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Interest only morts all the rage
Old 06-08-2005, 12:47 PM   #1
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Interest only morts all the rage

http://news.yahoo.com/s/ap/risky_mor...NlYwMlJVRPUCUl
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Re: Interest only morts all the rage
Old 06-08-2005, 12:54 PM   #2
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Re: Interest only morts all the rage

This is a dual edged sword. People don't save as much to buy a house these days and the housing prices have gone up so much it's hard to get into a house.

I'm so glad I bought my first house a LONG time ago before the prices were so high in CA.
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Re: Interest only morts all the rage
Old 06-08-2005, 12:54 PM   #3
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Re: Interest only morts all the rage


Can you say "upside down" when the music stops"?
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Re: Interest only morts all the rage
Old 06-08-2005, 12:58 PM   #4
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Re: Interest only morts all the rage

I'll say a prayer for these people with interest-only mortgages.

I think we need to stop beating up on financial planners for a while and start beating up on bankers. They are getting to be worse than used-car salesmen.
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Re: Interest only morts all the rage
Old 06-08-2005, 01:02 PM   #5
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Re: Interest only morts all the rage

Not to change the subject so quickly, but the other problem (at least in the northeast) is that people can't afford to buy a lot of the 2-family homes here selling for $700K, so they are turning them into 2 unit condos selling for $400K each!
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Re: Interest only morts all the rage
Old 06-08-2005, 01:15 PM   #6
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Re: Interest only morts all the rage

We want to thank those people who are willing to go through great length to buy a house so that we can enjoy the price appreciation. We should also extend our appreciation to the lenders who make it so easy for those to realize the American dream.

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Re: Interest only morts all the rage
Old 06-08-2005, 01:32 PM   #7
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Re: Interest only morts all the rage

Quote:
Originally Posted by retire@40


I think we need to stop beating up on financial planners for a while and start beating up on bankers. They are getting to be worse than used-car salesmen.
I think one of the reasons for this is that for home mortgages, origination, servicing, accepting credit risk, and funding are now often performed by different players. For example, investers in mortgages need not be involved in credit risk decisions, origination or servicing. So if you have originators who are interested in their origination fee, and they have no money invested in the loan and won't service it, their self interest is to get that loan made.
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Re: Interest only morts all the rage
Old 06-08-2005, 02:00 PM   #8
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Re: Interest only morts all the rage

Jim Grant recently reported that housing usually accounts for 8-10% of GDP. Than is based on the period 1983 through 1998. Now itís 17%, more than 3 SDs above the mean. What is the limit?

I don't know, but remember, you can only pay for housing with money earned somewhere else, so I would guess it's getting close right now.

My only current interest is I might like to re-mortgage my place, and put the money in the bank waiting for later opportunities, even though there would be a carry cost of a few % pa.

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Re: Interest only morts all the rage
Old 06-08-2005, 02:14 PM   #9
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Re: Interest only morts all the rage

LOL! I love the quote, "people are getting a lot smarter about their mortgages!" Yeah, right! Maybe 1 out of a hundred is investing the difference between these loans and a traditional 30 year. My coworkers use the money to buy fancy cars and useless toys. I'm just getting ready to get mad when all of these people go, "oh, my flipping/speculation/no money down adventure is over? O.K., I'll just walk away from all this debt and contribute to the crash, since a couple years from now everybody will lend to me again anyway.".
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Re: Interest only morts all the rage
Old 06-08-2005, 07:41 PM   #10
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Re: Interest only morts all the rage

* I'm a bit puzzled as to how these folks are saving so much on interest-only mortgages ... if I remember correctly from my own mortgage, the first few years are heavily weighted toward interest, with darn little principal being paid...

* *Don't know ... I suppose if a person is only going to be in the house for a couple of years, it might work out. But otherwise, it sounds like a ticket to foreclosure.
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Re: Interest only morts all the rage
Old 06-08-2005, 09:15 PM   #11
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Re: Interest only morts all the rage

Basically they make the first 'n' years interest only, and defer the principal payment...a typical 30 year $1200 payment might become $1000 on an interest only basis. After a few years the payment amount kicks up higher. The pitch is that you'll be making more then, and the house will be worth more, or you'll have moved and your increased equity will translate into profit.

Doesnt that sound great?

