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Posted: 8/24/2005 5:39:57 AM EDT
[Last Edit: 8/24/2005 5:40:42 AM EDT by fight4yourrights]
High Home Prices Pushes More Buyers To 40-Year Loans

Mon Aug 22, 2005
By Julie Haviv

NEW YORK, Aug 22 (Reuters) - Sky-high prices are not preventing cash-strapped consumers from getting the house of their dreams now that lenders are letting them drag out the term of their mortgages to 40 years.

By moving from a fixed-rate 30-year to a 40-year loan, borrowers can stretch out loan payments and qualify for larger mortgages with lower payments.

While that seems to be good news for consumers, financial experts say the benefits are far outweighed by higher interest rates, 10 years of extra mortgage payments and a reduction in home equity.

"This (40-year) loan product screams of a budget-constrained consumer desperate to get into a home," said Gary Schatsky, a fee-only financial adviser/attorney. "This trend is disturbing to me, especially since it feeds into the growing obsession by consumers to get credit.

"They need to think through this mortgage's implications because in many cases, it will become their children's mortgage," said Schatsky, who is based in New York.

Incessant home price appreciation over the past few years has left some consumers with little choice but to seek riskier type loans, such as 40-year loans and interest-only loans.

The 40-year mortgage is more attractive than interest-only loans because borrowers build equity in their homes, albeit at a sluggish pace, and they are not vulnerable to rising interest rates, said Celia Chen, director of housing economics at Economy.com, a consulting firm.

The 40-year fixed-rate mortgage was created in the late 1980s by several California savings and loan associations.

With house prices soaring, there has been an uptick in demand over the past year for the loans, according to several lenders.

Lenders' interest in offering 40-year loans may grow, since as of June, they can sell certain 40-year fixed-rate loans to Fannie Mae <FNM.N>, the nation's largest mortgage finance company.

Thirty- and 15-year fixed-rate mortgages comprise about 70 percent of the market, with adjustable rate mortgages accounting for nearly all the rest, according to the Mortgage Bankers Association, an industry trade group. The MBA does not track 40-year loan applications.

PROS AND CONS

Real estate brokers and lenders say consumers are being resourceful in taking out 40-year loans when double-digit home price appreciation has become the norm.

"Most borrowers do not plan to live in the house for 30 years, so a longer term is of no consequence," said Diane Saatchi, senior vice president with the The Corcoran Group, a major residential real estate firm.

"They figure to sell in about seven years; having 23 or 33 years left on the term is inconsequential," she said.

But 40-year loans have their critics, like Schatsky, who does not recommend them to to his clients unless they are severely cash-strapped or have a clear sense of future income streams.

Another research group, Bankrate.com, notes that interest rates on 40-year mortgages are generally 0.25 to 0.50 percentage point higher than on traditional fixed 30-year loans. That difference negates some of the benefits of the lower monthly payment.

Even with the same rate as on a 30-year loan, the 40-year loan's savings appear negligible.

For example, a $200,000 mortgage financed for 30 years at a fixed rate of 5.75 percent would carry a monthly payment of $1,167.15, Bankrate.com said.

By stretching the loan term an additional 10 years, borrowers, even at an identical interest rate, reduce their monthly payment by just over $100, to $1,065.78. However, the borrower also would have $16,389 less in equity at the end of the first decade of payments and would have paid an extra $4,200 in interest.

"This all stems from affordability and borrowers stretching themselves beyond their reach to get into a home they can't afford," said Economy.com's Chen. "What's next, a 50-year loan?"

Recent anecdotal evidence indicates that home price increases are beginning to decelerate, a sign the housing sector is starting to cool.

"When housing cools, so will these loans," said Schatsky. "If a consumer has to take out this loan to qualify for a home, their goal of homeownership needs to be seriously reevaluated."

Link Posted: 8/24/2005 5:47:56 AM EDT
Hmm, at what point does home "ownership" actually become renting?

an extra 10 years to save $100 a month??

Link Posted: 8/24/2005 5:53:07 AM EDT
if you can't afford to buy a home on a 15 year loan, you can't afford to buy a home IMHO
Link Posted: 8/24/2005 5:55:48 AM EDT

Thirty- and 15-year fixed-rate mortgages comprise about 70 percent of the market

Anyone have numbers on that broken-out? Someone here in another thread claimed that 99+% of home loans today are for 30 years. I do about 600 tax returns a year, and I can only remember seeing one home loan that was for that long. The two most recent loans I was involved with were each for 5 years. They were both for family members that put half down. The one before that was for a 10-year home loan. I just don't believe that 99+% claim a member here made.

