Mortgage Lies and Truths

[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.

[(former)FormerSanDiegan]

Interest-only mortgages should be illegal.

Blanket statements like this are worthless.

I have an IO loan on a rental property. I find it useful to decide when I pay down principal (most months) and when I don’t want to (between tenants, months when the heater, dishwasher, etc are replaced).
I have found it to be extremely useful for cash flow purposes.

Again, this is a loan that is about 50% LTV and which I could theoretically pay off next month. However, that would require liquidating my money market (currently enough to cover 52 months of payments) and about 1/2 of my retirement assets (actually only need about 1/3, but would need to pay taxes and penalties so it goes up to about half).

I think the IO works for me.

[(former)FormerSanDiegan]

Interest-only mortgages should be illegal.

Blanket statements like this are worthless.

I have an IO loan on a rental property. I find it useful to decide when I pay down principal (most months) and when I don’t want to (between tenants, months when the heater, dishwasher, etc are replaced).
I have found it to be extremely useful for cash flow purposes.

Again, this is a loan that is about 50% LTV and which I could theoretically pay off next month. However, that would require liquidating my money market (currently enough to cover 52 months of payments) and about 1/2 of my retirement assets (actually only need about 1/3, but would need to pay taxes and penalties so it goes up to about half).

I think the IO works for me.

[NotCranky]

Cooprider,
Your question would require a book. There have been so many different kind of arms, interest only, hybrids ect.

“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?”

In a low interest rate enviorment like we had and have had it is impossible to touch a fixed loan for value over 30 years. The exploding Arms will eat anybody alive. That’s why many mortgage people coaxed borrowers by telling them that they would easily refinance after a few years. Only the most naive and compulsive would have taken these loans without that promise. So they were naive,compulsive and gullible perhaps.

The Teaser ARM’s mostly worker for flippers and people who used the leverage wisely, who didn’t get caught in the price freeze and decline. I don’t know who else, maybe a few people that used the temporarily discounted money to finish school or start a business.

Interest only is a different animal but there are many species. As dpsvend said,apparently it is the Loan of the day. Depending on the species, they cost as much or more over the 30 year life of the loan. Anybody going interest only should find out what kind of a “hybrid” loan it could be.

Unless someone is so rich that they can be frivolous with hundreds of thousands of dollars, It is a bad time to buy a house and therefore a bad time to get a loan IMHO, regardless of how much you do or don’t understand the different ones. The message I hear in advertisement is “IF you only know how to get the right loan everything will be O.K.”

Buying at the right price and time will take care of little glitches in the loan. That is not to say that you don’t want to try to get the best one at the time.

http://articles.moneycentral.msn.com/Banking/HomeFinancing/CouldYouHandleAnInterestOnlyLoan.aspx

[NotCranky]

Cooprider,
Your question would require a book. There have been so many different kind of arms, interest only, hybrids ect.

“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?”

In a low interest rate enviorment like we had and have had it is impossible to touch a fixed loan for value over 30 years. The exploding Arms will eat anybody alive. That’s why many mortgage people coaxed borrowers by telling them that they would easily refinance after a few years. Only the most naive and compulsive would have taken these loans without that promise. So they were naive,compulsive and gullible perhaps.

The Teaser ARM’s mostly worker for flippers and people who used the leverage wisely, who didn’t get caught in the price freeze and decline. I don’t know who else, maybe a few people that used the temporarily discounted money to finish school or start a business.

Interest only is a different animal but there are many species. As dpsvend said,apparently it is the Loan of the day. Depending on the species, they cost as much or more over the 30 year life of the loan. Anybody going interest only should find out what kind of a “hybrid” loan it could be.

Unless someone is so rich that they can be frivolous with hundreds of thousands of dollars, It is a bad time to buy a house and therefore a bad time to get a loan IMHO, regardless of how much you do or don’t understand the different ones. The message I hear in advertisement is “IF you only know how to get the right loan everything will be O.K.”

Buying at the right price and time will take care of little glitches in the loan. That is not to say that you don’t want to try to get the best one at the time.

http://articles.moneycentral.msn.com/Banking/HomeFinancing/CouldYouHandleAnInterestOnlyLoan.aspx

[HLS]

DPS you’re entitled to your opinion.

Your statement that it’s “B.S. about a lending agent not making more one way or the other on interest-only vs. 30-year fixed” is COMPLETELY ignorant.

