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Old 07-08-2012, 02:57 PM   #21
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I thought these Option ARM borrowers will have to come up with the difference between how much the house is worth now (which is less than what their loan is for) and their loan amount (minus the principal they might have accumulated) when it resets (recasts)?
Ah...well, it appears we may have been both somewhat correct (I never fully researched Option ARMs before-just thought they had a 'pay as much as you want' feature).

It appears Option AMRs may have had both a super-low teaser intro rate (even below current benchmarks), as well as having the "pay however much principal you want" feature. However, from what I can tell, they don't usually seem to require a balloon readjustment if your house value drops after the opening term.

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I have tried unsuccessfully to refinance the $50K I owe on a rental house because even the investor rate is low. However, according to several mortgage brokers, the market for smaller loans dried up about 18 months ago.
What if you tried this: PenFed is offering up to a 5 year, 1.99% home equity loan, opened on-line only, no fees. Just take out this loan on your primary residence, and use it to pay off that rental $50k balance. I imagine your rental rate is at least, what, 5%? Maybe more? Instant huge savings on your interest costs. Could possibly still deduct the interest off your taxes.
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Old 07-08-2012, 03:41 PM   #22
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What if you tried this: PenFed is offering up to a 5 year, 1.99% home equity loan, opened on-line only, no fees. Just take out this loan on your primary residence, and use it to pay off that rental $50k balance. I imagine your rental rate is at least, what, 5%? Maybe more? Instant huge savings on your interest costs. Could possibly still deduct the interest off your taxes.
They also offer HELOCs on rentals, including a 5/5 product that offers a fixed rate for the first 5 years. Or you could lump sum pay it off and be done with it.
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Old 07-08-2012, 04:11 PM   #23
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MooreBonds,

I thought these Option ARM borrowers will have to come up with the difference between how much the house is worth now (which is less than what their loan is for) and their loan amount (minus the principal they might have accumulated) when it resets (recasts)? So I am guessing many of them won't be able to come up with the difference (especially in places like CA, NV, FL where the price drop has been significant - I believe most of Option ARMs are however originated in CA by investors).
That isn't how the recast works, but its almost certainly a moot point by now. Default experience in Option ARMs has been off the charts so I think they have mosly already blown up.
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Old 07-08-2012, 04:59 PM   #24
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I recently tried to get a refi with similar terms as Brewer's, but I didn't qualify because of high income to debt ratio. I've been doing the FIRE finance thing, living off cash, small amounts of dividends and cap gains, and a small ($20K-ish) side business. Balanced against that is my current mortgage, many years worth of carryover cap losses, etc, which has combined to keep me in the 10-15% tax brackets. It's been great for selling high gain stocks at 0% cap gains levels and doing Roth conversions at low rates, but now it's tripping me up.

I only see two options. First would be to pay off my current mortgage of $380K at $4.75%, and hope I could qualify for a new one at ~3.5%. But I'm not sure how long it would need to be on the books as paid off before it would be reflected on my financials so I could qualify for a new one. Anybody got any knowledge about that?

Second would be to get more of an income. I'm not sure how to do that. I don't have (or want) a job other than the easy money side gig I've got going now, which I can't really manipulate to produce more income. I could put all my cash into high dividend producing stocks, but that would take a couple of years before it produced the ongoing income I need, plus I don't want to increase my equity holdings that much. I could do a big Roth conversion this year to increase my taxable income and push myself into a higher tax bracket, but does that kind of thing count as income for a mortgage? And again, it could take so long I could miss out on the low rates and be stuck with no mortgage. Let it be said here that I'm one of the carry a mortgage types, so no need to lecture me on the joys of being paid off. I'm very willing to bet that in 10 years or so I will consider a $380K mortgage at 3.5% to be practically free money.