Forty year loans are just insane. For a $200k house at 7%, the payments are $1,330.60 for a 30-year loan and $1,242.86 for a 40-year loan. That means that over the term of the loan, you'll pay almost $118,000 more for the house. By paying just $87.74 more per month, you'll save $118k.z
Link Posted: 8/24/2005 5:56:42 AM EDT
My brother-in-law and his new wife tried to buy a home in MD. Nothing I would call decent living for a normal person, not under the care of the state was more than 200k. WTF. I wrote the county commisioners office and said that maybe something can be done, because this is driving more and more young people out of the area, and if they want to get re-elected, than they better have voters who aren't near the end of their days.
Link Posted: 8/24/2005 6:04:19 AM EDT
[Last Edit: 8/24/2005 6:10:18 AM EDT by Grunteled]

Originally Posted By AssaultRifler:
if you can't afford to buy a home on a 15 year loan, you can't afford to buy a home IMHO



Bull.

I wouldn't do a 40 year note though. Others can if they wish. As long as you know what your doing and are willing to accept the financing there is nothing wrong with longer notes. These aren't cars, locking up a good property NOW vs 5 years from now is important. Even if the bubble bursts it will be better to get in before the peak than to be the poor shmoe who buys the year before the rug comes out from under everything.
Link Posted: 8/24/2005 6:08:34 AM EDT
Holy shit, I'd hate to commit to 40 years of mortgage slavery just before the housing bubble bursts.
Link Posted: 8/24/2005 6:10:54 AM EDT

Originally Posted By Rodent:
Holy shit, I'd hate to commit to 40 years of mortgage slavery just before the housing bubble bursts.



Damn straight.
Link Posted: 8/24/2005 6:13:34 AM EDT

Originally Posted By zoom:

Thirty- and 15-year fixed-rate mortgages comprise about 70 percent of the market

Anyone have numbers on that broken-out?



According to Bankers Group Debunks Housing Bubble:

• An estimated 35% of homeowners have no mortgage debt of any type.

• About 51% have a fixed-rate mortgage, immune from rising interest rates.

• The remaining 14% have adjustable-rate loans that could veer higher, but about half are held by high-income borrowers or borrowers with years of successful experience paying a varying interest rate.

Link Posted: 8/24/2005 6:19:47 AM EDT

Originally Posted By Bubbles:


• An estimated 35% of homeowners have no mortgage debt of any type.





Bastards.....
Link Posted: 8/24/2005 6:20:12 AM EDT

Originally Posted By AssaultRifler:
if you can't afford to buy a home on a 15 year loan, you can't afford to buy a home IMHO



There can be nothing further than the truth. Money can be used in many ways. A 30 Year may free up some funds for another home, other investments, etc.

Link Posted: 8/24/2005 6:26:09 AM EDT

Originally Posted By Grunteled:

Originally Posted By Bubbles:


• An estimated 35% of homeowners have no mortgage debt of any type.





Bastards.....



Probably 80% of them are retirees.
Link Posted: 8/24/2005 6:27:17 AM EDT

Originally Posted By Bubbatheredneck:
Hmm, at what point does home "ownership" actually become renting?

an extra 10 years to save $100 a month??




The people using the 40 year mortgage are buying a 1200 square-foot fixer-upper for $700,000 and financing around $600,000. They are probably married couples that pay out 50% of their income for their mortgage payment, so saving a few hundred a month on their payment is critical. Welcome to California.

That's exactly why I left California and moved to Texas.
Link Posted: 8/24/2005 6:29:08 AM EDT
40yr seems better than interest only
Link Posted: 8/24/2005 6:30:24 AM EDT

Originally Posted By Chaingun:
40yr seems better than interest only



40 year, do the amortization....it is like interest only
Link Posted: 8/24/2005 6:32:58 AM EDT
[Last Edit: 8/24/2005 6:49:24 AM EDT by AssaultRifler]

Originally Posted By ZitiForBreakfast:

Originally Posted By AssaultRifler:
if you can't afford to buy a home on a 15 year loan, you can't afford to buy a home IMHO



There can be nothing further than the truth. Money can be used in many ways. A 30 Year may free up some funds for another home, other investments, etc.




