stuckincincy Posted July 21, 2005 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] 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 Posted July 21, 2005 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... 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 Posted July 21, 2005 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... 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 Posted July 21, 2005 Posted July 21, 2005 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 Posted July 21, 2005 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 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 Posted July 21, 2005 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. 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! Posted July 21, 2005 Posted July 21, 2005 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 Posted July 21, 2005 Posted July 21, 2005 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 Posted July 21, 2005 Posted July 21, 2005 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 Posted July 21, 2005 Posted July 21, 2005 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. Posted July 21, 2005 Posted July 21, 2005 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 Posted July 21, 2005 Posted July 21, 2005 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 Posted July 21, 2005 Posted July 21, 2005 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 Posted July 21, 2005 Posted July 21, 2005 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.
Crap Throwing Monkey Posted July 21, 2005 Posted July 21, 2005 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 Posted July 21, 2005 Posted July 21, 2005 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... 386749[/snapback]
Alaska Darin Posted July 21, 2005 Posted July 21, 2005 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. 387047[/snapback] Why not? What's stopping you?
John from Riverside Posted July 21, 2005 Author Posted July 21, 2005 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] 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 Posted July 21, 2005 Posted July 21, 2005 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.
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