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He had an interest only mortgage at 3.0% rather than the six percent he would have normally had to pay. So he was paying only 1250 versus the 2500 for a normal 6% mortgage. When the teaser rate expired at 3 years he went to a conventional 30 year 6%. So for the three years he saved 1250 per month or 36x1250=45000.
It is actually not quite that good. Tax impacts means he was actually saving less and he had to pay closing costs of a few thousand when he refied.
(Note the numbers are not exact...just illustrative. I don't have the exact numbers at hand.)
Thanks for taking the time. I was thinking it might be a matter of savings. My assumption, and this might be incorrect but I base it on a few news articles I've read over the years about the housing bubble, is that people taking on the interest only options (and similar) often didn't actually have the money to pay the full mortgage to begin with, say in this example the $2500/mo, so I don't know if he would have really come out ahead. I suppose if prices kept going up that might have been the case. If he indeed had the money and invested it wisely in those few years or simply saved it, he would have come out ahead. That may be the case in this situation, tho, I don't know since I haven't read the entire thread.
At the very least, it would have been a place of residence to be enjoyed for a time that might not have been affordable otherwise.
Thanks for taking the time. I was thinking it might be a matter of savings. My assumption, and this might be incorrect but I base it on a few news articles I've read over the years about the housing bubble, is that people taking on the interest only options (and similar) often didn't actually have the money to pay the full mortgage to begin with, say in this example the $2500/mo, so I don't know if he would have really come out ahead. I suppose if prices kept going up that might have been the case. If he indeed had the money and invested it wisely in those few years or simply saved it, he would have come out ahead. That may be the case in this situation, tho, I don't know since I haven't read the entire thread.
At the very least, it would have been a place of residence to be enjoyed for a time that might not have been affordable otherwise.
Some truth...but this guy likely could have paid cash or mostly so. He was simply taking advantage of an opportunity provided by the builder.
Interest only and option arms actually had a place in the scheme of things. They were simply mis-used in the build up.
Some truth...but this guy likely could have paid cash or mostly so. He was simply taking advantage of an opportunity provided by the builder.
Interest only and option arms actually had a place in the scheme of things. They were simply mis-used in the build up.
Now I wonder what kind of regulations, if any, will be put in place for the future. I think it would have been smart to require a collateral type escrow account for these types of borrowers with provisions that allowed a range of investment options. Point being, if a person doesn't have the funds now, it's unlikely they will have it in 3-5 years, but that doesn't mean everybody should be penalized.
Ok, that makes more sense. There's no way he's going to be able to get further financing, so he won't have a choice but to walk away. The decision to get an interest only is pretty odd. This is just the kind of funny business that helped create the current mess.
It's not odd. It can be a very smart move. Like in the OP's case. Bank has all the risk. He has none. I have bought houses I could have paid for outright with an I/O loan. Even now I take the biggest mortgage I can even though I could pay cash. Why would I play with my money when I can play with the bank's?
I bought a nice 1,200sf condo in 2006 for $245,000 in a real nice hoa. It is 100% financed interest only. The current market value of the condo is $60,000 at best. From a financial logic standpoint, it makes no sense to keep paying the mortgage. The bank already told me they are not going to sue me for deficiency.
Giving this situation, would you...
1. Mail the keys back to the bank.
2. Keep paying the mortgage.
Can I rewrite this for you?
I bought a nice 1200 sf condo in 2006 at the peak of the housing bubble when median home price was 7 times median income, and yes clearly that was a very stupid move on my part. Now I know that walking away from my committment to this mortgage will result in a 185,000 deficiency of real dollars, and I guess my question is, who ultimately eats that 185,000?
Oh....you the American taxpayer, other homeowners, and any person who gets a loan in the future? Then I guess my other question is....screw it. I have no more questions.
It's not odd. It can be a very smart move. Like in the OP's case. Bank has all the risk. He has none. I have bought houses I could have paid for outright with an I/O loan. Even now I take the biggest mortgage I can even though I could pay cash. Why would I play with my money when I can play with the bank's?
Based on the post below, is that really the case?
Quote:
Originally Posted by Beena
Can I rewrite this for you?
I bought a nice 1200 sf condo in 2006 at the peak of the housing bubble when median home price was 7 times median income, and yes clearly that was a very stupid move on my part. Now I know that walking away from my committment to this mortgage will result in a 185,000 deficiency of real dollars, and I guess my question is, who ultimately eats that 185,000?
Oh....you the American taxpayer, other homeowners, and any person who gets a loan in the future? Then I guess my other question is....screw it. I have no more questions.
Of course it's the case, what are you talking about?
The buyer is not out any of his money at all. This is EXACTLY why you take the biggest mortgage possible (when rates are this low).
What I'm saying is that I don't know if "the bank has all the risk" is the case. It seems the banks have been sharing that risk with pretty much everybody.
What I'm saying is that I don't know if "the bank has all the risk" is the case. It seems the banks have been sharing that risk with pretty much everybody.
Oh I see. Yes, I guess I should say the banks and taxpayers assume all the risk.....
In the end it will be overall that wil;ltake the real hit.In this case the biggest hit will occur in Vegas and will last fo rdecades likely. Interesting that banks warned yesterday that the foreclousre rate will be climbing for sometime.
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