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Old 05-14-2019, 12:29 PM   #21
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I, personally, just refinanced because I had just bought the place in September of last year, and was at 4.75%. I was only 7 months into the mortgage. This refinance dropped my monthly payment by around $250.


And what I said was was that, in reference to that 10/40 mortgage, I wouldn't like it myself, because of the fact it WOULD NOT build any equity in those first ten years. But, I could see that attraction, for others, who are only focusing on the lower payment.



At 3.875%, I'm not in a huge hurry to get the place paid off. But at the same time, I don't want that big balance hanging over me forever!
Did you look at a 15 year mortgage? Usually a double win at a lower interest rate and a shorter term. What will you do with the extra $250/month? In 30 years that 472 k loan will still cost you almost 800k.

I am down to the last 47,000 on my house loan when it's paid off I get to retire. Not having a 2.5k payment a month in retirement.......priceless!!! And the difference between having to work and retirement for me.
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Old 05-14-2019, 12:59 PM   #22
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Originally Posted by Vacation4us View Post
Did you look at a 15 year mortgage? Usually a double win at a lower interest rate and a shorter term. What will you do with the extra $250/month? In 30 years that 472 k loan will still cost you almost 800k.

I am down to the last 47,000 on my house loan when it's paid off I get to retire. Not having a 2.5k payment a month in retirement.......priceless!!! And the difference between having to work and retirement for me.

I wouldn't have been able to qualify for a 15 year mortgage, at least not with a loan amount that big. As it was, they made me put down 25% on the house, rather than 20%.


Just out of curiosity though, I checked loan rates. About the cheapest I can find now is 2.875%. That would be $3234.67 in principal/interest, compared to the $2221.87 my 3.875% 30 year is. Even if I could qualify for that, I wouldn't be comfortable paying it.


As for the extra $243/mo (turns out it wasn't quite $250), I'll probably just invest it, or find some way to blow it. Also, by the time you throw the escrow payment in, my mortgage is about $2700/mo. The 15-year would be $3712. I want to retire in a few years, depending on how things go financially, and I think I'd be comfortable retiring with a $2700/mo mortgage. I wouldn't be comfortable with the $3712/mo. Even if I could do it, mentally, I'm not ready for that! The 15 year mortgage would most likely keep me w*rking longer. And, I might have to reduce my 401k contributions, to cough up that extra $1000/mo.


I just ran some other numbers, and calculated that if I paid the mortgage down to around $325,000, my monthly payment on a 2.875% 15 year term would be about what it is now. But, I'd rather have that extra $147K invested, and working for me.
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Old 05-14-2019, 01:49 PM   #23
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If you still paid the $243/ month towards your mortgage you would still cut 7 years off the loan. Over 7 years that's an extra $20,412. Even if your a great investor I doubt you could turn 20 k into a savings of $184,800 in mortgage payments.

Food for thought.
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Old 05-14-2019, 01:52 PM   #24
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Oops fuzzy math...over 23 years your cost is 67k
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Old 05-14-2019, 02:08 PM   #25
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I just ran the numbers in an excel spreadsheet, and it's actually paid off in 300 months. Total interest paid is $265,276 vs $327,373,35. Total payments are $737,776.13 vs $799,873. Plus, I guess you gotta figure out the time value of money and all that fun stuff, but to me it just seems like a draw, more or less.


Now, back when interest rates used to be higher, refinancing could be a no brainer. My first home, a condo, had a 9.625% interest rate when I first bought it back in 1994. I was only 24, and while I didn't have bad credit, I didn't have much of a credit history. I refinanced, in 1999 to something like 7.25%. I would have refinanced sooner, but in that timeframe I went through a bad marriage and expensive divorce, and had to get that sorted out first. And, even at 7.25%, I was over-paying a bit to get the mortgage down. I refinanced again, in 2002, maybe 2003, to a 15 year at something like 5.5%. I forget how much I owed at the time; probably around $77K or so...a pittance today, but at the time I was only 32-33, and it seemed like a lot of money at the time. I remember at the time, going from the 7.25% 30 year to the 5.5% 15 year did raise the monthly payment, but not by much.
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Old 05-15-2019, 04:53 AM   #26
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Originally Posted by ziggy29 View Post
One sign is when a critical mass of buyers define "affordable" in terms of their initial monthly payment, and little else.
I have many friends who have no idea what the terms on their new car loan are, only that the "payment stayed the same".