So, does anybody have any knowledge or ideas? Does the Roth conversion kick to my income count as far as mortgage income calculations go? I'd love to be able to take advantage of this. I never considered that having enough money to pay off the mortgage many times over wouldn't count towards my loan eligibility. Also the fact that I currently pay a higher payment without any problem, and a lower payment would only make paying the loan easier. Damn banking industry. Anyway, any help would be appreciated.
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Old 07-08-2012, 05:09 PM   #25
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Harley, I think you are stuck. The agencies are pretty much the entire mortgage market now so nobody does any real credit-based underwriting on mortgages any more. Everything is based on agency requirements and those are focused solely on income. Unless you are willing to get a day job that would allow you to qualify for a mortgage, you are stuck with what you have.
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Old 07-08-2012, 05:47 PM   #26
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Harley, I think you are stuck. The agencies are pretty much the entire mortgage market now so nobody does any real credit-based underwriting on mortgages any more. Everything is based on agency requirements and those are focused solely on income. Unless you are willing to get a day job that would allow you to qualify for a mortgage, you are stuck with what you have.
Suppose one has (1) Social Security income, (2) withdrawals from retirement accounts. What does the government want to see from item #2 to get the best rates? The retirement withdrawals for us are completely discretionary.
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Old 07-08-2012, 05:59 PM   #27
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Suppose one has (1) Social Security income, (2) withdrawals from retirement accounts. What does the government want to see from item #2 to get the best rates? The retirement withdrawals for us are completely discretionary.
I don't know. The underwriting software from Fannie and Freddie changes regularly. The best way to find out would be a frank chat with a mortgage broker.
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Old 07-08-2012, 06:21 PM   #28
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Hew Brew, always good to hear from you. DH and I put our house on the market about a month ago here in the DC area. Carefully priced with a top notch agent plus verified with our own independent research. No takers yet but lots of lookers. Already thinking about a price drop before the summer slump hits. Hope this gives us hope....
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Old 07-08-2012, 06:33 PM   #29
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Suppose one has (1) Social Security income, (2) withdrawals from retirement accounts. What does the government want to see from item #2 to get the best rates? The retirement withdrawals for us are completely discretionary.
I'm like 14 years away from getting SS, but I know that works just fine for income for a mortgage, as would a pension or a SPIA. I'm pretty sure the retirement withdrawals don't help. That's just money in an account, not an "income". If that counted I'd have qualified. Althouth I guess RMDs would count. Maybe in 14 or 15 years we'll have made it through the next bust/boom cycle and rates will be low again. Then I'll have SS and RMDs, and can get a freaking mortgage worth < 10% of my net worth. Grrrr.
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Old 07-08-2012, 06:37 PM   #30
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I'm like 14 years away from getting SS, but I know that works just fine for income for a mortgage, as would a pension or a SPIA. I'm pretty sure the retirement withdrawals don't help. That's just money in an account, not an "income". If that counted I'd have qualified. Althouth I guess RMDs would count. Maybe in 14 or 15 years we'll have made it through the next bust/boom cycle and rates will be low again. Then I'll have SS and RMDs, and can get a freaking mortgage worth < 10% of my net worth. Grrrr.
2 years ago the retirement withdrawals were considered income. You have to show them the Fed 1040 where it was taxed. But maybe things have changed?
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Old 07-08-2012, 06:48 PM   #31
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2 years ago the retirement withdrawals were considered income. You have to show them the Fed 1040 where it was taxed. But maybe things have changed?
Sorry, but I may have misunderstood. If by retirement accounts you mean IRAs or 401(k)s, you may be right about them counting. I'm not eligible yet for withdrawals from those without penalties, so my retirement accounts are all after tax. It could be that what shows up on line 37 (AGI) of your Federal Taxes is the most important thing, or it might be line 43 (Taxable Income) is most important. I have a decent AGI, but am only in the 4 digit range in taxable.

