Mortgage Lies and Truths

[SD Realtor]

HLS perhaps you can sleep. I try to not generalize and imply that my habits or feelings match my clients. I have several friends who have paid off their homes with standard fully amortized loans. Some of them paid their loans off early and some didn’t. Other people I know have 15 year mortgages.

They all not only sleep very well, but they enjoy the homes they have that are paid off, AND they still have quite handsome portfolios.

They are nor have they ever been slaves to their mortgages. I am not saying one or the other is correct, I am saying that not everyone thinks the same.

SD Realtor

[SD Realtor]

HLS perhaps you can sleep. I try to not generalize and imply that my habits or feelings match my clients. I have several friends who have paid off their homes with standard fully amortized loans. Some of them paid their loans off early and some didn’t. Other people I know have 15 year mortgages.

They all not only sleep very well, but they enjoy the homes they have that are paid off, AND they still have quite handsome portfolios.

They are nor have they ever been slaves to their mortgages. I am not saying one or the other is correct, I am saying that not everyone thinks the same.

SD Realtor

[Pasadena Broker]

First of all, if you were in the business a few years ago, why are you asking what type of loan you should be committing yourself on a faceless blog?

Early nineties were wrought with balloons, and not the ones that are filled withe helium. I think you’re a troll. A newbie homebuyer that might/might not be already in escrow and is wondering if that 7/1 ARM is the best choice. Let me give you some free advice from someone that lives and breathes this market, and not a cubicle gopher that post on this blog hoping the market tanks (and affecting the economy as a whole)…go with the traditional mortgage. The 7/1 or 5/1 versus the 30 year isn’t that big of a difference. If $100-$150 is going to put a crimp in your budget then you’re better off renting.

I’ve posted on this blog in the past, and I read it for kicks, but to ask for advice on a blog is beyond what I call sound advice. There’s no accountability. Just faceless people giving their 2 cents…like walking down a street and asking random people for financial advice.

[Pasadena Broker]

First of all, if you were in the business a few years ago, why are you asking what type of loan you should be committing yourself on a faceless blog?

Early nineties were wrought with balloons, and not the ones that are filled withe helium. I think you’re a troll. A newbie homebuyer that might/might not be already in escrow and is wondering if that 7/1 ARM is the best choice. Let me give you some free advice from someone that lives and breathes this market, and not a cubicle gopher that post on this blog hoping the market tanks (and affecting the economy as a whole)…go with the traditional mortgage. The 7/1 or 5/1 versus the 30 year isn’t that big of a difference. If $100-$150 is going to put a crimp in your budget then you’re better off renting.

I’ve posted on this blog in the past, and I read it for kicks, but to ask for advice on a blog is beyond what I call sound advice. There’s no accountability. Just faceless people giving their 2 cents…like walking down a street and asking random people for financial advice.

[Arraya]

Pasadena,

There is a bigger difference than just monthly payment on an arm vs 30yr fix. You will have to deal with the adjustment and prossibly will not be able to refinance out of it in the given time frame depending on what you put down. An adjusment on a 700/800K loan is well over 1K.

Also, I think advice from people that do not have a financial interest in your decison is not a bad idea… Don’t ya think?

[Arraya]

Pasadena,

There is a bigger difference than just monthly payment on an arm vs 30yr fix. You will have to deal with the adjustment and prossibly will not be able to refinance out of it in the given time frame depending on what you put down. An adjusment on a 700/800K loan is well over 1K.

Also, I think advice from people that do not have a financial interest in your decison is not a bad idea… Don’t ya think?

[NotCranky]

I think we collectively are a pretty good resource for information and opinions , to act upon or not, at our own discretion. The fact that we are argumentative is to a degree an extra plus because it brings out multiple angles. People come on here and thank individuals or the group, all the time , for good direction on various topics. We have covered the loan stuff pretty well on various threads. HLS has brought stuff we haven’t disected like the yield spread premium, rebates and double dipping, although he did not call getting paid on the front and the back just that exactly.

So one that note, I will ask a question.

Are there cases were the mortgage broker “double dipping” is appropriate?

[NotCranky]

I think we collectively are a pretty good resource for information and opinions , to act upon or not, at our own discretion. The fact that we are argumentative is to a degree an extra plus because it brings out multiple angles. People come on here and thank individuals or the group, all the time , for good direction on various topics. We have covered the loan stuff pretty well on various threads. HLS has brought stuff we haven’t disected like the yield spread premium, rebates and double dipping, although he did not call getting paid on the front and the back just that exactly.

So one that note, I will ask a question.

Are there cases were the mortgage broker “double dipping” is appropriate?

[HLS]

Double Dipping is NEVER OK in my opinion, but it is exactly what most do…

Actual example, It’s easiest to use interest only loans, but it applies to ALL loans.

$400K loan PAR 6.625% = Interest= $26,500
You are told 6.875% is the best rate,Interest=$27,500
(just a tiny quarter of a point)

You pay $1,000 more a year for life of the loan.
Lender paid $3000 commission in YSP.

You keep loan 10 years,
1) costs you $10K extra
2) LO got $3,000
You probably didn’t know about either 1 or 2.
Keeping loan longer costs you even more, up to 30 years.

IF given the choice, paying $3K more up front would save you $1,000 a year.
I would just tell you how much I needed to make on the loan and give borrower the choice of how to make that happen, but I don’t “double dip” (Makes me look bad, been told that I don’t charge enough)

If you only plan on keeping loan 2 or 3 years, a “no cost” loan could make total sense, but that ISN’T double dipping either.

In above example, 7.25% would yield a $6500 rebate, which would cover about all closing costs from a fair originator, but still leave you short with others. This “no cost” loan would cost you $2500 more per year in payments.

