The mood around Irvine co-workers for housing

NEW -> Contingent Buyer Assistance Program
I can't believe that there are still that many empty-headed suckers out there. RE dropping like a rock, news stories to no end about fraud and the danger of I/O arms. Give them a shot of lower interest rates and they all rush back into the burning house. What's the average savings of a 50 year old, like $50,000 or something and these younger folks are taking on an asset that will set them back $70K with another 10% drop. Nothing like being 50 and not having a penny to show for it.
 
Holy sh*t ukyo116, you work with RETARDS! Do they not understand anything about finance? Or how we got into this situation in the first place using exotic financing. Aye! The one with interest only probably couldn't face the fact that what he/she could truly afford with a 30-year fixed was a lot less than he/she thought and so went the interest only route to beef up the pride.



It's like watching Property Virgins or House Hunters and they actually talk about how they are financing their purchase. One recent show had a couple who financed a home on a 40-year, with the first ten years being interest only. I just want to strangle those young f*cks!
 
<p>Actually the 10 year I/O that turns into a 30 year fixed is far from the worst exotic financing. At least it's not an Option ARM. </p>

<p>Tho they would probably have taken the Option Arm if it were still around to be offered.</p>

<p>Actually, the hub and I have always paid extra, so we recently paid off our 25 year fixed in 10 years. In the present market, I wouldn't mind interest only for 10 years and I'd throw in an extra $100 a month occasionally. Not sure I'd want to be amortizing in a steeply declining market; I/O would give us the choice to amortize or not. Not all eggs in one basket.</p>
 
I agree with you layerliz - there's absolutely nothing wrong with an interest only loan. You just have to look at all your financial obligations and pay the one with the highest interest rate first. If your mortgage rate is around 5%, it's prudent to pay the interest only. There's nothing remotely exotic about it.
 
<em>" there's absolutely nothing wrong with an interest only loan."</em>





For reasons outlined here: <a title="Permanent Link to Financially Conservative Home Financing" rel="bookmark" href="http://www.irvinehousingblog.com/2007/03/01/financially-conservative-home-financing/" linkindex="28" set="yes">Financially Conservative Home Financing</a>, I totally disagree.



 
IMO-young people taking on I/0 loan for two reason..... hopfully they take on a 10 years interest only loan and not a 5 year arm.





1) they will make more money in 5-7years as their career progress.


2) they are betting on that the market will recover in say 10 years times and they will sell their condo/townhouse to buy a SFR. thus be able to build up some equity along the way.


3) they also have the option of paying the miminum when times are hard and when they are working they can pay extra.








Not a bad idea really.
 
#1 is probably a safe bet.


#2 is probably a bad bet.


#3 is probably not how a young person would manage their money. Most will make the minimum payment every time, just like most older people do.
 
An Option or I/O loan *would* be good if people could save adequate money in other ways. But it's been well demonstrated in the past few years that few can. Kinda like drugs - a lot of people can handle them, but a lot can't; you don't know which one you are until you try, and if you're the wrong kind and you do try are totally ******. So don't try it.



Friends don't let friends get non-amortizing loans.
 
<p>I still think a 10 year I/O is not horrible. I don't think that they go into foreclosure with anything like the frequency of neg am loans.</p>

<p>There is another type of loan I saw after the debacle of the 80s neg am loans. My S & L called it a GEM. Gain every month. It started out interest only and then went up 3-5% of the previous payment amount every year. The increase paid principal only. It paid off in 12-15 years or so. Very few of those went into foreclosure. A 3% increase in payment for a year or 2 or 3 is tolerable. Usually people get raises of that amount.</p>

<p>Nothing like doubling the payment like the stupid option arms. If, along about the 5th year, you can't pay the increases anymore, well, you have paid the mtg down a significant amount. and presumably can refinance.</p>

<p>Of course, if you expect housing prices to drop another 30%, which they well may, it makes sense to wait anyway.</p>
 
even #1 is suspect at this point with job and income growth stagnating, and the possibility of a looong and deep recession. all i know is what i can afford today. by afford, that means principal and interest, not what the lowest possible payment on a loan i could get.
 
The problem isn't interest only loans, it is adjustable rate mortgages. Most interest only loans are adjustable and therein lies the problem. The 30 year fixed with a 10 year interest only option is a fantastic loan. The only issue is you will pay a slightly higher rate than a traditional 30 year fixed. The only arm I'd suggest doing is the 10 year ARM. This should be long enough to ride out a decrease in property value. You of course run the risk of not being able to refinance though.





I would not suggest anyone take out a a loan that is fixed for less than 10 years at this point. Conforming pricing steers borrowers into 30 year fixed rates. A 10 year interest only right now is essentially the same rate as an amortizing 30 year fixed.
 
I think 10 year I/O falls into the category of "tolerably bad". Most of the time they should work out since they aren't all that different from a standard 30 year fixed in terms of payments in any given month. I think, though, that most people would use them to buy "too much" house rather than a tool to avoid a move up in 5 years or so or to save into a different vehicle. It won't ruin your life but it might impair your quality of life somewhat.
 
<p>I actually like 10 year I/O loans with a caveat. You have to be a prudent person. The 10 year I/O gives you flexibility by not locking you down to a higher payment. You can still make the same payments as a 30 year loan but not be oligated to do so under threat of foreclosure. </p>

<p>Like credit cards, one can make the maximum payment every month and have the flexibilty to pay a little less if there was an emergency or a sudden shortage of cash. </p>

<p>Big caveat but I believe that it is good for some people. </p>
 
<em>"Big caveat but I believe that it is good for some people."</em>





I used to think like you do, but then I watched how people actually behave, and I changed my mind. I know I have said it before, but 2% of the general population can be disciplined with their finances and take advantage of exotic loan terms, and 80% of the population thinks they are in that 2%.
 
I agree. . .IR I think a good example of your statement would be Vegas. Most people go there thinking that they will only lose a certain amount of money but usually come back with double the losses.
 
What do you know - people are clueless, and this helps explain many sellers' attitudes. Even the headline is good...





<a href="http://money.cnn.com/2008/02/07/news/economy/homeowners_views/index.htm?section=money_mostpopular"><strong>What slump? Homeowners in denial</strong></a>


<em>Survey shows 3 of 4 homeowners believe their home has gained or retained its value, despite evidence of price decline.</em>





"NEW YORK (CNNMoney.com) -- Despite numerous reports showing home values in historic decline, more than three out of four homeowners believe their own home has not lost value in the past year, according to an online survey. ...





"This survey reveals that despite the data to the contrary, people either aren't paying attention to their housing market or are in denial about their own home's value," said Stan Humphries, Zillow.com vice president of data & analytics."
 
<p>When I used to tell people that I would buy a nice house in Malibu for $700k in 2009, they thought I was insane, or perhaps including mobile homes.</p>

<p>Now, they ask once in a while, "Have you found it yet? You might just get a house for that price"</p>

<p> </p>
 
<p>From the Miami area, my secy has several friends who are in foreclosure. An appraiser (honest) is in foreclosure down the hall.</p>

<p>I think the 3/4ths who don't believe their house value has gone down aren't in the market at the present time, or have a reasonable mtg, and so have no particular reason to face reality. Most people are not housing junkies like the people on this blog.</p>
 
You must log in or register to reply here.
Back
Top