A new twist on the Carrying a Mortgage debate

[haha]

I do - my grandmothers Dad bought his land for cash and built himself as he could pay for it. My grandparents built their house and owned it free and clear as soon as they could, and I guess my Dad had his paid off by his mid forties.

Good point! My great grandfather returned from the War Between The States, bought some land, and built a stone house.

I guess I just wasn't going back far enough.

Ha

 

[virginia]

Tell me that someone around your parents age (you said you were 60's, I'm talking about 80-90 or even 70-90 age range) did not have an appreciation for a paid off home? I can't even begin to tell you how many stories I've heard about how hard my great grandmother worked to take care of 7 kids during the depression and what a blessing it was that the house was paid off - and that if nothing else, they were able to raise their own food and didn't have to worry about ever having to move - and about how many people came to their home for food and a place to stay, because people could not stay in their homes. And those stories advised us to take care of what we had - because it might not always be there.

 

[virginia]

I'm just grouchy and combative these days - just ignore me.

 

[brewer12345]

A little over 3 years ago I refi'ed into a 20 year @ 5.125% and have been paying extra to boot. Do you think the goal is to get rates below this? Is it possible I could get a 15 year loan with the same payment if Paulson gets his way?

I personally think that they do not give a flying donut about 15 year mortgage rates. Most of these borrowers are very solid credits and the loans amortize rapidly enought that these loans are essntially never a problem. What the gummint really cares about is 30 year mortgage rates because that is where all the juice is for the great mass of borrowers. The 30 year borrower is more stretached and consequently relatively small changes in rates and monthly payments make a much bigger difference on the margin.

Having said that, the 15 is almost always priced at less than the 30, so a side benefit of a reduction in 30 year rates could be a knock-down of 15 year rates. I somehow doubt I will ever do better than the 4.99% rate on my 15 year (now down to 10) note, but you can bet that I would jump on it if the opportunity arose.

 

[cute fuzzy bunny]

I'm just grouchy and combative these days - just ignore me.

You've got compannnny!

 

[Nords]

Tell me that someone around your parents age (you said you were 60's, I'm talking about 80-90 or even 70-90 age range) did not have an appreciation for a paid off home? I can't even begin to tell you how many stories I've heard about how hard my great grandmother worked to take care of 7 kids during the depression and what a blessing it was that the house was paid off - and that if nothing else, they were able to raise their own food and didn't have to worry about ever having to move - and about how many people came to their home for food and a place to stay, because people could not stay in their homes. And those stories advised us to take care of what we had - because it might not always be there.

Apples & oranges-- mortgages of these Depression-era generations tended to be of much shorter durations, sometimes as little as 5-10 years.

The balance was usually due as a balloon payment, and financial institutions almost always held on to the loan instead of selling it to another. Banks didn't hesitate to foreclose and become the town's biggest real estate owner, even if it killed both the bank and the town.

I'm not sure that there was even a standard deduction on personal income taxes, let alone an itemized deduction for paying interest on a mortgage.

But I think that even Grannie would be attracted to a 40-year no-income no-assets "liar's loan" 80/10/10 ARM with zero money down, financed closing costs, variable interest, optional payments, negative amortization, a 125% HELOC rider with a debit card, and the prospect of a bailout...

A couple years ago my father-in-law showed us his 1964 mortgage on a brand-spankin'-new Levitt home. It was about $17K at 5.5% with an onerous $88/month payment, which he was still mailing checks for when he sold the home in 1983. (Yes, he stored the original agreement for over 20 years after paying it off, but that's a whole 'nother story.) The agreement's terms were typewritten into a half-dozen blocks of a pre-printed 5"x8" piece of heavy-gauge pasteboard. We had just matched that interest rate, admittedly at a slightly different balance/payment and on a much larger stack of paper.

A year later we "kids" beat the 5.5% with a 30-year 5.375%. A few months after that the credit union sent a notary to our house to certify our HELOC with zero closing costs. And a couple years after that their credit union happily loaned this age-70s couple a similar mortgage on a condo in an over-55 community. It's a 30-year loan, and with their genes it's quite possible that they'll be writing the check for the final payment.

 

[Bestwifeever]

My feeling is that in the olden days people didn't consider their homes appreciating assets so they didn't (and couldn't, since banks didn't refinance) want to carry a mortgage. My feeling is also that if we couldn't refinance, we would have to find the money to buy equities, cars, whatever somewhere other than our homes. Would we?

 

[Rustic23]

Seems like there are say three scenarios.
1. Economy continues it's ups and downs like it has in the past. The couple thousand post on 'pay off the mortgage' apply
2. We go into a Depression. It would be nice to have the house paid off. However, how nice, might depend on how stable your source of income was or is.
3. We go into hyper-inflation. If your income is COLA'ed, and it keeps up, then the note would be real cheap to pay off.

As I have no crystal ball, my assumption is currently No. 1.

 

[Nords]

1. ... The couple thousand post on 'pay off the mortgage' apply
As I have no crystal ball, my assumption is currently No. 1.

I guarantee that portion of No. 1... and a couple thousand more...

 

[laurence]

I personally think that they do not give a flying donut about 15 year mortgage rates. Most of these borrowers are very solid credits and the loans amortize rapidly enought that these loans are essntially never a problem. What the gummint really cares about is 30 year mortgage rates because that is where all the juice is for the great mass of borrowers. The 30 year borrower is more stretached and consequently relatively small changes in rates and monthly payments make a much bigger difference on the margin.

