Fix my mortgage? or leave it as an ARM?

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Comfort_IHB

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Hello,



I have been reading your website for some time now, and thorougly enjoy it. I would like your opinion on this, since I cannot seem to get a non biased opinion from anyone else.



Here is my situation.



I bought a home almost 1 1/2 years ago.

The price was $900k. (Homes in my neighborhood are now around $830k)

My mortgage balance is $675k.

I have a 10/1 arm at 5.375%. I paid 1 point to get it there on a stated income loan (I am self employed).

My payment is currently $3000/mo. (I pay interest only) plus my $14000/yr taxes and my $1200/yr insurance (both not impounded).



I have the opportunity to modify my loan now to a 30 yr fixed at the same rate. NO cost. But they WILL impound my insurance and taxes. My payment will jump to $5000/mo. with full principal and interest. (or $800/mo more than I currently pay, quite a jump!)



I dont know how long I will live in this home (it is big enough for my new family to grow into).

In 6 years my mello roos will be gone lowering my taxes to $10k/yr.



My concern is if I move in 9-10 yrs, will I be able to find a stated loan for self employed people?

Will rates be so high that my payment on my new home (even though it will be cheaper) will be higher?



What would you do if you were me???

Everyone I talk to (including the loan guy) says dont worry about what will happen in 10 years. But 10 years goes by pretty fast! And with this economy who knows what will happen?
 
While I am somewhat self employed (regular day job), I am in a similar situtation. My salary is modest for a engineer, but my side business is doing ok. My feeling is that they will have stated income loans available, but they cost of getting one will not be anywhere near desirable. The best defense is to come up with ALOT of CASH.



Now the question you have to ask youself is...



Will you be able to save that cash on your own?



If not then it would be a good idea to buck up and do a conformal 30 year loan. Paying up front is not such a bad idea.

-bix
 
I also was planning on doing this too.



My existing lender says FHA has a program that allows us to convert to a 30-year fixed with ZERO fees... the only requirements are PMI (if the loan amount is higher than 78% of appraisal) and you have to impound taxes+insurance.



I don't know what rate you got, but they quoted me 5.8%.



Considering my original ARM loan was at a jumbo rate, I think this would be a good deal because a jumbo loan at this time would probably run a bit higher than 5.8%. And unlike yours, my loan adjusts monthly.



The question is... are you are planning to stay in your home past the time your loan starts to adjust? If you plan to sell or refi in less than 8 years... you may want to save that $800 per month.



And if rates are high then, your bank should still have some type of conversion plan available at that time too.
 
[quote author="homeowner" date=1223079814]Hello,



I have been reading your website for some time now, and thorougly enjoy it. I would like your opinion on this, since I cannot seem to get a non biased opinion from anyone else.



Here is my situation.



I bought a home almost 1 1/2 years ago.

The price was $900k. (Homes in my neighborhood are now around $830k)

My mortgage balance is $675k.

I have a 10/1 arm at 5.375%. I paid 1 point to get it there on a stated income loan (I am self employed).

My payment is currently $3000/mo. (I pay interest only) plus my $14000/yr taxes and my $1200/yr insurance (both not impounded).



I have the opportunity to modify my loan now to a 30 yr fixed at the same rate. NO cost. But they WILL impound my insurance and taxes. My payment will jump to $5000/mo. with full principal and interest. (or $800/mo more than I currently pay, quite a jump!)



I dont know how long I will live in this home (it is big enough for my new family to grow into).

In 6 years my mello roos will be gone lowering my taxes to $10k/yr.



My concern is if I move in 9-10 yrs, will I be able to find a stated loan for self employed people?

Will rates be so high that my payment on my new home (even though it will be cheaper) will be higher?



What would you do if you were me???

Everyone I talk to (including the loan guy) says dont worry about what will happen in 10 years. But 10 years goes by pretty fast! And with this economy who knows what will happen?</blockquote>


I would look closely at the "no cost" terms of the modification. Somebody is getting paid, somewhere.
 
[quote author="homeowner" date=1223079814]Hello,



I have been reading your website for some time now, and thorougly enjoy it. I would like your opinion on this, since I cannot seem to get a non biased opinion from anyone else.



Here is my situation.