I can see alot of first time home buyers using the 40 year option, and 10 years later, when the family is growing, they have no equity, or hope of buying anything else.
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Old 05-15-2019, 06:55 AM   #27
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I have many friends who have no idea what the terms on their new car loan are, only that the "payment stayed the same".

I can see alot of first time home buyers using the 40 year option, and 10 years later, when the family is growing, they have no equity, or hope of buying anything else.

Yep, and a lot of people fall into the old trap of "real estate always goes up", and then suddenly, 10 years have gone by, and in their case, it hasn't.


For instance, I looked at a house back in late 2014 that really caught my eye. It was a sprawling 4br, 3.5ba 4-level split with a 2 car garage on 2+ acres in a pretty nice neighborhood. The only real issue I saw with it was it was a bit dated, decor-wise. Anyway, according to records, it sold for $715K back in 2005. When I was looking at it, it was on the market for $575K. It finally sold in April 2015 for $525K.


Supposedly, the real estate market has been heating up since then. However, I just checked redfin.com. A similar home in that neighborhood sold for $530K in 2018. And another similar one is now on the market for $550K.


Factor in inflation, and those numbers look even more bleak. Just to break even, inflation-wise, that $715K home in 2005 would have to sell for around $935K today. Even more depressing, just think of what the SP500 has done in that timeframe.
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Old 05-15-2019, 09:13 AM   #28
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I agree. Way more damaging than the 40 yr term.
I mean, I wouldn't do it, and obviously they are targeting an audience that probably shouldn't take out mortgages anyway, but why do you think the '10-year interest-only clause' is so bad? You could take advantage of the lower monthly payment by investing the difference.

When I (re)financed, I was interested in three things:
1) What's the interest rate?
2) For how long is it guaranteed?
3) How much can I pay extra annually without additional fees?

OK, maybe 4) What is the monthly payment? as an afterthought. But I wouldn't really mind a structure as described above, if all other conditions were fine. Now, that'll clearly not be the case here, given the 'FICO score 600 requirement', but all other things being equal...
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Old 05-15-2019, 10:41 AM   #29
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I, personally, just refinanced because I had just bought the place in September of last year, and was at 4.75%. I was only 7 months into the mortgage. This refinance dropped my monthly payment by around $250.
.
Great move you made, and now it all makes sense.
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Old 05-15-2019, 08:45 PM   #30
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I mean, I wouldn't do it, and obviously they are targeting an audience that probably shouldn't take out mortgages anyway, but why do you think the '10-year interest-only clause' is so bad? You could take advantage of the lower monthly payment by investing the difference.



When I (re)financed, I was interested in three things:

1) What's the interest rate?

2) For how long is it guaranteed?

3) How much can I pay extra annually without additional fees?



OK, maybe 4) What is the monthly payment? as an afterthought. But I wouldn't really mind a structure as described above, if all other conditions were fine. Now, that'll clearly not be the case here, given the 'FICO score 600 requirement', but all other things being equal...


If you have the discipline and extra money to invest the difference that is fine but this loan appeals mainly to people that want more house than they can afford using traditional ratios. With a 600 credit score a borrower is probably not getting the best offers. Not sure if the rate was cited but that will tell the tale. I was actually taught to use very very long fixed mortgages (fully amortized) to take advantage of depreciated dollars but that logic is heresy on these boards and Iím the guy that doesnít care if I never payoff the mortgage (assuming my rate is less than Iím earning in the market).
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Old 05-15-2019, 10:29 PM   #31
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After the 10 years the loan payment resets to include principle. Which means suddenly your payment goes up $$. If you can’t afford a 30 year loan then you can’t really afford a 40 year loan either. Can’t pay equals lose house....
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Im a contrarian here.
Old 05-15-2019, 10:48 PM   #32
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Im a contrarian here.

Make exceptions for the old, the mentally ill.

