Homeowners feeling pain of rising rates

[hegemony]

http://www.post-gazette.com/pg/06222/712559-28.stm

[centex]

I don't feel sorry for those people who claim that they "didn't know" about the terms. What that tells me is they couldn't be bothered to take the time to read and attempt to understand what they were signing...they just wanted the keys to the house. They were the house equivalent of the payment shoppers that the car dealers see every day...

 

I'm actually awaiting the increase in nice property on the local foreclosure markets...another six months and it ought to be nice pickings.

[autoxer]

More than 30 percent of mortgage brokers believe their clients don't understand the mortgage product they selected.

Wow..

[Marty716]

"Often the reason somebody is put into an ARM or an interest-only loan ... is because that's the only way the broker or loan officer could get them qualified"

 

If a person can't qualify for a basic 15 or 30 year term loan, why on earth would a mortgage underwriter approve them, when there's a good chance they'll default?

[hegemony]

"Often the reason somebody is put into an ARM or an interest-only loan ... is because that's the only way the broker or loan officer could get them qualified"

 

If a person can't qualify for a basic 15 or 30 year term loan, why on earth would a mortgage underwriter approve them, when there's a good chance they'll default?

to make a profit...

[Marty716]

"Often the reason somebody is put into an ARM or an interest-only loan ... is because that's the only way the broker or loan officer could get them qualified"

 

If a person can't qualify for a basic 15 or 30 year term loan, why on earth would a mortgage underwriter approve them, when there's a good chance they'll default?

to make a profit...

Now I'm talking about the people who underwrite these loans, not broker's or loan officers who sell them. If the default rates star to climb, that's got to hurt them in some way.

[meathead]

I don't feel sorry for those people who claim that they "didn't know" about the terms. What that tells me is they couldn't be bothered to take the time to read and attempt to understand what they were signing...they just wanted the keys to the house. They were the house equivalent of the payment shoppers that the car dealers see every day...

 

I'm actually awaiting the increase in nice property on the local foreclosure markets...another six months and it ought to be nice pickings.

 

Muh-hahahaha... right there with ya!

 

Feel that burn ARM suckers! How's that Hummer/BMW/Charger payment feel now with your recent mortgage rate adjustment?!

 

JG

[radi8]

I haven't understood the logic that says when rates are at historic lows, it's a good idea to get into an adjustable-rate product. Which way did they think their payments would eventually go?

 

I suspect a fair number of these people either didnt' understand the ramifications of an ARM with a big prepayment penalty, or knew but didn't care. <sigh>

 

"sure you can afford this house- it's not really a "purchase", it's an investment in your future!

We'll do a No-Doc, you can squeeech just a little more in the "income" column that way. But hey, we'll give you an intro 2.9% on this nice little ARM so you can afford the payments!

If you aren't happy, you can always sell or refi, right? (never mind the prepayment penalty muhahah) "

[TxQuiltGirl]

"sure you can afford this house- it's not really a "purchase", it's an investment in your future!We'll do a No-Doc, you can squeeech just a little more in the "income" column that way. But hey, we'll give you an intro 2.9% on this nice little ARM so you can afford the payments!

If you aren't happy, you can always sell or refi, right? (never mind the prepayment penalty muhahah) "

 

And there it is! People weren't buying houses to live in, they were buying them for "investments". Now the interest rates are going up. What's going to happen to them when the prices go down, and the houses aren't valued so high anymore?

 

People used the ARMS and I/O's to get into houses they couldn't afford and now they're complaining about it? And we're supposed to feel sorry for them?? I don't think so. I can totally understand the default when you have an event you can't foresee, but something like this is ... ridiculous. And I've lost a house before, so I know what it's like to go through that!

 

Next time I buy a house, I will buy one that's well within my means to afford. I wouldn't dare consider an ARM or I/O that could come back and bite me!

[TopDoggy]

"sure you can afford this house- it's not really a "purchase", it's an investment in your future!We'll do a No-Doc, you can squeeech just a little more in the "income" column that way. But hey, we'll give you an intro 2.9% on this nice little ARM so you can afford the payments!

