Are you ready for 2007? Variable Rate Mortgage Impact

[Zkribbler]

[QUOTE] Originally posted by DanS
Do you have to refinance these mortgages?
[QUOTE]
It's not a legal requirment...but the principle has to be paid back in some way. --Usually it's with a ballooo payment that the end.

Is there a penalty if the payment goes to greater than 40% of your income?

Not a legal penalty. But if you're paying 40+% for mortgage + 35% of your income for federal, state and local taxes + food & clothing, there's not a whole lot left over.


--- There really smart people now will start buying houses at foreclosure sales.

[Japher]

and do what with them?

[Flubber]

Originally posted by DanS
Is there a penalty if the payment goes to greater than 40% of your income?

I think the problem is more that once debt payments start exceeding 40% of your income , that it gets harder and harder to ever get out from under-- I don't think its a magic number but it is a threshold that many banks use. Once debt goes beyond it, it gets really tough to get new credit.

Banks are often idiotic in their application of such rules too. Its all by a formula-- I recall my banker telling me that they had to assume that all credit cards were maxed out even if you had ten years of always paying off before interest accrued

[Odin]

People who got variable-rate mortgages when intrest rates were rock botom are morons.

[Colon™]

Originally posted by Japher


I'm not predicting the end of the world. I'm predicting a recession.

Not even I had the nerve to predict that just yet , but I'll join you (too afraid of being called a nabbering naggot of negativity or whatever it was that Dan said ). 2007 is not going to be a good year. I'm a bit drunk at moment so forgive me for not making a good case, but a lot of employment and retail sales growth has been tied up with the housing boom (and I won't bother to mention home equity extraction for a change). Now that the housing market is softening so are the stimulants it provided to the wider economy. The "Building material & garden eq. & supplies dealers" section of retail sales has fallen for 3 months in a row and the construction sector has stopped contributing to employment growth (which used to add several ten-thousands of jobs a month on average).

[Spiffor]

What are "interest only" loans?

[Kontiki]

Originally posted by Spiffor
What are "interest only" loans?

Exactly what they sound like. Loans (mortgages in this case) where you only have to pay the interest, no principal reduction. Of course, you still owe the principal, you just don't pay it down over time until you sell the property or refinance.

[:) Smiley]

I take that sort of thing doesn't exist in Europe?

[chequita guevara]

You know, a lot of people seem to be making hay about the ARMS going up, but there were other periods when we had more people on ARMs, and the housing market didn't collapse.

The real effect is that people are going to have to spend less on consumer goods, and that the leveling off of the bubble means less loans on equity to fuel consumer spending.

[chequita guevara]

Originally posted by Kontiki
Exactly what they sound like. Loans (mortgages in this case) where you only have to pay the interest, no principal reduction. Of course, you still owe the principal, you just don't pay it down over time until you sell the property or refinance.

When you have double digit increases in real estate value, these can be real good deals. Huousing costs have skyrocketted here, tripling in less than a decade. If you had an interest only loan, you'd still be very well off if you sold the property today.

[Spiffor]

Originally posted by Smiley
I take that sort of thing doesn't exist in Europe?

Never heard of it, but I'm not up to date with the latest zany inventions the bankers will find to turn us into a population of debtors.

[Spiffor]

Originally posted by Spiffor
Never heard of it, but I'm not up to date with the latest zany inventions the bankers will find to turn us into a population of debtors.

BTW, am I right in saying that having an interest-only loan is essentially like having a rent?
I mean, unless you get a ****load of money to pay back your principal, you basically have to pay a regular fee for the duration of your stay in that house.

[Spaced Cowboy]

Originally posted by Spiffor

BTW, am I right in saying that having an interest-only loan is essentially like having a rent?
I mean, unless you get a ****load of money to pay back your principal, you basically have to pay a regular fee for the duration of your stay in that house.

That's basically the idea, but you're looking to sell the property in a few years at a profit. Hopefully one that wipes out all your payments and more.

Also all home interest is tax deductable. That is probably the selling point.

[Sikander]

Originally posted by Japher
and do what with them?

Rent them to people who have recently lost their home to bankruptcy.

[DAVOUT]

Originally posted by Spiffor

BTW, am I right in saying that having an interest-only loan is essentially like having a rent?

The significant difference is that having a rent exempts you from all obligations, responsibilities and charges loaded on the owner.