Having said that, the 15 is almost always priced at less than the 30, so a side benefit of a reduction in 30 year rates could be a knock-down of 15 year rates. I somehow doubt I will ever do better than the 4.99% rate on my 15 year (now down to 10) note, but you can bet that I would jump on it if the opportunity arose.

Huh. I did the math and I need 15 year loans to fall below 4.5% to be worth the trouble. Not holding my breath. We've had such historically low mortgage rates for so long, our views are a bit skewed on what constitutes a "low" rate. 8% was a great rate when I was growing up.

 

[cute fuzzy bunny]

Yeah, it took me a week to smack the smile off my face when I got a 6.25% loan back in 1996.

I'm still bitter at all the old timers here who talked me out of a 3.99% 5/1 loan I could have gotten in early 2003.

 

[laurence]

We've thrown 40k on the principle of the house this past year. We're so dumb!

 

[cute fuzzy bunny]

Hey, I dont mind having put $300k into a bigger, nicer house in a much better neighborhood.

The ROI hasnt been that great, but I'm living well in my losses

 

[virginia]

But I think that even Grannie would be attracted to a 40-year no-income no-assets "liar's loan" 80/10/10 ARM with zero money down, financed closing costs, variable interest, optional payments, negative amortization, a 125% HELOC rider with a debit card, and the prospect of a bailout...

I have to disagree - my Grandmother knew the benefits of having a home that you essentially could not lose compared to something that someone essentially it owns until you pay it off. I do think there was an appreciation for that in the past. People of my generation haven't seen a true economic crisis, so they don't know what could happen, and don't believe that it would. It could happen.

Finally - not quite off subject since Nords brought it up, but along the waiting for someone to bail you out comment - you can bail someone out once, but the majority of people will get themselves into a situation again. So, in that aspect, many people think that the bailoutees are benefitting, but they're not really. All of us lose in that scenario. We lose thru losses in real estate appreciation and increased taxes; they eventually lose, because the bailout just gets them thru another few months, or maybe a year or so, and then they do something to run up debt again. I'm not just trying to be negative, but I think that's what will probably happen. A slow economic recovery might not be bad for a lot of people, because it would show the need to take care of what you have. I'm no economic wizard, but a bailout will mean increased tax -> increased burden generally on the population -> less money in our pockets -> living a little more frugally n general, and given the amount of the bailout, and all the other strains on the economy - it seems like a recovery will be slow.

 

[brewer12345]

Huh. I did the math and I need 15 year loans to fall below 4.5% to be worth the trouble. Not holding my breath. We've had such historically low mortgage rates for so long, our views are a bit skewed on what constitutes a "low" rate. 8% was a great rate when I was growing up.

Yup. I was thrilled to get 6.875% on my 15 year condo note in '98.

And a 1/2% rate change doesn't really move the needle unless you have a huge, honkin' balance.

 

[Finance Dave]

I sure don't know, but:
1) I can't believe they'll go down from my present 5% mortgage. That's the lowest they've been in decades.
2) They got that low because a bunch of cash was pumped into the MBS market. Folks are a lot less willing to put their money into these now.
3) Unless the government pumps a bunch of bailout money into the system (making it available use for commercial paper loans), businesses will need to find a place to get their money. That source could very well be--banks. If banks have greater demand for their pool of available lending cash, I'd guess they'll charge more for it. And, if they can charge more for it--maybe they'd be willing to sweeten the deal for me to give them a wad of cash and pay off my low-rate mortgage.

But, these are the speculations of a rank amateur.

thanks for the response. I think rates will go up, but I won't make it a premise of my investment strategy. But the other thing that could happen is this....

Let's say the American people realize "en mass" that they have been borrowing and spending too much. Maybe many of us buy smaller homes, less expensive cars, and start increasing savings. If that happens, the banks will need to incentivize people to borrow...and would do so by lowering rates.

Could happen...who knows.

 

[Finance Dave]

I personally think that they do not give a flying donut about 15 year mortgage rates. Most of these borrowers are very solid credits and the loans amortize rapidly enought that these loans are essntially never a problem. What the gummint really cares about is 30 year mortgage rates because that is where all the juice is for the great mass of borrowers. The 30 year borrower is more stretached and consequently relatively small changes in rates and monthly payments make a much bigger difference on the margin.

Having said that, the 15 is almost always priced at less than the 30, so a side benefit of a reduction in 30 year rates could be a knock-down of 15 year rates. I somehow doubt I will ever do better than the 4.99% rate on my 15 year (now down to 10) note, but you can bet that I would jump on it if the opportunity arose.

Agree. We have a 15 year loan, and only 5 more years until paid off.

I wonder (believe me, I do not want this to happen) why the mortgate industry has not come out with 40 year loans to get people into bigger houses. It's no different than the 96 month auto loans. I am a car enthusiast and shake my head when I meet people at car shows that tell me how they bought their car (remember, these are "show" cars, not everyday necessity cars) on an 8 year loan.

 

[laurence]

I've seen 40 year loans all over the place. But they don't get a lot of traction since they only reduce the payment by a tiny amount % wise.

 

[cute fuzzy bunny]

There have been plenty of 40 year loans available.

I posted some years ago about a 40 year adjustable rate interest only product specifically designed to get people with small incomes into homes they couldnt otherwise afford.