If you aren't happy, you can always sell or refi, right? (never mind the prepayment penalty muhahah) "

 

And there it is! People weren't buying houses to live in, they were buying them for "investments". Now the interest rates are going up. What's going to happen to them when the prices go down, and the houses aren't valued so high anymore?

 

People used the ARMS and I/O's to get into houses they couldn't afford and now they're complaining about it? And we're supposed to feel sorry for them?? I don't think so. I can totally understand the default when you have an event you can't foresee, but something like this is ... ridiculous. And I've lost a house before, so I know what it's like to go through that!

 

Next time I buy a house, I will buy one that's well within my means to afford. I wouldn't dare consider an ARM or I/O that could come back and bite me!

 

 

 

Agreed.... But I do feel some empathy. I did buy an arm (with crappy credit scores) but refinanced into a fix at the best rates (actually one of the few that rebuilt their credit). So i consider myself EXTREMELY lucky. It is funny because my credit was so bad and the terms sucked so much, obtaining the fix lowered my payments! Go figure. Although I have no sympathy to all the wannabe Trumphs out there that specced and flipped every house from DC to China and are now stuck with them begging for a tenant.

[zx10 guy]

I'm one of the unfortunate souls that bought into an ARM loan. Actually, it's my HELOC that I used to do all the improvements to my house. I wish I had just gotten a fixed home equity loan. At the time it was 5.5% fixed for 20 years. The problem was that I didn't know exactly how much I was going to need to do the work. If I knew I would be spending as much as I did, I would have just gotten the home equity loan. I also thought I might be saving some money by doing a HELOC since I was only drawing the money over a period of time as the construction milestones were achieved. Plus the credit union was offering to cover all closing costs if I got into a HELOC. Not in my wildest imaginations would I have thought interest rates would climb so severely in such a short time. I was willing to accept the risk of higher rates but didn't expect this. I also have to ride out the HELOC for a few more months as I have to keep the credit line open for 2 years or I would have to pay back the closing costs. Refing into a single fixed loan isn't an option either as my 30 years fixed primary mortgage is at 5%. So I'll have to take out a second mortgage to get out of the ARM when the 2 years is up. In the meantime, I'm paying more than the monthly payments into the loan so I can get out of it quicker. My payments on the HELOC are currently around $750 and I'm paying in $1000. Once I get my Focus paid off, I'll be putting in $2k a month into this HELOC/2nd mortgage.

 

I guess I can say I'm not hurting too bad with the interest rate increases in my ARM loan but I don't like paying more interest than is necessary. At least, I have the comfort that I put equity I pulled out right back into the house instead of splurging on unnecessary items.

[54regcab]

That's what happens when you take on a mortgage more than 3X your annual income.

Edited August 14, 2006 by 54regcab

[hegemony]

That's what happens when you take on a mortgage more than 3X your annual income.

there is nothing magic about this "3x" rule.

 

some "experts" would be upset that we have a mortgage that is .5X annual income...

[54regcab]

That's what happens when you take on a mortgage more than 3X your annual income.

there is nothing magic about this "3x" rule.

 

some "experts" would be upset that we have a mortgage that is .5X annual income...

 

No there is nothing magic specifically about 3X, but most people under 3X normally have house payments they can handle without too much trouble. When people start pushing 4X and 5X it's no surprise they have problems when the ARM adjusts. Pop over to the Mortgage forum and you see people doing it all the time.

We're at about 2X our annual income, which is what is reccommended by the book "The Millionaire Next Door"

Edited August 14, 2006 by 54regcab

[shasta]

My mortgage is an ARM. Live and learn. I did not get the ARM because I couldn't afford the house. The house is very affordable for me (less than 2X my annual income). There were some other factors. I am looking to refi now. Thank goodness for Credit Boards. I have learned so much. I am a single mom and have had to learn it all on my own.

