Interest Rates Are Awesome
Not sure if anyone is currently in contract or looking to refinance but interest rates are amazing today. They will probably go back up a little in the next few days as this may be a knee jerk reaction to Fannie and Freddie getting bailed out by the gov. If you are paying 1pt you…
Not sure if anyone is currently in contract or looking to refinance but interest rates are amazing today. They will probably go back up a little in the next few days as this may be a knee jerk reaction to Fannie and Freddie getting bailed out by the gov.
If you are paying 1pt you are at 5.625% on a 30yr fixed.
No points you are under 6% at 5.875% today on the 30yr fixed.
Call you broker or banker if you are currently floating to lock in.
Some people like Vanilla and others like the Rocky Road.
All that I can say is that if you income hasn’t increased in 10 years you are in the wrong profession. They should at least increase a measily 3% to adjust for inflation.
If rates are in the 10’s or higher salaries should also be much higher. We will have much bigger problems if salaries stay flat and interest rates go over 10.
Rates were great this morning and they are now higher. Very Volatile Market.
I am not mistaken about how this product works. At year 10, you go from:
– paying only interest and zero principal; to
– paying interest plus principal on a 20-year amortization schedule.
The resulting increase in monthly payments can be a kick in the teeth.
The difference between principal payments on a 30-year and 20-year amortization schedule is completely irrelevant. What matters is the difference between zero principal payment and the payment on a 20-year schedule.
In my view ARMs are less toxic than IO products, unless of course they come with an initial teaser rate. IO products allow people to buy more real estate than they can actually afford. They find this out when the IO period expires. At that point their mortgage becomes toxic.
Posted by: lechacal at September 9, 2008 9:59 AM – “A 10-year interest-only mortgage becomes toxic at year 10 *unless* it can be refinanced. Many will not.”
Toxic?! I think you misunderstand what a 30-year FIXED 10-year I/O option loan is.
Even if the borrower makes no principal payments in the first decade (most do), the loan simply becomes a 20-year FIXED mortgage at the SAME original interest rate.
The difference between a 30-year amortization schedule and a 20-year amortization schedule is not that great, especially taking into account 10-years of inflation.
ARMs and the like could be described as “toxic” but this type of loan? You are misinformed.
Interest only options arent bad at all. Its actually a great product for some. I closed for a resident doctor. In 2 years his pay will triple and in the meantime he needs his payments low. And you can always make extra payments to your principal.
If those that are in contract arent locking in rates today then theyre making a big mistake. 30 years fixed rates at 5.75%. Rates are going to be volatile and timing is key. With rates this low there is only one way for it to go. And in a worst case scenario you can “float down” if rates drop. sunny_hong@countrywide.com
Lechacal: As much as I hope you are wrong, I respect the way you express your opinions and you certainly seem to have a basis in factual information for your posts. It would certainly be a fairly major downturn economically for housing prices to be the same in ten years. Not saying it won’t happen but its a pretty radical opinion as far as I can tell. Still, I wouldn’t totally bet against you either.
K91, thank you for the all caps contribution to the discussion.
There have been a great many financial bubbles in history, and they tend to follow a pretty predictable pattern. Yet somehow humans still fail to understand that price trends in the years leading up to a bubble are actually a counter-indicator for the future. Make decisions based on 1998-2008 prices at your own peril. They aren’t just a red herring — they are a mirror image (albeit an exaggerated one) of what is going to happen in the coming years.
Don’t forget the lost decade in New York real estate starting in the late 1980s. There are lots of people who sold 10 years after they bought at break-even. And those were the ones who were able to wait 10 years before selling. Your post repeats what a great many New Yorkers said in 1988. I have an opportunity to not repeat their mistakes, so I won’t.
Somehow, in every bubble, people just forget what has happened in every previous bubble. Lots of ink has been spilled about how this sort of collective amnesia is actually good for us (on the whole of course; as an individual, you always want to be the first to recognize others’ bad decisions).
Anyways, it’s fine that your bet is with these markets. Bet away. My bet is against them. For many reasons, I think people who buy at current asking prices will be lucky to sell at the same price in 10 years, and I feel quite confident that I should wait a couple of years before buying. Only time will tell which of us is right. In the meantime, feel free to reserve your use of all caps for your next online debate with a teenager.
1998-2008 information a red herring? WTF does that mean. Please provide reasoning. Are you saying that you shouldn’t factor past performance of Ny RE when deciding whether to invest in Ny Re? Ridiculous. Look it’s simple. With I/0 products you pay less and get more of a tax benefit than you would on a principal and interest product. With io You are supposed to be disciplined and pay down your principal with your tax bennys. In addition you have your 10% to 20% equty in the RE and in Ny over a ten year period, like FROM 1998 TO 2008, you will receive passive market appreciation. Sure not every year and you may even lose some some years but over the course of ten years, depending on your market, you BET YOUR ASS you will see passive appreciation over ten year period. Consider even a 2% ten year average and you will definitely be able to refi.
So for example you take a 500000 loan amount that stays stagnant over course of ten years because you are io. Now take your 2% year over year, very conservative BTW even in downturn like early nineties that lasted only four years top to bottom to flat for two TOPS, and you will be more than RIGHT SIDE UP so that bank will finance a refi no PROB.
The real if is what will rates be like in tenyears. But even that can be speculated with more certainty than in the past. Will the volker years come back? Could we see ten plus gain? I don’t think so. If anything the lendig rates over the years have become a lot less volatile due to better monetary policy.
But let’s be honest even dr the naysayers out there. In the right market, manhattan virtually anywhere, BrooklynQueens near the water, jersey near the water as well, what’s your first inclination? Remember these markets are in the beginning of a turn for a year plus now. The rest of the country is near it’s bottom. Both will probably flat for awhile. BUT ten years from now?? That’s an awfully long time away. My bet is on these markets.
I actually think the pay option arm products are all but done with. Those were dangerous because they allowed you to differ your interest payments causing your principal to increase as opposed to decreasing or staying put ala IO. Wachovia was one of the last banks offering the payment option loans and they went the way of the Dodo. I actually never orginitated a single payment option loan, I always found it risky and a vast majority of my borrowers didn’t fully understand the caveats that came along with it. I picked up numerous clients by shooting holes in this product by explaining all the things that could go wrong with it.