Only problem with this scenario is if your wages dont go up (and wage increases have been nada the last 5 years), your home stops appreciating in value (how much higher can these things go anyhow?) or you end up staying in the house a long time, in which case you get soaked on the overall interest payments.

Ha Ha...the limit is when even with these weird financial constructions nobody can afford even a modest home. No buyers, no uplift.
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Re: Interest only morts all the rage
Old 06-09-2005, 12:17 AM   #12
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Re: Interest only morts all the rage

* Oh yeah .. sounds ducky!* *I'm quite happy to have my mortgage paid off.

* *I'll have to find out how popular these things are in my corner of the Midwest, since the housing prices are substantially lower.* *God knows we have enough defaults on the no-money-down, adjustable rate wonders .... :
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Re: Interest only morts all the rage
Old 06-09-2005, 08:47 AM   #13
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Re: Interest only morts all the rage

saw this great comparison on Yahoo news between the S&P 500 and the real estate market over the lapse of 30 years.* Very interesting.* See which one wins......

http://us.rd.yahoo.com/finance/speci...?partner=yahoo



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Re: Interest only morts all the rage
Old 06-09-2005, 09:46 AM   #14
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Re: Interest only morts all the rage

Amazing how stacked the real estate industry is against the buyer. Realtors, appraisers, mortgage lenders, lawyers, even home inspectors, sugar-coating the deal to keep it moving forward.... so EVERYONE can get paid.

Quote:
"oh, my flipping/speculation/no money down adventure is over? O.K., I'll just walk away from all this debt and contribute to the crash, since a couple years from now everybody will lend to me again anyway.".
In the early 90's I saw/met many bankrupt real estate investors bidding at auctions. Housing could be had for 10 cents on the dollar; cash was king. Having seen the top, the failed investors knew they had to get back in (at the bottom).

Put your seat belts on!
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Re: Interest only morts all the rage
Old 06-09-2005, 10:02 AM   #15
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Re: Interest only morts all the rage

DW and I are ready to get in at the bottom, if it ever happens!
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Re: Interest only morts all the rage
Old 06-10-2005, 05:50 PM   #16
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Re: Interest only morts all the rage

http://www.msnbc.msn.com/id/8171385/

I guess my SD house is set to lose some value. Almost half the mortgages are interest only?? Talk about a bubble! I know this subject has been beaten to death but this is truly a time bomb.

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Re: Interest only morts all the rage
Old 06-10-2005, 05:56 PM   #17
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Re: Interest only morts all the rage

Quote:
Originally Posted by Laurence
http://www.msnbc.msn.com/id/8171385/I guess my SD house is set to lose some value.
Only if you're planning to sell it!
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Re: Interest only morts all the rage
Old 06-10-2005, 06:01 PM   #18
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Re: Interest only morts all the rage

When I was shopping for a mortgage about a year ago I had one mortgage broker try to sell me on an interest only loan. It was based on the 6month LIBOR rate plus about 1.75%.

At that time, the 6mo LIBOR was around 1.6% so it was a really low payment but I'm still glad I got a fixed rate loan because the 6mo LIBOR has since doubled.
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Re: Interest only morts all the rage
Old 06-10-2005, 06:09 PM   #19
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Re: Interest only morts all the rage

Oh yeah.. here's a sometimes interesting website by a guy that is following the San Diego real estate market. He's expecting a crash.

http://piggington.com/
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Re: Interest only morts all the rage
Old 06-10-2005, 07:32 PM   #20
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Re: Interest only morts all the rage

I own a house in San Diego - it makes up about 1/3 of my net worth.* Although I believe there is a housing bubble, just as I believed there was an internet bubble in the stock market, I'm having a hard time believing the value of my house will get cut by even 25% when the bubble pops.* When I bought in 2000 everyone was convinced it was the top of the market then.* Since then it has appreciated over 100%, (maybe more).

Sure the people who flip houses and are mortgaged to the hilt will get hurt when the music stops, but for someone who owns his house free and clear, it may be the best investment I'll ever make.* *Real estate is a hard asset that increases in value offsetting the loss in the purchasing value of the dollar.* I wish I felt half as comfortable about my other investments as I do about real estate.*
* *
I'm inclined to think the burst of the real estate bubble will hurt the rest of the economy more than it hurts the value of real estate itself.*
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