Well, if I'm stuck in no-refi land, maybe I can make up the difference with ongoing low cost Roth conversions.
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Old 07-08-2012, 07:43 PM   #32
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...(snip)...
Well, if I'm stuck in no-refi land, maybe I can make up the difference with ongoing low cost Roth conversions.
We had been doing Roth conversions before taking SS. Our conversions were high enough to make it look like highish AGI on the 1040. So this luckily allowed us to qualify for a refi in 2010.

It might not help you right now, but should the rate situation continue towards the end of the year you could make a large Roth conversion to push up your AGI in December. Then take that to your loan source maybe in January 2013.
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Old 07-08-2012, 07:46 PM   #33
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We had been doing Roth conversions before taking SS. Our conversions were high enough to make it look like highish AGI on the 1040. So this luckily allowed us to qualify for a refi in 2010.

It might not help you right now, but should the rate situation continue towards the end of the year you could make a large Roth conversion to push up your AGI in December. Then take that to your loan source maybe in January 2013.
That was one of my thoughts, but if that qualifies me for the loan I'll be really PO'd. Not that I won't take the money, but still, how stoopid can they be?
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Old 07-08-2012, 09:09 PM   #34
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That was one of my thoughts, but if that qualifies me for the loan I'll be really PO'd. Not that I won't take the money, but still, how stoopid can they be?
They were stupid in 2010. Human nature to get excessively dumb in the other direction after the errors of previous years.
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Old 07-09-2012, 09:09 AM   #35
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what the hey! locked with that home box loan outfit brewer mentioned. For $360 to bring us down to a 3.5% and save $125/month, why not?

it can't be any worse than our current lender...
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Old 07-09-2012, 11:34 AM   #36
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Too bad Box doesn't loan to residents of my state. I am still looking for no/low closing cost refis. Am at 4.875 fixed right now.
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Old 07-09-2012, 12:22 PM   #37
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I was more than shocked when we were able to get approved for a 417k mortgage on top of the 320K we were already in debt on with a mortgage on a primary and a home equity loan on a rental. The mortgage broker said that we were at the max 45% debt to income ratio...We did what I would never recommend someone else do, replace our primary home before selling it. Lucky for us we closed on the sale of our primary home 3 days after our closing on our new home.

I asked the mortgage broker how we were able to get approved and she said combination of high credit scores, stable retirement income, and age (young enough to go back to work if we needed to). Hmmm
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Old 07-09-2012, 04:02 PM   #38
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If mortgae rates are so low, Would it be worth financing our home that is owned free and clear? At 3% money is so cheap. Rates HAVE to rise sooner or later. I have toyed with this for a while now. Perhaps get an interest only 15 year or something. We have not had a mortgage payment since 1997 it may be hard to go back to one.

SWR.
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Old 07-09-2012, 04:22 PM   #39
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SWR, if I recall correctly you are uncomfortable with any investment other than CD's, etc. So I would have to assume you'd be investing whatever funds you receive from taking out a mortgage at 1-2%, losing the difference between the interest earned and what you are paying in interest on the mortgage - plus inflation losses. And if interest rates don't increase significantly for the next several years...?

Sounds like a sure fire way to speed up depleting a portfolio to me, but then check my sig line.
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Old 07-09-2012, 04:37 PM   #40
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SWR, if I recall correctly you are uncomfortable with any investment other than CD's, etc. So I would have to assume you'd be investing whatever funds you receive from taking out a mortgage at 1-2%, losing the difference between the interest earned and what you are paying in interest on the mortgage - plus inflation losses. And if interest rates don't increase significantly for the next several years...?

Sounds like a sure fire way to speed up depleting a portfolio to me, but then check my sig line.
Probably the much easier and cheaper way to make this "play" in one's portfolio is to buy a put option on TLT or enter into a similar position in the 30 year treasury futures market. I don't necessarily advise doing so (the decision on whether this is a wise idea is an exercise left up to the reader), but doing it via taking out a morgage seems like an awfully inconvenient and expensive way to do so.
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