[chatterweb]

My mortgage is an ARM. Live and learn. I did not get the ARM because I couldn't afford the house.

 

 

 

I have an arm that will expire in 2011. 4.5 fixed for now.

 

I had the choice of a 5% at 30 years fixed, kicking myself now that I did not take it!

 

I am rate watching madly, and hope to get the 5.0 rate in the next 5 years fixed...

I am watching it all everyday, and paying off consumer debt so when the time comes, we will be fine tuned and ready to go!! Ready to refi with no cash out, and a new lower rate I hope!

Edited August 15, 2006 by chatterweb

[TxQuiltGirl]

Well my opinion is that if you bought a house you CAN afford - regardless of the program - that's one thing. But we've all seen people who bought houses that they clearly could not afford. I'm thinking of people who bought $350k homes on their $60k a year salary.

 

I'm sure that some folks have very good reasons for taking out ARMs and maybe even I/O. But I think that some folks didn't figure on the interest rates going up or what they would do on the I/Os when the principal comes due. And it's that shortsightedness I don't really understand.

[meathead]

Not counting our rental house (rented to my sister and bro-in-law at a break-even price for me) our lived in mortgage total equals .83% our annual incomes. Both homes are on 30 fixed with rates less than 5.35%.

 

I shudder at the thought of having a total mortgage that is 3x our annual incomes.

 

I guess it just comes down to individual comfort levels. I know many co-workers who are "house-poor", a position I have been in and did not like a single bit.

 

 

JG

[TJ Girl]

That's what happens when you take on a mortgage more than 3X your annual income.

That's not ALWAYS what happens, you should avoid generalizations.

 

I have a mortgage 4X my annual salary (a conventional 30-year fixed, no fancy products for me).

Every month I still put money in my 401K, each of 3 investment accounts, and pay extra towards the mortgage. My IRA is already maxed for the year.

So a hard and fast rule about some multiple of salary debt doesn't work for everyone.

 

My mortgage is my only debt, though.

 

I know others who have mortgages only 2X their salaries but have at least as much as their mortgage payment in other monthly debt and have no savings or investments of any sort.

 

Am I worse off than they are, since my mortgage payment is a higher multiple of my salary?

Edited August 15, 2006 by TJ Girl

[meathead]

That's what happens when you take on a mortgage more than 3X your annual income.

That's not ALWAYS what happens, you should avoid generalizations.

 

I have a mortgage 4X my annual salary (a conventional 30-year fixed, no fancy products for me).

Every month I still put money in my 401K, each of 3 investment accounts, and pay extra towards the mortgage. My IRA is already maxed for the year.

So a hard and fast rule about some multiple of salary debt doesn't work for everyone.

 

My mortgage is my only debt, though.

 

I know others who have mortgages only 2X their salaries but have at least as much as their mortgage payment in other monthly debt and have no savings or investments of any sort.

 

Am I worse off than they are, since my mortgage payment is a higher multiple of my salary?

 

I agree with TJ Girl... it's not about a hard and fast rule, but about comfort level and good fiscal management.

 

I do believe however that the rule of thumb of 3x is there for a reason as a suggestion.

 

JG

[hlburi]

"sure you can afford this house- it's not really a "purchase", it's an investment in your future!We'll do a No-Doc, you can squeeech just a little more in the "income" column that way. But hey, we'll give you an intro 2.9% on this nice little ARM so you can afford the payments!

If you aren't happy, you can always sell or refi, right? (never mind the prepayment penalty muhahah) "

 

And there it is! People weren't buying houses to live in, they were buying them for "investments". Now the interest rates are going up. What's going to happen to them when the prices go down, and the houses aren't valued so high anymore?

 

People used the ARMS and I/O's to get into houses they couldn't afford and now they're complaining about it? And we're supposed to feel sorry for them?? I don't think so. I can totally understand the default when you have an event you can't foresee, but something like this is ... ridiculous. And I've lost a house before, so I know what it's like to go through that!