BUT beyond that..... i'm sorry but I don't hold lenders responsible.

I hold BORROWERS responsible. Look - we *all* get credit card offers in the mail - - why do I have a feeling that most people on this board didn't get irresponsible with those? Why do I feel like betting that people on this forum - didn't overbuy houses despite having credit ratings to do so?

My parents were 1st generation immigrants - bought smallest home in the best school district. They didn't ever buy soda at restaurants. I wore Kmart shoes and got teased by kids daily. Fast forward, I did rather well early in life and certainly spent WAY MORE on luxuries than my parents did but it was never over my means.

I think people over-buying will of course cause a crash again.

I maybe earlyRet within 12 months. I certainly don't wish ill on anyone but I admit, a 'crash' would be perfect for me as it would be a sweet entry point into buying assets for the long haul.

If people want to overbuy a house, still have a new car, still have designer handbags, and still fill the parking lots of restaurants every weekend.....have at it folks.

If only I had the guts to invest in 2009.....
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Old 05-16-2019, 04:03 AM   #33
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My parents were 1st generation immigrants - bought smallest home in the best school district. They didn't ever buy soda at restaurants. I wore Kmart shoes and got teased by kids daily.


We live in France, on the border with Germany. The first two words of German my kids learned, on shopping trips over the bridge with DW, were "Stark Reduziert" ("Price Slashed"). They could choose any clothes they liked as long as it had that written on the hanger (usually on a bright orange label).

We also often picked what to eat on any given evening from what was on clearance (because the sell-by date was the next day or whatever). It actually made for better variety than if we had chosen what we thought we wanted.

None of this was "necessary" as I was making a (low) six-figure salary, but both DW and I grew up in homes where there wasn't too much money left at the end of the week. Plus our parents had been through WW2 and were aware that if you get used to "too nice" things, you miss them more when they're not there. (That said: we were amazed by how much money DW's parents left to her and her brother!)
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Old 05-16-2019, 09:18 AM   #34
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Originally Posted by ckelly78z View Post
I have many friends who have no idea what the terms on their new car loan are, only that the "payment stayed the same".

I can see alot of first time home buyers using the 40 year option, and 10 years later, when the family is growing, they have no equity, or hope of buying anything else.
It's highly dependent on your local RE market. In the SF Bay Area the idea would be to keep pace with the RE market instead of being priced out. With a few exceptions, you will almost always gain equity over 10 years. In flat RE markets there is no point in using 40 yr or interest only mortgages. Much better off just to rent and save up money.
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Old 05-21-2019, 08:56 PM   #35
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Possibly interesting to seniors IF qualifying ratios are based upon the interest only payment. I am currently trying to help friends in their mid 70ís who have a paid off $750,000 home and very little qualifying ability because they only get about $25,000 a year in income. They need to access some of their equity. A loan like this might allow them to stay in the home another 10+ years which is what they want to do. Their health and age wonít allow them to stay in the home 40 years anyway. And they have no heirs to worry about.
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Old 05-21-2019, 09:19 PM   #36
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I think a lot of the rationalization of an interest-only mortgage of 10 years has a lot to do with the constant infomercials on house-flipping and year-after-year appreciation of housing (and property taxes). With wages being almost stagnant for the most part I don't think this can continue indefinitely.

The financial engineering of the last few years seems to be based more on profit than sustainability. Maybe it's a "Brave New World" but I don't see it.
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Old 05-21-2019, 10:26 PM   #37
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Yup. The house flipping seminars are still going strong here.
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Old 05-21-2019, 11:38 PM   #38
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"10 years of interest only payments"
But all kiddies like balloons!
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Old 05-22-2019, 08:05 AM   #39
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I think the title of this thread may be wrong. When you start getting crazy mortgages and very loose underwriting, that can push the real estate market into the bubble phase as opposed to ending the bull market.
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Old 05-22-2019, 11:55 AM   #40
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Itís almost as if we learned nothing from the GR/housing crash. In a sense, weíve got a tiger by the tail. Without debt-fueled consumption, both public and private, the whole thing collapses upon itself... And recessions donít win elections.
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