I bought a home almost 1 1/2 years ago.

The price was $900k. (Homes in my neighborhood are now around $830k)

My mortgage balance is $675k.

I have a 10/1 arm at 5.375%. I paid 1 point to get it there on a stated income loan (I am self employed).

My payment is currently $3000/mo. (I pay interest only) plus my $14000/yr taxes and my $1200/yr insurance (both not impounded).



I have the opportunity to modify my loan now to a 30 yr fixed at the same rate. NO cost. But they WILL impound my insurance and taxes. My payment will jump to $5000/mo. with full principal and interest. (or $800/mo more than I currently pay, quite a jump!)



I dont know how long I will live in this home (it is big enough for my new family to grow into).

In 6 years my mello roos will be gone lowering my taxes to $10k/yr.



My concern is if I move in 9-10 yrs, will I be able to find a stated loan for self employed people?

Will rates be so high that my payment on my new home (even though it will be cheaper) will be higher?



What would you do if you were me???

Everyone I talk to (including the loan guy) says dont worry about what will happen in 10 years. But 10 years goes by pretty fast! And with this economy who knows what will happen?</blockquote>


Refi the loan with a 30-year fixed. Take your lumps and make your payments. Do you want to spend the next 10 years watching interest rates climb and hoping you can refi? Is the stress worth it? If you can afford the payment, do it. If you can't, then you really can't afford your house, and you should sell before prices drop more.



I believe the whole interest-only paradigm is going to blow up in everyone's faces over the coming years as interest rates rise. We will have an ongoing foreclosure problem due to all the people taking out 5 and 10 year IOs.
 
*** By the way, this is a <u>loan Modification</u>, not a refi. This is something my current bank is allowing based on what is going on with the economy. They do not charge anything for doing this, as it is supposed to be assistance for those who cannot pay for their mortgages after the rate adjusts.***
 
[quote author="homeowner" date=1223079814]Hello,



I have been reading your website for some time now, and thorougly enjoy it. I would like your opinion on this, since I cannot seem to get a non biased opinion from anyone else.



Here is my situation.



I bought a home almost 1 1/2 years ago.

The price was $900k. (Homes in my neighborhood are now around $830k)

My mortgage balance is $675k.

I have a 10/1 arm at 5.375%. I paid 1 point to get it there on a stated income loan (I am self employed).

My payment is currently $3000/mo. (I pay interest only) plus my $14000/yr taxes and my $1200/yr insurance (both not impounded).



I have the opportunity to modify my loan now to a 30 yr fixed at the same rate. NO cost. But they WILL impound my insurance and taxes. My payment will jump to $5000/mo. with full principal and interest. (or $800/mo more than I currently pay, quite a jump!)



I dont know how long I will live in this home (it is big enough for my new family to grow into).

In 6 years my mello roos will be gone lowering my taxes to $10k/yr.



My concern is if I move in 9-10 yrs, will I be able to find a stated loan for self employed people?

Will rates be so high that my payment on my new home (even though it will be cheaper) will be higher?



What would you do if you were me???

Everyone I talk to (including the loan guy) says dont worry about what will happen in 10 years. But 10 years goes by pretty fast! And with this economy who knows what will happen?</blockquote>


So your home has fallen less than 8% while everything in OC has gone down 20-30%. I assume you live in another state or location... If not, I suspect your approximation of the your decline may be on the wishful side.



Do you pay association dues? How much do you think it going into maintenance or maintenance reserves each month. I ask because it seems you are considering loan mod, but not selling to get out from under the equity loss. I am curious why. It would appear you probably spend $3500 after-tax on your home based on my rough guesstimate. Could you live rent a similar home for that amount monthly or would you be spending materially more?



If the choice is between let the 10-year loan ride and do a modification, I'd opt for the mod to 30-year fixed. Take the bird-in-the-hand, and trust me, getting a sub 6% rate on a $675K loan is definitely a bonus that is not likely long for this world...
 
[quote author="PadreBrian" date=1223090361]Get your ass over to FHA:



http://portal.hud.gov/portal/page?_pageid=73,7601299&_dad=portal&_schema=PORTAL</blockquote>
This was my hesitance too... if this loan mod is this FHA plan... you will lose at least half your equity whenever you sell or refinance... even equity that was already there when you modded.



