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

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.

Wow..

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.

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

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) "

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.

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.

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"

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.

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



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!

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.

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

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

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.

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

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.

I honestly think it would be easier to stick to a budget if I didn't have kids. As it is, I rarely stick to all of my budget items.

I'm going to give it my best shot in September though. I truly want to be able to say I will not spend more than $XXX on something and then stick to it.

If you're consistently over in one area, try to raise that budget item and compensate by lowering another area.
Sometimes there are places you just can't cut back any.

I agree that kids probably make it more difficult. With only myself to worry about it's much easier

My fiance and I did a 5 yr ARM in April. Our home loan is a little under 2.5x our annual gross. (The house is a little under 3x, but we put some down and avoided PMI.)

BUT, we got a 2 bdrm with the 2nd bdrm serving as our office. In five years we will want kids and want something bigger than a 2 bdrm condo. We KNEW we would be buying something different at that time so decided "why not" get the ARM.

After paying for our wedding next year and a new car for fiance, we'll start paying toward the principal. Right now we're both contributing to 401(k) and are hoping to max out Roths after the wedding as well.

Were we wrong? Should we have considered the 30 year even if we weren't planning on living there more than five years? I know things happen that may cause people to not move when they planned. . . but we honestly have a good reason to believe our income will only go up and certainly plan on having a family.

LMK

Well, this summer it's been the freakin LIGHT BILL! It was $400 last month, $380 the month before, $386 this month ... you get the idea. I only had budgeted $350 ... and I only started trying to live by that budget in May!! LOL

School started this month and I didn't budget nearly enough for that. *sigh* But next month will be better.

Thanks for the suggestion!

Oh, I'm hoping next year to be in a smaller place that doesn't cost so darn much to cool.

In my opinion (FWIW ) I think there are valid reasons for ARMs and your sounds like one.
The problem comes when people get into them not fully understanding the implications.

I likely will do the same next year. I'm planning on going back to school for a 3 year program. I'll probably get a 5 year ARM (for a little leeway) knowing that after I graduate I'll be moving on to another house, likely another city.
The only thing that might make me get a different type of mortgage would be if I find a place that would be good to turn into a rental after I'm through with it, in which case there will be many other factors to take into consideration.

WOW!?!
How do you have a $400 light bill?? What is a light bill, anyway? Is separate from just electricity?

Budgets take a while to get going. It took me a few months to get consistent when I first started. I had to readjust my budget numbers each month for about the first 3-4 months, until I settled into a pattern that worked.

I believe light bill=electricity.

My family and I have almost always referred to electricity bills as "light bills"....

I believe my parents' electricity bill is around there...I want to say the house is around 1500-2000 sq ft 3 br/2 ba...But with (depending on the day) 5+ people in the house and electricity is the only power source (no gas)...It's not bad.

My younger bro is leaving for college Fri and my older bro practically lives at his girlfriend's house now, so hopefully it'll ease for them with just my grandmother and mom and dad....No more hour long hot water showers my brothers take

But they keep the temp between 68-72 year round inside and are ALWAYS leaving lights on...So :shrug:

Right now since I've been here, of course it has been 6 people..when fi was here it was 7 of course that is not including my older brother, so in the past it was 7-8 people in the house when I visit (me and my daughter, fi for a day or two)

We got an ARM in 2003 - because we wanted to. We did not see the sense in spending the extra money on a fixed rate because we KNEW we were not going to be living in our house forever. Especially with a child now - the house is not really for us anymore. We still have almost 2 years until the rates change. Even if we end up staying a year or two longer, most it can increase is 1% a year. Not that big a deal - we're at 5.5% now and the total mortgage is about 2.3 x annual income.

My sister OTOH will be feeling the pain soon. 80/20 IO ARM. Yikes. She already filed BK7 (discharged in Jan I think) - and did NOT include the house. Recently divorced, downsized at work, and now prego with no insurance... Disaster waiting to happen for her

Sorry it must be a southern thing - we've always called it a light bill. LOL It is electricity as Angle said.

And my house was built 30 yrs ago and is a 2200 sq ft townhouse. I'm looking for something smaller when I move next year ... and preferrably one level. Electricity (see I didn't say light bill) should be lower then.

The blasted rates are so much higher than last year, and it has been H-O-T!! Yesterday it was 105* when I got back to my car.