At the price of paying 2-3X as much in mortgage interest. And of course after 15 years all your money will be freed up since the 15 year mtg will have been paid back in full

ETA: the money freed up better earn more than what the mtg interest rate is else you're losing money. If you have a 30 yr mtg at 6% for example, supposedly you have freed up money because you dont have a 15 year mtg at 6%, so invest the difference. Can you make >6% on it?
Link Posted: 8/24/2005 6:38:51 AM EDT

Originally Posted By Chaingun:
40yr seems better than interest only



Even scarier than interest-only loans are the so-called "option" loans. The minimum monthly payment is actually less than the interest payment, so the amount the borrower owes increases every month. People who get these loans hope that their house appreciates faster than the additional amount owed, and they're the ones who will get clobbered if the housing market flattens or even increases at a slower pace than in recent years.
Link Posted: 8/24/2005 6:43:46 AM EDT

Originally Posted By Bubbatheredneck:
Hmm, at what point does home "ownership" actually become renting?
...



With the advent of HELOCs and interest-only payments, that's a good question. Of course, you get a deduction if you itemize on your taxes; but paying $5000 in mortgage interest to save $2000 on taxes (just a possible example) may or may not be a good idea depending on how fast housing prices are escalating in the area. Also, as the value of the house rises it begins to look less and less like rent as the home "owner" can/may capitalize on the housing price inflation. Of course, that assumes the house value continues to rise and that one would plan to sell the house for the capital gains. Problem is that one might simply have to turn around and buy another house at an inflated price.
Link Posted: 8/24/2005 6:45:52 AM EDT
I love seeing my friends get 30yr mortgages
on condos. They scoff at my 5/1 ARM by saying
that they are building equity. It shuts them
up fast when they look at the amortization table.

We'll both end up in the same place due to
appreciation after 5 years, but they will have
paid a whole lot more interest.

The lack of economic education in the country
is astounding.
Link Posted: 8/24/2005 6:47:12 AM EDT

Originally Posted By AssaultRifler:
if you can't afford to buy a home on a 15 year loan, you can't afford to buy a home IMHO

Not true at all.
Link Posted: 8/24/2005 6:48:05 AM EDT

Originally Posted By Spudgunner:
Problem is that one might simply have to turn around and buy another house at an inflated price.



The only way that I know of to make money on
your primary residence is to move from a high
value (the northeast) area to a lower value area
(the south).

At least that is my plan.
Link Posted: 8/24/2005 7:00:16 AM EDT

The only way that I know of to make money on
your primary residence is to move from a high
value (the northeast) area to a lower value area
(the south).


Or move into a smaller place after the kids leave, rent an apartment (rent hasn't risen as much as property values, even in CA), or into a nursing home. A nursing home could be in your future much sooner than you think. At my wife's nursing home, half of the men are under 60. As of Sunday, I'll be 12 years older than their oldest male resident. An apartment or condo could be in your future even before then if you're unable to take care of a house and yard.z
Link Posted: 8/24/2005 7:03:04 AM EDT
Do what Mrs Pic and I did:

A. pay as much down as you can.

B. Cet the biggest house you can scrape by on.

C. As inflation, pay raises, etc increase your pay, double up on payments whenever you can.

We paid off a 30 year fixed in about 13 years.
Link Posted: 8/24/2005 7:04:02 AM EDT

Originally Posted By SemperParatusEmt:
My brother-in-law and his new wife tried to buy a home in MD. Nothing I would call decent living for a normal person, not under the care of the state was more than 200k. WTF. I wrote the county commisioners office and said that maybe something can be done, because this is driving more and more young people out of the area, and if they want to get re-elected, than they better have voters who aren't near the end of their days.



On the other hand my neighborhood which has mostly $375-400k homes also has Secion 8 Housing. The government pays fantastic rents to house the worthless in valuable housing.

GunLvr
Link Posted: 8/24/2005 7:12:29 AM EDT
It's all the Yankees and Californians.

Seriously. I bought a lot to build on last year. 3/4 acre for 2500$. Total cost of the build was 177K. I retired the bridge loan with the sale of the old house and now am sitting in the wife's dream home with 650$ monthly payments on a 15 year note.

