Mortgage Brainiacs - Answer me this please

[DawnM]

They charge only the interest every month? I am not quite following.

We paid ours off in one year and won't be taking one out again now that we have a different perspective on debt, but paying interest only would be awful.....you would never get it paid!

Dawn

Yes you do, but the monthly payment can be pretty low depending on how the HELOC is set up. Think our minimum payment is the amount of the interest each month, we don't have to pay any principal. Of course just paying interest would essentially mean an endless loan but if you want to ignore reality for a while, that's one way to do it . Now if you took out a home equity loan it's a whole different game.... that's when you literally get cash out of your home (based on equity) but you do have a set monthly payment that does include principal payment. Don't know how long those are set up for payback - probably 5-10 years?

 

[PlutoPony]

They charge only the interest every month? I am not quite following.
Dawn

The minimum payment required on ours is only the amount of interest incurred that month. You can pay as much over that as you want each month, and that amount goes to principal. So it's essentially up to you how much you pay and how much debt you carry month to month on the HELOC. It works well for some situations / people, not so well for others.

 

[BSil]

This is actually a pretty good time to buy a first home. I wish I was buying for the first time now. Prices have clearly fallen, and interest rates have as well. It is a perfect set up for a new buyer.

No way would I look to assume someone's mortgage. It is very likely they bought the home for way more than it is worth today, and as a PP said you would be overpaying for that home.

I'd look around where I wanted to live, and be patient. Sellers really want to sell, and you can probably make some nice low-ball offers. The short sales are out there too. Banks do not want to hold these properties, so there are deals to be had there too.

The best advice you can get is to research, research, research. Half the trouble the housing market is in, is because folks just relied on a lender to tell them what to do because they didn't research anything. They found themselves in ARM loans, and other odd types of loans because they didn't do their homework, or apparently read anything they were signing.

I applaud you for trying to get some information before trying to make a large purchase. Had more Americans decided to do a little information gathering before singing a mortgage, we might not be in such a mess today. Not that there aren't a boatload of other factors contributing to our economic climate, but the poor housing market certainly hasn't helped anything.

 

[surfgirl]

I am not in the position of being underwater on a mortgage, and/or being unemployed - but, REALLY, you can't see why someone would walk away form a home that was 100's of thousands underwater from what you paid for it vs. current worth????
I think there is a difference in believing people should be accountable, and being completely blind to reality

Because you signed a promissory note to the effect that you would be paying back what you borrowed from the bank. Your note didn't say, "I will pay this back if my house value stays greater than my loan balance." Many people were extremely happy to take the profit from their house, but the moment it became underwater, they ran away and claimed no responsibility.

People losing their houses because of severe medical problems, extended job loss, etc. may be in a situation where there truly is no other way out. I know situations where it became "convenient" to walk away, and so people did. THAT, I disagree with.

 

[MrsPete]

We hear all the time about people walking away from their homes. Either they've lost their jobs, they "took out" money from their home assuming their home values would continue to rise, or for whatever reason.

Here's the missing piece of the equation: When people "take out" money from their houses, what they're really doing is tapping into their equity (the portion of the house for which they've paid). They're taking a second mortgage.

So in your hypothetical situation, the homeowner already had a mortgage of 2K/month (we'll assume for 30 years) . . . now the second mortgage would add a separate, new financial obligation; for the 60K mentioned, it might add 700/month for 10 years -- though the specifics are a pure guess.

Another important point: The bank will never, never lend more than the house's worth. So if the worth has dropped to 450K, the bank will never lend more than that -- so if we assume this is a homeowner who's almost done with the mortgage, this would be possible. If the homeowner's been in the house only a couple years (and isn't ahead on the payments), this would never happen.

Finally, "taking money out of your house" is rarely a good choice. If you can't pay it back -- unforeseen job loss, etc. -- the bank can take your house, leaving you homeless.

They charge only the interest every month? I am not quite following.

In unusual situations, people may pay interest only. For example, once my grandparents bought a house from a neighbor who was about to lose it to foreclosure. They allowed her -- just out of kindness -- to stay there two months to save towards a rental. They never wanted the house for themselves; they kept it only a couple months as they spruced it up (new paint, carpet) and then resold it. They told the bank this upfront, and got an interest-only loan; it kept their costs down, though they made no headway towards paying off the principle. Because they only owned the house a total of maybe six months, it made sense.