That’s how the NO COST loan works. People think it’s free.

[HLS]

Double Dipping is NEVER OK in my opinion, but it is exactly what most do…

Actual example, It’s easiest to use interest only loans, but it applies to ALL loans.

$400K loan PAR 6.625% = Interest= $26,500
You are told 6.875% is the best rate,Interest=$27,500
(just a tiny quarter of a point)

You pay $1,000 more a year for life of the loan.
Lender paid $3000 commission in YSP.

You keep loan 10 years,
1) costs you $10K extra
2) LO got $3,000
You probably didn’t know about either 1 or 2.
Keeping loan longer costs you even more, up to 30 years.

IF given the choice, paying $3K more up front would save you $1,000 a year.
I would just tell you how much I needed to make on the loan and give borrower the choice of how to make that happen, but I don’t “double dip” (Makes me look bad, been told that I don’t charge enough)

If you only plan on keeping loan 2 or 3 years, a “no cost” loan could make total sense, but that ISN’T double dipping either.

In above example, 7.25% would yield a $6500 rebate, which would cover about all closing costs from a fair originator, but still leave you short with others. This “no cost” loan would cost you $2500 more per year in payments.

That’s how the NO COST loan works. People think it’s free.

[cr]

I’ve got some questions on this now:

Sounds like most of us argue exotic mortgages are bad, so let’s just look at ARMs. To me the open-ended ability for rates to increase is a recipe for disaster but HLS is arguing it can be better if you invest that money.

I’d bet most people don’t have any discretionary income, thus the need for an ARM, but let’s assume they do.

I know it depends on the rates, but let’s use what they are are today.

Over the 30 year life of a loan, what costs more: ARM or fixed? Say it’s a 3-year ARM that started 3 years ago, and just reset. If I recall, a 30yr fixed ends up costing around double the purchase price. What about an ARM?

Won’t the difference come down to what the adjusted ratepayment becomes, and won’t that rate be higher than if it was fixed?

Now I’ve gone crosseyed.

[cr]

I’ve got some questions on this now:

Sounds like most of us argue exotic mortgages are bad, so let’s just look at ARMs. To me the open-ended ability for rates to increase is a recipe for disaster but HLS is arguing it can be better if you invest that money.

I’d bet most people don’t have any discretionary income, thus the need for an ARM, but let’s assume they do.

I know it depends on the rates, but let’s use what they are are today.

Over the 30 year life of a loan, what costs more: ARM or fixed? Say it’s a 3-year ARM that started 3 years ago, and just reset. If I recall, a 30yr fixed ends up costing around double the purchase price. What about an ARM?

Won’t the difference come down to what the adjusted ratepayment becomes, and won’t that rate be higher than if it was fixed?

Now I’ve gone crosseyed.

[HLS]

Hi COOP..

Let’s get those eys uncrossed, when I was a kid I was told that wasn’t safe!

BIG, HUGE, MONSTER difference between ARMS and interest only.
ARMS should NEVER be used if you intend to keep the loan long term. That’s just gambling on rates, which I DON’T recommend. ARMS are short term solutions OR band-aids if needed.

You CAN lock a fixed rate today for 30 years, and have an OPTION to pay interest only for the first 10 or 15 years.
For SOME people, depending on their overall financial situation, my statement is/was that it should be CONSIDERED.
I don’t say that it’s right for everybody.

I could easily spend 30 minutes discussing the potential benefits.

Most ARMS will continue to adjust every 6 or 12 months up to the maximum, which is always an index + a margin.
There are a few different indexes that could be used, and an unlimited number of margins.

I type too slow to give a lengthy explanation, and do actually have some loans to work on. Let me know if you’d like to be contacted privately.

[HLS]

Hi COOP..

Let’s get those eys uncrossed, when I was a kid I was told that wasn’t safe!

BIG, HUGE, MONSTER difference between ARMS and interest only.
ARMS should NEVER be used if you intend to keep the loan long term. That’s just gambling on rates, which I DON’T recommend. ARMS are short term solutions OR band-aids if needed.

You CAN lock a fixed rate today for 30 years, and have an OPTION to pay interest only for the first 10 or 15 years.
For SOME people, depending on their overall financial situation, my statement is/was that it should be CONSIDERED.
I don’t say that it’s right for everybody.

I could easily spend 30 minutes discussing the potential benefits.

Most ARMS will continue to adjust every 6 or 12 months up to the maximum, which is always an index + a margin.
There are a few different indexes that could be used, and an unlimited number of margins.

I type too slow to give a lengthy explanation, and do actually have some loans to work on. Let me know if you’d like to be contacted privately.

[SanDiegoDave]

HLS wrote: “In a few years, they can always pay down the balance IF they choose.”

That is the very “push-off-my-problems-until-tomorrow” mentality that has contributed to the housing bubble and massive consumer debt load in this country. It is an entirely irresponsible thing to do with one’s money, and no ethical financial adviser is his right mind would advise someone to sign on to that kind of agreement.

And I don’t buy this B.S. about a lending agent not making more one way or the other on interest-only vs. 30-year fixed. There is a reason they all keep pushing interest-only: because interest-only mortgages benefit only the lender.

Interest-only mortgages should be illegal.

I had to tell a lender on the phone a few weeks ago that if she said “interest only” one more time in emails, quotes, or on the phone with us that we’d move on – would cut all all considerations for using her, and that we’d warm other people to steer clear of her as well. And this was after repeatedly saying from Day 1 we are only interested in 30-year fixed. At this point we’re moving on from her anyway. She blew it pushing this kind of crap over and over in the first place.

[Author]

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