Enter the out-of-staters. Since it's a new subdivision with lots bigger than a postage stamp and surrounded by a nature preserve and lake, they're running around here in stampeding herds buying lots. Real Estate agents are driving them thru here in passenger vans.

Going price for lots We passed on is now in the 31K range. IN ONE YEAR!! Heck, some of them have a 40 degree slope on the side of a ravine but are still selling.
Link Posted: 8/24/2005 7:14:31 AM EDT
Who do you know that owns their home free and clear? The majority of Americans will NEVER pay off their homes. Aggressive new programs and cheap money are why NEW homeownership is at an all-time high. Back in the day, you needed 20% down payment and couldn't spend more than a third of your total income on housing and ALL OTHER EXPENSES. Preach all you want, but homeownership isn't just for the rich. New programs help middle and lower income folks own homes. They'll probably NEVER own their home free and clear, but who cares? I probably won't either. I can use all the tax breaks I can, especially when the borrowing cost is so cheap!
Link Posted: 8/24/2005 7:20:49 AM EDT

Originally Posted By Johninaustin:
It's all the Yankees and Californians.




Certain amount of truth here.

N.Carolina is being RUINED by NJ residents moving south.

They move for low taxes and then demand services like they had in NJ.

This raises the tax rate through the roof.

If they wanted street lights, sidewalks and trash pickup, they should have stayed in Jersey!
Link Posted: 8/24/2005 7:35:53 AM EDT
Anyone here have opinions about fresh-out-of-college folk buying a house with no down payment? A lot of my friends did this and I am thinking about it too...
Link Posted: 8/24/2005 7:52:59 AM EDT

Originally Posted By QuantumPion:
Anyone here have opinions about fresh-out-of-college folk buying a house with no down payment? A lot of my friends did this and I am thinking about it too...



There are a lot of extra expenses with this, with extra insurance and a higher interest rate. I chose to wait until I could put down better than 10%. That seems to be the magic line when it all comes down.
Link Posted: 8/24/2005 8:23:02 AM EDT

Originally Posted By happycynic:

Originally Posted By QuantumPion:
Anyone here have opinions about fresh-out-of-college folk buying a house with no down payment? A lot of my friends did this and I am thinking about it too...



There are a lot of extra expenses with this, with extra insurance and a higher interest rate. I chose to wait until I could put down better than 10%. That seems to be the magic line when it all comes down.



5% is ok. No extra insurance on most new loans.

You'll have to pay PMI on anything over 80% of the houses value. The lenders get around this by putting you in an 80/20 loan or an 80/15 with 5 down.

If you have good credit, you'll typically get 'the best' rate on the 80 portion by putting 5% down. You get better rates on the second loan by putting more down. A lot of times the second will be a HELOC - avoid that if you can, a fixed rate Home-equity-loan isn't going to go up, even if the initial interest rate is a little higher. A lot of times it's the same, though.
Link Posted: 8/24/2005 8:45:16 AM EDT
A little more...

You're going to want to look carefully at what your buying, and how long you're going to live there. Ordinarilly, I advise people to always go for a 30-year mortgage. However, sometimes an ARM makes sense, typically in a place that you don't think you're going to live in for many years.

An example of that might be a small condo you plan to live in alone. You definately won't want to live there with a family, so you would be selling it and moving into something bigger in the future. In that case, you might be buying something that you plan on living in for 3-5 years, and at the outside, 6-7. In those cases, a 5/1 or a 7/1 ARM makes tons of sense - you get a lower interest rate for the period of the loan that you are actually using. Of course, you are taking a risk - you still need to sell it and move before the interest rates adjust.

In the 80/20 situation...

A lot of those loans will try to force you towards an ARM. If they do that, you should try to pay down the second loan before the ARM can adjust. That way, you limit your exposure to an interest rate increase after the fixed period of the ARM. I wouldn't touch an ARM with a fixed period under 5 years. Stay away from 3/1 and 1/1 ARM's.

Interest only loans are ONLY good if you pay them like regular amortizing loans. Then they can allow you slightly more flexibility to deal with things like job losses, etc. But you have to be dilligent about it - you can't pay the minimum, or you'll get in trouble. Generally I'd advise to stay away from this. It's too easy to get yourself in trouble.

On overpaying, and getting rid of the loans...