 

Next time I buy a house, I will buy one that's well within my means to afford. I wouldn't dare consider an ARM or I/O that could come back and bite me!

 

I've said it before and I will keep on saying it, anyone who purchases their home (I'm talking primary residence here) as an investment, is a fool. Your home is a place to live.

[54regcab]

That's what happens when you take on a mortgage more than 3X your annual income.

That's not ALWAYS what happens, you should avoid generalizations.

 

I have a mortgage 4X my annual salary (a conventional 30-year fixed, no fancy products for me).

Every month I still put money in my 401K, each of 3 investment accounts, and pay extra towards the mortgage. My IRA is already maxed for the year.

So a hard and fast rule about some multiple of salary debt doesn't work for everyone.

 

My mortgage is my only debt, though.

 

I know others who have mortgages only 2X their salaries but have at least as much as their mortgage payment in other monthly debt and have no savings or investments of any sort.

 

Am I worse off than they are, since my mortgage payment is a higher multiple of my salary?

 

Being 100% debt free except your mortgage isn't the norm. With a mortgage 4X your income you're kickin' butt to have extra to put into savings. Is the 4X based on regular salary or is there bonus/other income also?

[TJ Girl]

Being 100% debt free except your mortgage isn't the norm. With a mortgage 4X your income you're kickin' butt to have extra to put into savings. Is the 4X based on regular salary or is there bonus/other income also?

Salary only.

I don't get bonuses or other income (except the occasional $5 survey ). Investment income stays within the investments so I can't use it to cover expenses.

 

Anyway, the point of that was everyone needs to analyze their own situation. 3X salary doesn't apply to everyone. For some 1X their salary may be too high, others may be able to handle well over 4X.

 

I hate flat "rules" because there's always someone who will listen to them without analyzing their individual needs and end up hurt by it.

[54regcab]

Being 100% debt free except your mortgage isn't the norm. With a mortgage 4X your income you're kickin' butt to have extra to put into savings. Is the 4X based on regular salary or is there bonus/other income also?

Salary only.

I don't get bonuses or other income (except the occasional $5 survey ). Investment income stays within the investments so I can't use it to cover expenses.

 

Anyway, the point of that was everyone needs to analyze their own situation. 3X salary doesn't apply to everyone. For some 1X their salary may be too high, others may be able to handle well over 4X.

 

I hate flat "rules" because there's always someone who will listen to them without analyzing their individual needs and end up hurt by it.

 

I don't see anybody getting hurt by taking on a mortgage 3X instead of 4x

BTW is your $4X based on Take home or Gross?

With savings and everything what do you live on?

That's a budget I'd like to see

[TJ Girl]

I don't see anybody getting hurt by taking on a mortgage 3X instead of 4x

BTW is your $4X based on Take home or Gross?

With savings and everything what do you live on?

That's a budget I'd like to see

If I'd gone by the rule 3X, I would have been hurt, because I'd still be renting. There was nothing in my area cheaper than my house unless it's in a bad neighborhood. I already have a 45 minute drive to work to be as affordable as I am. Instead, by buying a house at a greater multiple I now have $100K of equity in the house alone between appreciation and mortgage pay-down (oh, and the mortgage was a 100% finance, so I had no equity when I closed 3 years ago).

 

Based on gross salary. $50K gross salary, $200K mortgage.

 

My budget is pretty simple. I don't need much.

 

$40/week groceries

$300/month gas/oil changes/set aside for insurance

$40/month entertainment and eating out

$200/month horse board

$30/month cats & dog

$30/month electric (actually was under $10 last month, usually under $20, but I budget $30)

$100/month propane (average, obviously higher winter, summer I haven't spent anything in 4 months, so I set it aside during the summer in case I need it to get through the winter)

$30/month phone

$1500/month mortgage

 

There might be a couple minor items missing, I'd have to check Quicken when I get home.

 

And yes, I do stick to that budget and usually am under at the end of the month.

 

Everything else goes into savings/investments.