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Old 07-08-2008, 09:00 PM
 
3,201 posts, read 5,815,849 times
Reputation: 1879
Quote:
Originally Posted by Mircea View Post
So, you purchased property with the intention of slapping some paint on it and flipping it for a quick profit, right? That's really the only reason to get an IO mortgage.

If you intend to live in the house, then get a real mortgage or sell the house before you end up in foreclosure.

Also, if you're living in the house, what is the name of your real estate attorney and why did s/he give you such bad advice? You should consider a legal malpractice suit.
Spoken like somebody who has not a clue about mortgages. Plenty of people get I/O loans and can afford to pay more. We had the same loan as the OP and could have paid cash for the house but chose to take the biggest mortgage possible with a I/O option.
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Old 07-08-2008, 09:05 PM
 
3,201 posts, read 5,815,849 times
Reputation: 1879
Quote:
Originally Posted by RobRiguez View Post
So, I have an interest only mortgage. Its locked in at 6% for 10 years then is adjustable once a year for the next 20 years. The question I have is, At the end of the 10 years interest only and fixed % what happens? I was told when I signed the loan that the interest will get adjusted and my new monthly minimum will also include a portion of the principal amount. I asked over and over again if my payments will increase and was told they would only increase if the % at the time was higher than 6%.

Recently after speaking to a friends son (who just graduated college and is working for a mortgage brokerage firm for the last 2 months) says that what they have told me is true in regards to the interest but that the amount to be used to reduce the principal balance will be added on top of the current minimum thereby increasing my monthly minimum by possibly $1000. Could someone with an IO or someone from the mortgage industry please shed some light?
Your payment will increase after 10 years. For example if your mortgage is $100,000 you currently pay only the interest portion which is $500. After 10 years you will also have to make the principal payment which would be an additional $100, so your payment will increase to $600. In addition your interest rate could jump up making your interest payment even higher. If your rate goes up 2% to 8% your interest payment would increase to $666.

I would plan on re-fing your loan before 10 years if you are still there.
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Old 07-09-2008, 10:12 AM
 
Location: Edison NJ
1,830 posts, read 3,971,872 times
Reputation: 946
Thank you to those who offered real info. The IO was just a quick and easy way to get into the house cheaply as we were also changing jobs at the time. Yes we can easliy afford to pay more (and do) but I wanted to understand how the minimum would be affected after the 10 years is up.

Rakin I did not realize there was a mortgage section or I would have gladly bothered the people that frequent that sub-forum instead . lol
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Old 07-09-2008, 02:02 PM
 
28,781 posts, read 16,748,877 times
Reputation: 13902
Quote:
Originally Posted by RobRiguez View Post
Thank you to those who offered real info. The IO was just a quick and easy way to get into the house cheaply as we were also changing jobs at the time. Yes we can easliy afford to pay more (and do) but I wanted to understand how the minimum would be affected after the 10 years is up.

Rakin I did not realize there was a mortgage section or I would have gladly bothered the people that frequent that sub-forum instead . lol
Lets assume 6% interest 100k mortgage.
First 10 years you pay 6k a year or 500/mo.
For years 11-30 you have to now retire the 100k principal (lets forget about the ARM and assume the interest is fixed 6%).

So basically, starting year 11 your payment would be that of a 20 year mortgage retiring a 100k amount at 6%.'

This formula works in excel and generates a $716 payment per month vs. the $500 you had been paying. (The .06/12 =.005 and 12months x20=240 payments)

=-PMT(0.005,240,100000)

So basically, I would expect your payment to go up about 40% plus whatever happens to your adjusting interest rate. If your interest rate goes up to 8% then your payment will go up by about 2/3...quite a jump.

P.S. Rough numbers so don't kill me on the details anyone.
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Old 07-09-2008, 02:13 PM
 
3,257 posts, read 6,844,463 times
Reputation: 1311
Quote:
Originally Posted by J Arp View Post
I am pretty sure that is what they call an ARM. Have you noticed all those foreclosed houses lately?
Ya, except it's an "A" paper ARM and that is not what's causing all the foreclosures.

ARM does not = bad loan
Now subprime ARM...that's another story.
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Old 07-09-2008, 02:17 PM
 
3,257 posts, read 6,844,463 times
Reputation: 1311
Quote:
Originally Posted by Mircea View Post
So, you purchased property with the intention of slapping some paint on it and flipping it for a quick profit, right? That's really the only reason to get an IO mortgage.

If you intend to live in the house, then get a real mortgage or sell the house before you end up in foreclosure.

Also, if you're living in the house, what is the name of your real estate attorney and why did s/he give you such bad advice? You should consider a legal malpractice suit.
OMG, you have no idea what you are talking about.

There are many reasons to go IO (not just for flipping).

A 10/1 "A" paper loan is a "real mortgage". Where in the world are you seeing any indication of foreclosure?

Who says there was a real estate attorney involved? Malpractice...ya right...get a life!
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Old 07-09-2008, 02:21 PM
 
3,257 posts, read 6,844,463 times
Reputation: 1311
Quote:
Originally Posted by RobRiguez View Post
So, I have an interest only mortgage. Its locked in at 6% for 10 years then is adjustable once a year for the next 20 years. The question I have is, At the end of the 10 years interest only and fixed % what happens? I was told when I signed the loan that the interest will get adjusted and my new monthly minimum will also include a portion of the principal amount. I asked over and over again if my payments will increase and was told they would only increase if the % at the time was higher than 6%.

Recently after speaking to a friends son (who just graduated college and is working for a mortgage brokerage firm for the last 2 months) says that what they have told me is true in regards to the interest but that the amount to be used to reduce the principal balance will be added on top of the current minimum thereby increasing my monthly minimum by possibly $1000. Could someone with an IO or someone from the mortgage industry please shed some light?
Basically Rob, after year 10 you will now have an adjustable rate mortgage with an amortizing 20 yr. term. Your payment will go up quite a bit. Use a mortgage calculator with your loan balance, an estimated interest rate and a 20 yr. term and you will get your payment.
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Old 07-09-2008, 02:47 PM
 
Location: US
1,185 posts, read 2,556,279 times
Reputation: 770
Quote:
Originally Posted by TimtheGuy View Post
Ya, except it's an "A" paper ARM and that is not what's causing all the foreclosures.

ARM does not = bad loan
Now subprime ARM...that's another story.

Thats right...this is what happens when I talk about crap I don't know about.
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Old 07-09-2008, 03:52 PM
 
Location: San Jose, CA
881 posts, read 1,441,709 times
Reputation: 478
Rob, the answer depends on the amortization schedule, the most likely scenarios, are that after the 10 yr IO period is over it either goes into a 20 yr amortization schedule, or a 30 year amortization schedule. In the first case your payment will go up roughly 41%, and in the second a little less than 20%. Assuming the same interest rate, of 6%. Your mortgage documents should show the specifics.

As for how much it will adjust to that is all up in the air, between now and then mortgage rates can go up to 10% for all we know, if inflation goes up and the Fed needs to stamp it out, it could go up to 18% as it did in the 80s, which is unlikely, but still possible. It is all up in the air.

If you need the peace of mind you can possibly get a 30yr right now about 6.3% or maybe 6% which would increase your payments 20% to 23.8% that way. What you want to do is up to you.
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Old 07-09-2008, 05:42 PM
 
Location: Edison NJ
1,830 posts, read 3,971,872 times
Reputation: 946
Thank you all, I'll have to dig out the paperwork.

Lender STILL has not called me back. Hmmmm.
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