Decades ago lights were all there was. They were wired into your house by the power company and only worked when the electric streetlights switched on. You paid a fixed rate for "lighting". Your "light bill"

Some older homes still have remnants of that setup, porcelain or glass stand-offs at the peak of the roof and a open-frame cutoff switch on the uppermost floor of the house.

I got an ARM in 1993 (because it was a "non-conforming" property, combo commercial-residential) and most lenders wouldn't touch it because it didn't neatly fit into a category. I had it until 2005. Mine had a cap, though... a ceiling that the rate could never go over, along with a maximum per year increase. Before I signed the papers I asked what my highest payment could ever be in a worst case scenario. They figured out the highest and fastest possible increases and told me and I thought "Ok, I can afford that if I need to.". It never did reach the highest possible, but it did come close before it went back down.

Retaining old terminology in the wake of technological advancement. People like me still go to the record store, too, even though they don't sell records anymore.

Don't charge too much on your charge plate, it'll whack your TRW.

I still called Experian "TRW" for years after they changed. I barely remember the term "charge plate".

Any idea where I can use my BankAmericard or Master Charge? My parents never had a Master Charge, but they still called their VISA cards "Bank Americard" for years after that change, too.

Then again, I insisted on wearing bell-bottoms well into the late 80s (no mullet, though) until I gained weight and just couldn't find them anymore.

LOL, this is great, I learned something today
I've never heard it called a light bill before

I still say "charge card" ... it's never been a "credit card" to me. And I'm too young to be this way!!

It's all my folks' fault. For years, they only had a Sears "charge card".

I remember when they finally got other cards, my mom would jokingly tell the check out girl (see there's another one) CHARGE! lol

Ahhhhhhh those were the good ole days...

Very Frugral budget indeed, great job !!
$30 for electricity? I'm guessing you live in an area where A/C isn't needed or electricity is REALLY cheap.
You drive 45 minutes one way to work and can cover gas/oil and insurance for $300 per month?
I see you don't have cable or a cell phone that everybody seems to need these days

I'll say. My metering charge alone is $12. $30 is amazing.

I have no AC in my house. This year we actually reached over 100 a few times, but that's rare, I usually only get a few days/year in the 90s.
For electricity, I use my computer, the light in the room I'm in, the microwave clock, and one other clock consistently. Anything else is only run maybe once/week (like dishwasher, etc). I also have a fan I sit in front of on the hottest of days. Last month's electric bill was $8.XX. This month's is $19.62 which is more typical.

45 minute drive is only 25 miles, so doesn't use that much in gas/oil.

I have no cable, can't get cable where I am. I have no satellite, not interested. I have no antenna, don't get reception. I have enough to do without TV (maybe once or twice/month I stick one of my movies in).
I don't get cell coverage at home or along my drive so it's not worth it.

I did forget to include trash at around $7/month ($23 quarterly).

I'm surprised houses are $200K in such a rural area, are you near Colorado or something? In OK house that are 100+ miles from a major metro area tend to be cheap.

The median home in my county is $350K (as reported in July 2006).
I'm 60 miles from Denver, less to the "metro area" of Denver (depending on where you want to define the metro area as ending, Denver sprawls).

YMMV

RECORD STORES ARE AROUND

Yeah...they are part of Antique Malls.

DH still buys records.

I need to move to TJ Girl's neighborhood...

When I lived in FL, we were lucky to have a power bill under $300. The hurricanes were used as an excuse to raise the rates annually. We started with an $80 power bill when we moved there in 2002, and used the same amount in the end.

Here, I am paying 140 Euro/month ($175) for power.

Gas/Oil for $300??? I live 12 miles from work, and drive 20 minutes to get there. With fuel prices here at $3.219/gal (through AAFES), I pay $186/month in gas alone just for my commute (we have mandatory Physical Training in the morning, and I have to commute home again to shower/change). Add in oil changes every 3 months, another $14/month. Insurance tacks on $60/mo. Grand total? $260 just for commuting... No shopping, visiting friends/family, etc. Add my wife's commute (4x/week, 120 miles round trip, same gas price, 5 mpg better car $62/week fuel, $10 for oil), and we come to $322 just for getting to work.

I guess I am just frustrated... My $$$ seems to have less buying power with every passing day. Our pay charts have increased 35% in 10 years, yet my cost of living has increased 350% during the same time.

No matter how I slice my own budget, it doesn't add up to having a future.