crap Throwing Monkey Posted July 21, 2005 Share Posted July 21, 2005 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. Link to comment Share on other sites More sharing options...
Alaska Darin Posted July 21, 2005 Share Posted July 21, 2005 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. Link to comment Share on other sites More sharing options...
Crap Throwing Monkey Posted July 21, 2005 Share Posted July 21, 2005 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. Link to comment Share on other sites More sharing options...
stuckincincy Posted July 21, 2005 Share Posted July 21, 2005 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. Link to comment Share on other sites More sharing options...
Live&DieBillsFootball Posted July 21, 2005 Share Posted July 21, 2005 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? Link to comment Share on other sites More sharing options...
RunTheBall Posted July 21, 2005 Share Posted July 21, 2005 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 Link to comment Share on other sites More sharing options...
SDS Posted July 21, 2005 Share Posted July 21, 2005 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... Link to comment Share on other sites More sharing options...
stuckincincy Posted July 21, 2005 Share Posted July 21, 2005 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! Link to comment Share on other sites More sharing options...
Crap Throwing Monkey Posted July 21, 2005 Share Posted July 21, 2005 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. Link to comment Share on other sites More sharing options...
SDS Posted July 21, 2005 Share Posted July 21, 2005 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, Link to comment Share on other sites More sharing options...
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