I don't think that on a regular amortizing loan, it's generally a good idea to overpay. You will save a ton of money in interest, that is definately true. However, that interest savings that you have is TAX DEDUCTABLE - which means that your losses are effectively subsidized by the government, to the tune of tens of thousands of dollars over the life of the loan. So the effect on you isn't as signifigant as it might first appear.

The other aspect of this is that, with todays low interest rates, you are almost certain to do better if you invest the money you would have overpaid. If your loan is at 6%, an investment at 6% will do better than break even for you (because of compounding), even before you count the tax savings. Even at an investment gain of 3-4% you're still breaking even. And that's a very reasonable investment number.

NEVER overpay on your mortgage until you've at least maxed out your Tax-advantaged investment accounts - 401(k)'s and the like. After that, it's up to you. I overpay a little and invest more. But don't pour ALL your extra money into the mortgage payment.
Link Posted: 8/24/2005 8:57:19 AM EDT

Originally Posted By ASUsax:
A little more...


In the 80/20 situation...

A lot of those loans will try to force you towards an ARM. If they do that, you should try to pay down the second loan before the ARM can adjust. That way, you limit your exposure to an interest rate increase after the fixed period of the ARM.



This is what I'm doing....I have an 80/20. The first is a 5/1 i/o with a cap under 10%. The second is a HELOC.

I'm making at least triple payments on the HELOC. It will be paid off before the first adjustment.

Either way, I have $200k in equity after <2 yrs here.

It's easy to poo poo I/O loans if you live someplace affordable.

How many of you could pay a 30 year payment on a $500k note?
Link Posted: 8/24/2005 8:57:22 AM EDT
whe we re-fie'd we went from 30 to 15 now at 5% cast like 125 a month more, but will save us 70K in interest over the loan. down to 13.5 years now

W00t!

Hopefully I live long enough to see that last payment!
Link Posted: 8/24/2005 9:08:41 AM EDT
[Last Edit: 8/24/2005 9:15:41 AM EDT by jthuang]

Originally Posted By ASUsax:
On overpaying, and getting rid of the loans...

I don't think that on a regular amortizing loan, it's generally a good idea to overpay. You will save a ton of money in interest, that is definately true. However, that interest savings that you have is TAX DEDUCTABLE - which means that your losses are effectively subsidized by the government, to the tune of tens of thousands of dollars over the life of the loan. So the effect on you isn't as signifigant as it might first appear.

The other aspect of this is that, with todays low interest rates, you are almost certain to do better if you invest the money you would have overpaid. If your loan is at 6%, an investment at 6% will do better than break even for you (because of compounding), even before you count the tax savings. Even at an investment gain of 3-4% you're still breaking even. And that's a very reasonable investment number.

NEVER overpay on your mortgage until you've at least maxed out your Tax-advantaged investment accounts - 401(k)'s and the like. After that, it's up to you. I overpay a little and invest more. But don't pour ALL your extra money into the mortgage payment.



+1. I think it was Ric Edelman who said "no one ever got rich by paying off their mortgage early". It was in his book The New Rules of Money.

I am doing the same thing as you ... I am paying a little extra towards my mortgage and pouring the rest into mutual funds.

[ETA: I bought my condo last August under an 80/10/10 where the 80 is a fixed 30 year, 10 is an interest-only and the last 10 was in cash. The "extra" is towards the interest-only loan and I expect to have that paid off, at this accelerated rate, in less than two years from now.

I did not overextend myself to purchase my place. My mortgage payment is about 13% of my gross compensation, not counting stock options or other bonuses. My condo is also "more than I need" so if things go south I will be okay staying here for a while. I am single and living in a 3br/2.5ba condo with a parking spot (and no car).]
Link Posted: 8/24/2005 9:24:31 AM EDT
you can look at it anyway you want- All i know is in 13.5 years, I wont have a mortgage payment, I will have saved 70k in interest and the "tax saving" is not that great- to me anyway. I think I will continue where I am at..thanks.
Link Posted: 8/24/2005 9:28:54 AM EDT
No, more people buying more house than they can afford is resulting in more 40-year mortgages.
Link Posted: 8/24/2005 11:25:36 AM EDT

Originally Posted By zoom:

Thirty- and 15-year fixed-rate mortgages comprise about 70 percent of the market

Anyone have numbers on that broken-out? Someone here in another thread claimed that 99+% of home loans today are for 30 years. I do about 600 tax returns a year, and I can only remember seeing one home loan that was for that long. The two most recent loans I was involved with were each for 5 years. They were both for family members that put half down. The one before that was for a 10-year home loan. I just don't believe that 99+% claim a member here made.

