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Author Topic: THE COST OF ALLOWING FAILURE?  (Read 7162 times)

Offline REI_Chris

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Re: THE COST OF ALLOWING FAILURE?
« Reply #15 on: March 04, 2009, 10:32:29 am »
People shouldn't be getting 40 yr mortgages.  I know these were and probably are still offered.  If you're looking to spread your mortgage out over 40 yrs, you are buying way more home than you can afford because the monthly payment savings is negligible. 
Take $210K (about the national average for home prices) at 6% for instance:
For 30 yrs - payment is $1259.06
For 40 yrs - payment is $1155.45

For that whopping $103.61 in savings each month, you'll end up paying $101,354.40 over the life of the loan.

It's the same thing as strething an auto loan out to 84 months.  Not worth it.

I think we're being spent into oblivion and they're just going to keep doing it thinking it will change things.  Yesterday was actually the first day that I began to fear my paycheck may be in jeopardy.  There was a time in '98 when military paychecks were delayed for a few days.  If this spending isn't brought under control, that will seem like nothing.


Interest is still paid on the front end of the loan though, and as long as they have collateral/ equity to put into their home, the bank should be OK if the loan doesn't go 40 years.

Offline phlemboy

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Re: THE COST OF ALLOWING FAILURE?
« Reply #16 on: March 04, 2009, 02:23:12 pm »
Justin, I'm not talking about taking the 40 yr. mortgage all the way to the end. What I'm talking about is making the monthly pmts. affordable for people with temporary income reductions. That would helpreduce foreclosures and the resulting, declining surrounding home values. The average person actually refinances or sells about every 7 - 8 yrs. I agree that if you need a 4% 40 yr. loan in order to buy a home, it's too expensive for you. But this money will be spent regardless. Much of that money will not create a lot of jobs in the short term. I think a large focus needs to be in housing. An increase in housing will lead to an increase in jobs. It would help reverse the cycle. This is less about housing and more about jobs. But you need housing to create jobs. I've talked to many regional lenders and they're telling me they're lending with no issues. They don't have the toxic asset exposure to that the big banks do. Many have told me that local regional banks nationwide are in a similar situation. I believe the lending is available for qualified buyers. I also believe there are people waiting on the sidelines until the interest rates go lower and the housing values stop dropping.
"Fat drunk and stupid is no way to go through life son." --Dean Wermer

Offline justin0419

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Re: THE COST OF ALLOWING FAILURE?
« Reply #17 on: March 04, 2009, 10:21:00 pm »
I see your point.  You're talking about a loan somewhat resembling what we've been getting for our commercial loans - a fixed rate for a certain term, but amortized over a longer time to make the payments more affordable.  Consumer confidence has to come back.  People are scared.  Look at what's happened to the national savings rate recently.  Reports I saw not long ago had it at a negative .8% or so.  I saw something yesterday that said it was now at 5%. 
We've found lending, but it was difficult and only from a couple banks.  I actually had a bank willing to fully finance the purchase of a rental property, but then the owner decided he thought he could get full asking price (this was for a property on the market for well over a year). 
Most of the local banks here claim to be strong and only have one foreclosure, if any at all.  Many of the foreclosures I'm seeing around town are from bigger corporate banks. 
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Offline Rich_in_CT

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Re: THE COST OF ALLOWING FAILURE?
« Reply #18 on: March 05, 2009, 08:37:41 am »
Saw a quick news clip about upside-down mortgages.  Showed a house that was bought for $700k, said they still owed $540k.  I'm thinking, "Ok, that sounds great they have some nice equity now."  Then the other shoe drops, they say the current value of the house is $350k.  OUCH!  Now that hurts.  Really sucks, seeing that I know they didn't pay down $160k in the last couple years it sounds like they did everything right and didn't buy no money down, even had a sizable down payment.  Still got raped bad.  Of course they didn't really do EVERYTHING right as they still bought in an out of control market with no regard for the possible (probable)( correction that would come.  Of course if you need a house, you need a house.....everyone needs to live somewhere and you can't always wait around for a price drop whether you know it is definitely coming or not.   I think it was in California or Nevada.  There were a lot of states shown where 30-50% of the mortages were underwater. 

Offline phlemboy

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Re: THE COST OF ALLOWING FAILURE?
« Reply #19 on: March 05, 2009, 09:02:01 am »
The one thing they did wrong was they either bought or leveraged the house at a time when the home values were very overpriced. Those high prices were not the norm, but everyone thought they were. They took on debt through purchases, refi's and HELOC's using these values as a guide. It's less of an issue if you can afford to keep the home comfortably. The problems arise when there's a change in the financial situation and they can no longer afford it. Now they're forced to sell when the home values correct.  RE is very local, regions that didn't skyrocket out of control have tended to remain stable. It's up to future and present homowners to recognize their local market and plan accordingly. I for one am glad that I used 50% of my household income as a guide for buying my first home. It served me well.
"Fat drunk and stupid is no way to go through life son." --Dean Wermer

 




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