 

[spatenfloot]

If you are interested in houses that are being sold by the banks under short sales, just get approved for a mortgage of your own and place a bid.

 

[Handbag Lady]

If you are interested in houses that are being sold by the banks under short sales, just get approved for a mortgage of your own and place a bid.

This is the problem. Where we need to live for work (and our work can't be found in many places) there just are no houses for sale for what we can afford. We could easily qualify for $250-300K, but there just are NO houses, even at short sale rates. We could probably find one in a gang-y area, but then that would give us an hour drive one-way to work. We're NOT going to do that again. We'll just continue to rent.

And I thank everyone. I've read and re-read and I'm learning a lot.

I still don't understand the people who walk away just because they are under water. When your house was worth $600,000 and you paid $X, you still have to pay $X even if your house is now worth $750,000 or $300,000. I am assuming that people figure ahead of time that they can afford their mortgage when they get it.

 

[bellarella]

This is the problem. Where we need to live for work (and our work can't be found in many places) there just are no houses for sale for what we can afford. We could easily qualify for $250-300K, but there just are NO houses, even at short sale rates. We could probably find one in a gang-y area, but then that would give us an hour drive one-way to work. We're NOT going to do that again. We'll just continue to rent.

It sounds like it makes sense for you to rent. Buying a home is not always the best financial move. You might try to look long term to either find a way to increase your income, make yourself more mobile, or set aside money so that you can purchase a property in the future in another area.

I still don't understand the people who walk away just because they are under water. When your house was worth $600,000 and you paid $X, you still have to pay $X even if your house is now worth $750,000 or $300,000. I am assuming that people figure ahead of time that they can afford their mortgage when they get it.

I don't think anyone walks away because they are underwater. Being underwater is only a "paper loss" so long as you are living in your home.

People walk away because, while they could afford their mortgage when they took it out, circumstances have changed such that they no longer are able to. The two primary ones right now are job loss and interest only adjustable rate time periods coming to an end. Some people took out mortgages where they only had to pay interest for a certain number of years (often at a low adjustable rate)-- while they could afford that, they could not afford paying the principle and interest payments at the rate their mortgages adjusted to. For most people, though, I think it has been a case where they have lost their jobs and no longer have the income that they once had.

If one or both of you lost your jobs and your rent was no longer affordable, you could find a less expensive place to rent. If you have a mortgage, you can't just move if it becomes unaffordable. You need to sell your home first. But if you owe more on the mortgage than the house is now worth, your options are very few unless you have enough savings to cover the difference (assuming you can find someone to purchase it).

Walking away is generally not a choice for people -- it is basically the same as being foreclosed on, but without forceable removal by a court order (or sheriff).

 

[Liberty Belle]

I don't think any mortgages are assumable any more.

As another poster said, a home for 600K would not have a 2k mortgage (I wish). Our home was purchased for around that in 2003, and we put 20% down and our payments at 5.125% are still over 3K (including taxes and homeowner insurance). And our home is worth more than we paid for it in 2003 but less than it was worth in 2005, but we would NEVER just walkaway. That is so wrong.

Sorry, I'm of the camp that you are responsible for your mortgage and you don't get to just walk away cause things get tough, especially if you made poor decisions.

I want to know where people got the idea that 1) they are entitled to a mortgage and 2) that they just can walk away if they don't like it?

And, no, NO ONE can just take over someone's payments. Where do people get these ideas (second thread this week) that someone can just pay on someone else's mortgage? A mortgage is a loan give to someone based on THEIR ability to pay and the value of the home. Where does this idea that banks should be grateful that someone is paying the mortgage come from?

Are people really that uneducated about LIFE? The bank wants to know that someone can make the payments and that's why they have to APPLY for a loan. I am just amazed.

So, unless I'm wrong, you just want to be able to take over the payments on a house and not make a downpayment? Wow. I really doubt you don't understand how real estate, mortgages and home ownership work.

Geez. A bit rude.