No free lunch.
 
[quote author="irvine_home_owner" date=1223097667][quote author="PadreBrian" date=1223090361]Get your ass over to FHA:



http://portal.hud.gov/portal/page?_pageid=73,7601299&_dad=portal&_schema=PORTAL</blockquote>
This was my hesitance too... if this loan mod is this FHA plan... you will lose at least half your equity whenever you sell or refinance... even equity that was already there when you modded.



No free lunch.</blockquote>
You have to give something to get something.



Everyone wants a free lunch - that's how we got here in the first place. No one was crying when their houses were increasing in value. Now that houses are decreasing, it's a different story.
 
[quote author="irvine_home_owner" date=1223097667][quote author="PadreBrian" date=1223090361]Get your ass over to FHA:



http://portal.hud.gov/portal/page?_pageid=73,7601299&_dad=portal&_schema=PORTAL</blockquote>
This was my hesitance too... if this loan mod is this FHA plan... you will lose at least half your equity whenever you sell or refinance... even equity that was already there when you modded.



No free lunch.</blockquote>


I am glad to see this feature of the bailout is having the right effect. Perhaps the government can do things right on occasion.



You see, the thought of people who overpaid getting a "free lunch" on the rest of us while simultaneously keeping us out of houses, well... that is pretty irritating. I am very glad to see the government introduced this poison pill into the deal.



Beyond that, it is still a very good deal. Realistically, you won't be seeing any appreciation to split with the government anyway. I would take your loan mod and enjoy your house. As Ipo pointed out, this deal isn't going to get any better. In 10 or 15 years when prices get back to peak valuations, sell your house before it goes positive and buy a new one. Then you can have all the profits from future appreciation. There will be many people who do just that.
 
[quote author="IrvineRenter" date=1223099496][quote author="irvine_home_owner" date=1223097667][quote author="PadreBrian" date=1223090361]Get your ass over to FHA:



http://portal.hud.gov/portal/page?_pageid=73,7601299&_dad=portal&_schema=PORTAL</blockquote>
This was my hesitance too... if this loan mod is this FHA plan... you will lose at least half your equity whenever you sell or refinance... even equity that was already there when you modded.



No free lunch.</blockquote>


I am glad to see this feature of the bailout is having the right effect. Perhaps the government can do things right on occasion.



You see, the thought of people who overpaid getting a "free lunch" on the rest of us while simultaneously keeping us out of houses, well... that is pretty irritating. I am very glad to see the government introduced this poison pill into the deal.



Beyond that, it is still a very good deal. Realistically, you won't be seeing any appreciation to split with the government anyway. I would take your loan mod and enjoy your house. As Ipo pointed out, this deal isn't going to get any better. In 10 or 15 years when prices get back to peak valuations, sell your house before it goes positive and buy a new one. Then you can have all the profits from future appreciation. There will be many people who do just that.</blockquote>


I agree. If you bought at the top and love your house and want to stay with a 30 year fixed, go for the H4H program. This will help those who really can pay for the house, not the idiot flipper looking to rape the banks...lol US taxpayers.
 
[quote author="irvine_home_owner" date=1223100818]Or just sell now... take the losses and rebuy later (as I've been told by certain knowledgeable people).</blockquote>


That is your best bet from a purely financial standpoint.



If you want to do that, you need to move quickly. Prices are falling, and this is the last year that you can make money on the "short trade" in real estate. Once we get within 10%-15% of rental parity, there isn't enough downside to pay your transaction costs.
 
Homeowner,

You almost sound like me. I'm self employed and I will be buying in the next year in Irvine. I will be buying in the 1M-1.1M range. I'm putting 300K down. At this point I will be getting a 30 year fixed unless my loan exceeds 729K or if the 30 year fixed becomes unattractive. I'm going full doc as I net 150K+ year. If I don't go 30 year fixed I will be going 5/1 or 7/1 I/O. However if I go 5 year I/O I will be paying 4K a month extra to pay down my principal. If i'm you I go 30 year fixed right now at the same rate. What you have to ask yourself is what will you do in nine years if stated loans are not available or you can't qualify for your current mortgage or interest rates are at 10%. Or what if all three happen? You would probably stay put but if you have an ARM you would be in trouble. As an earlier post also mentioned I think that you may be off on your current value on your house. In the last year Irvine is down probably 20% and by your post you say your house is only worth maybe 8%? Also what type of person are you? What is your risk tolerance. If mortgage rates are 9% in three years will you have trouble sleeping. Also keep in mind you will be paying an additional $800 month which will be about 85K in nine years but your balance on your home will be 100K less. So if I were you go 30 year fixed if you can afford it.