Forty year loans are just insane. For a $200k house at 7%, the payments are $1,330.60 for a 30-year loan and $1,242.86 for a 40-year loan. That means that over the term of the loan, you'll pay almost $118,000 more for the house. By paying just $87.74 more per month, you'll save $118k.z



And I'm guessing you can get a real nice house down there for $150K, right? I know I could get the same house in NC to what I've got now for about, oh, $700,000 less, and it won't be 55 years old

Up here, that wouldn't buy my garage. Seriously. Two bedrooms cape Cods down the street from me are $600k.

I'm guessing in this neck of the woods, there are a LOT more 30 year loans.

Link Posted: 8/24/2005 11:30:49 AM EDT
[Last Edit: 8/24/2005 11:31:16 AM EDT by NoVaGator]

Originally Posted By Fenian:

Originally Posted By zoom:

Thirty- and 15-year fixed-rate mortgages comprise about 70 percent of the market

Anyone have numbers on that broken-out? Someone here in another thread claimed that 99+% of home loans today are for 30 years. I do about 600 tax returns a year, and I can only remember seeing one home loan that was for that long. The two most recent loans I was involved with were each for 5 years. They were both for family members that put half down. The one before that was for a 10-year home loan. I just don't believe that 99+% claim a member here made.

Forty year loans are just insane. For a $200k house at 7%, the payments are $1,330.60 for a 30-year loan and $1,242.86 for a 40-year loan. That means that over the term of the loan, you'll pay almost $118,000 more for the house. By paying just $87.74 more per month, you'll save $118k.z



And I'm guessing you can get a real nice house down there for $150K, right? I know I could get the same house in NC to what I've got now for about, oh, $700,000 less, and it won't be 55 years old

Up here, that wouldn't buy my garage. Seriously. Two bedrooms cape Cods down the street from me are $600k.

I'm guessing in this neck of the woods, there are a LOT more 30 year loans.




Allow me to add that Fenian isn't bragging...

He lives in a "modest" Cape Cod in a solid middle class neighborhood. He just happens to be really close to DC.

I think many are under the impression that some of us are living in mansions in Potomac or McLean.
Link Posted: 8/24/2005 12:09:03 PM EDT
"What's next, a 50-year loan?"[i/]

Yes, and eventually a 100 year loan like in Japan. Even a 40 year loan is smarter than an interest only loan.

Who intends to run out the full term of any loan though? Either you move in 7 years, or you stay in the home for life and pay it off several years early. I have a 30 year load which I have had for 8 years. Im about more 5 years I can write a check to pay off the entire loan if I choose to.
Link Posted: 8/24/2005 12:11:56 PM EDT
[Last Edit: 8/24/2005 12:16:45 PM EDT by Kharn]
If you cant afford a house on a 30-yr fixed-rate loan these days (with rates at ~5.5 to 6%), you really shouldnt be buying a house. 40-yr fixed-rates are a sick, cruel joke on those that cant do math.

I just bought a $210k, 980sqft (+ 900sqft basement) house on 1/4 acre this spring, even though the mortgage is half my after-tax take-home, I knew it was better than renting (property goes up 20% per year in this part of MD) and trying to buy later, as I'd never catch up. I was only out of college 10 months before I signed the papers on my house. So, yes, it is totally possible to pull off. Buy as soon as you possibly can, do not wait.

Kharn
Link Posted: 8/24/2005 12:12:31 PM EDT

Originally Posted By Grunteled:

Originally Posted By Bubbles:


• An estimated 35% of homeowners have no mortgage debt of any type.





Bastards.....



Yeah, I'm one of those bastards. This is a DINK household, house is paid off. Took only 7.5 years...I'm 40, and the wife is 36. Smooth sailing while we save for a house in a nicer area (and slightly larger).
Link Posted: 8/24/2005 12:12:55 PM EDT

Originally Posted By QuantumPion:
Anyone here have opinions about fresh-out-of-college folk buying a house with no down payment? A lot of my friends did this and I am thinking about it too...


Yep. Join the military and after you get out get a VA No No home loan.
Link Posted: 8/24/2005 12:20:00 PM EDT

Originally Posted By Cleatus:
you can look at it anyway you want- All i know is in 13.5 years, I wont have a mortgage payment, I will have saved 70k in interest and the "tax saving" is not that great- to me anyway. I think I will continue where I am at..thanks.



I was in a similar situation. I was stuck in a mortgage at 7.5%. It was an VA assumption, and noone would touch it to enable us to refinance. We paid it off in 7.5 years, saved about $80,000 in interest. We're socking away a pretty tidy sum each month now.

I never saw any benefit to paying $5000 in interest a year and only getting back $1000 in tax reduction. We have no kids, so after the first 2 years of the loan, we didn't have enough deductions to exceed the standard deduction.

If you can get a mortgage for some insanely low rate, you might want to gamble in the stock market, hoping to make more money. We compromised, paid it off early, while still socking away over $1000 a month into conservative investments. Worked out for us. But you ARE taking a risk nonetheless.
Link Posted: 8/24/2005 12:29:49 PM EDT
[Last Edit: 8/24/2005 12:30:21 PM EDT by Fenian]

Originally Posted By NoVaGator:

Allow me to add that Fenian isn't bragging...

He lives in a "modest" Cape Cod in a solid middle class neighborhood. He just happens to be really close to DC.

I think many are under the impression that some of us are living in mansions in Potomac or McLean.




Actually, mine's a brick colonial lol.

Thanks NoVaGator...I did not mean to come off like I was bragging. I fogot to add I'm gonna have to sell the damn house 'cos I can't afford to live here lol. Basically, I'm poor white trash living in a nice neighborhood, with a mortgage I can't afford any more.

Instead of paying off the house when my dad died, I tried to get rich in the stock market, lost a chunk of money, then was out of work for 10 months. So, I've done 3 re fis, the last one into an ARM, hoping to get 3 years out of it...but it's gonna be two years. Between the taxes, the utilities, and the escalating monthly payment, North Carlolina is beginnig to look VERY inviting hehe. I've been pricing houses in various parts of the state, and I could live very comfortably in a house costing between $125,000 and $150,000. Under those circumtances, a 15 year mortgage makes perfect sense.

A 30 year loan where I'm at would be $2594 a month WITHOUT the escrow for the taxes...add another $475 a month for that...so I'd be OVER $3K a month just for the house payment.

Now, if you were gonna buy my house for what I estimate market value is...$800,000, and you put down $200K...you're looking at a monthly payment on a 15 year loan of: $4942.39!!!!!! Who in GOD'S name can afford that?? Going to 30 years gets you down to $3500 a month , a relative bargain hehe.

I'd love to stay here, but I don't think I'll finda anything in the area that I could afford, really, even with the profit I'll get selling this house.

With numbers like this, you can see why people go 30 year around here, and I'm sure some will go 40 if they have to.

Link Posted: 8/24/2005 12:36:02 PM EDT

Originally Posted By ZitiForBreakfast:

Originally Posted By Chaingun:
40yr seems better than interest only



40 year, do the amortization....it is like interest only



Some of the interest-only loans automatically recalculate the minimum payment due when you pay down principal. On a 40-year note it's a stretched out version of 30-year amortization - If you want to reduce your minimum payment you have to refinance.

The interest-only loans are a lot more flexible in that respect.
Link Posted: 8/24/2005 12:38:47 PM EDT
Link Posted: 8/24/2005 12:40:43 PM EDT

Originally Posted By Fenian:

Originally Posted By NoVaGator:

Allow me to add that Fenian isn't bragging...

He lives in a "modest" Cape Cod in a solid middle class neighborhood. He just happens to be really close to DC.

I think many are under the impression that some of us are living in mansions in Potomac or McLean.




Actually, mine's a brick colonial lol.





well if you'd let me come in the front door I'd know that,
Link Posted: 8/24/2005 12:47:17 PM EDT
a 40-year real estate loan is still better than an 8-year car loan any day of the week. These people that do that just to afford a monster truck or whatever should be flogged. I can say that because I have to suffer the economy that they drive down with all their bancruptcies.
Link Posted: 8/24/2005 12:58:15 PM EDT
[Last Edit: 8/24/2005 12:59:13 PM EDT by Fenian]

Originally Posted By NoVaGator:

well if you'd let me come in the front door I'd know that,



Friends get to use the side door like you...I usually draw down on anyone who comes to the front door
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