Good Luck



Bill
 
hbguybill - I am a bit confused...how will you qualify for a 1.1 million dollar home with 300k down at your salary of 150k on a full doc loan? That is an 800k loan at more than 5 times your salary. What bank is making those loans?
 
[quote author="hbguybill" date=1223118828]Homeowner,

You almost sound like me. I'm self employed and I will be buying in the next year in Irvine. I will be buying in the 1M-1.1M range. I'm putting 300K down. At this point I will be getting a 30 year fixed unless my loan exceeds 729K or if the 30 year fixed becomes unattractive. I'm going full doc as I net 150K+ year. If I don't go 30 year fixed I will be going 5/1 or 7/1 I/O. However if I go 5 year I/O I will be paying 4K a month extra to pay down my principal. If i'm you I go 30 year fixed right now at the same rate. What you have to ask yourself is what will you do in nine years if stated loans are not available or you can't qualify for your current mortgage or interest rates are at 10%. Or what if all three happen? You would probably stay put but if you have an ARM you would be in trouble. As an earlier post also mentioned I think that you may be off on your current value on your house. In the last year Irvine is down probably 20% and by your post you say your house is only worth maybe 8%? Also what type of person are you? What is your risk tolerance. If mortgage rates are 9% in three years will you have trouble sleeping. Also keep in mind you will be paying an additional $800 month which will be about 85K in nine years but your balance on your home will be 100K less. So if I were you go 30 year fixed if you can afford it.





Good Luck



Bill</blockquote>


If you are borrowing 5 times your income, you are asking for trouble. Your planning sounds conservative, but your debt load is insane.
 
[quote author="Maltese" date=1223123922]hbguybill - I am a bit confused...how will you qualify for a 1.1 million dollar home with 300k down at your salary of 150k on a full doc loan? That is an 800k loan at more than 5 times your salary. What bank is making those loans?</blockquote>


Hell, FHA will allow a 41% back-end ratio I believe. Assuming one has no other debt, a gross salary of around $170K should qual on a 6% $729K loan for a $1M house. As I hope I understand it, one just needs to qual under one of the ratios, not both...
 
[quote author="IrvineRenter" date=1223124003][quote author="hbguybill" date=1223118828]Homeowner,

You almost sound like me. I'm self employed and I will be buying in the next year in Irvine. I will be buying in the 1M-1.1M range. I'm putting 300K down. At this point I will be getting a 30 year fixed unless my loan exceeds 729K or if the 30 year fixed becomes unattractive. I'm going full doc as I net 150K+ year. If I don't go 30 year fixed I will be going 5/1 or 7/1 I/O. However if I go 5 year I/O I will be paying 4K a month extra to pay down my principal. If i'm you I go 30 year fixed right now at the same rate. What you have to ask yourself is what will you do in nine years if stated loans are not available or you can't qualify for your current mortgage or interest rates are at 10%. Or what if all three happen? You would probably stay put but if you have an ARM you would be in trouble. As an earlier post also mentioned I think that you may be off on your current value on your house. In the last year Irvine is down probably 20% and by your post you say your house is only worth maybe 8%? Also what type of person are you? What is your risk tolerance. If mortgage rates are 9% in three years will you have trouble sleeping. Also keep in mind you will be paying an additional $800 month which will be about 85K in nine years but your balance on your home will be 100K less. So if I were you go 30 year fixed if you can afford it.





Good Luck



Bill</blockquote>


If you are borrowing 5 times your income, you are asking for trouble. Your planning sounds conservative, but your debt load is insane.</blockquote>


He said net $150K+, which would be equivalent to what, a gross of around $210K+ annually?



A $729K loan would only be 3-3.5X gross in that case. A little high, but not insane.
 
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