I don’t care what expert you have listened to or what books you read or what friend in the business you have spoken with. It ISN’T TRUE.

I’m in the business. I know how loans price out.
A PAR RATE INTEREST ONLY LOAN pays NOTHING, not a penny
Neither does a PAR RATE 30 YR FIXED.

You may be dealing with loan agents that have some internal incentive to push those loans, or if you are dealing directly with a bank, same thing applies.

It’s myths, falacies and misinformation that make dealing with people like you impossible, even when you are told the absolute truth.

I’m sure that you think a financial adviser who tells you stay in the market and just keep investing is wise. Good luck to you.

You obviously read in between my post and picked out the words to make your case, and overlooked my point.

[HLS]

DPS you’re entitled to your opinion.

Your statement that it’s “B.S. about a lending agent not making more one way or the other on interest-only vs. 30-year fixed” is COMPLETELY ignorant.

I don’t care what expert you have listened to or what books you read or what friend in the business you have spoken with. It ISN’T TRUE.

I’m in the business. I know how loans price out.
A PAR RATE INTEREST ONLY LOAN pays NOTHING, not a penny
Neither does a PAR RATE 30 YR FIXED.

You may be dealing with loan agents that have some internal incentive to push those loans, or if you are dealing directly with a bank, same thing applies.

It’s myths, falacies and misinformation that make dealing with people like you impossible, even when you are told the absolute truth.

I’m sure that you think a financial adviser who tells you stay in the market and just keep investing is wise. Good luck to you.

You obviously read in between my post and picked out the words to make your case, and overlooked my point.

[SanDiegoDave]

Interest-only mortgages should be illegal.

Blanket statements like this are worthless.

My bad… I should have made it more clear that the statement was made tongue-in-cheek. – used a wink 😉 or something like that. I’m a libertarian; so I don’t really think they should be outlawed. The larger implication was just that there are less destructive business arrangements in the U.S. that actually are outlawed, and that IO loans deserve some scrutiny by way of comparison.

But I will submit, FormerSanDiegan, that you are far and away the exception, rather than the rule, when it comes to IO loans.

In reality, the vast majority of IO loans go to people who look at the maximum monthly payment they can afford (and often really can’t afford) and they figure they can buy more house with the IO loan.

The other big IO users are flippers. And we see how well that has been working for them lately…

[SanDiegoDave]

Interest-only mortgages should be illegal.

Blanket statements like this are worthless.

My bad… I should have made it more clear that the statement was made tongue-in-cheek. – used a wink 😉 or something like that. I’m a libertarian; so I don’t really think they should be outlawed. The larger implication was just that there are less destructive business arrangements in the U.S. that actually are outlawed, and that IO loans deserve some scrutiny by way of comparison.

But I will submit, FormerSanDiegan, that you are far and away the exception, rather than the rule, when it comes to IO loans.

In reality, the vast majority of IO loans go to people who look at the maximum monthly payment they can afford (and often really can’t afford) and they figure they can buy more house with the IO loan.

The other big IO users are flippers. And we see how well that has been working for them lately…

[SanDiegoDave]

HLS… call 100 lending agents today, and better than 90 of them are going to give their first quote based on an IO loan.

Coincidence? I highly doubt it. The likelier scenario is that they are making more money from it. Be it bonuses or whatever, there is a financial incentive built around them selling more IO’s – or else they wouldn’t be wasting theur time pushing them as hard as they do.

Just mentioning “30 YR Fixed” to these guys is met with sighs, and obfuscation. It’s like that let-down you see when you go to a car dealership, and after negotiating the final price of the car, telling the finance manager that you’re paying cash. They get dejected. They just don’t want to hear it. The mortgage lenders keep referring back to the “monthly payment”, and give no consideration to the the true total cost of the loan for the buyer.

[SanDiegoDave]

HLS… call 100 lending agents today, and better than 90 of them are going to give their first quote based on an IO loan.

Coincidence? I highly doubt it. The likelier scenario is that they are making more money from it. Be it bonuses or whatever, there is a financial incentive built around them selling more IO’s – or else they wouldn’t be wasting theur time pushing them as hard as they do.

Just mentioning “30 YR Fixed” to these guys is met with sighs, and obfuscation. It’s like that let-down you see when you go to a car dealership, and after negotiating the final price of the car, telling the finance manager that you’re paying cash. They get dejected. They just don’t want to hear it. The mortgage lenders keep referring back to the “monthly payment”, and give no consideration to the the true total cost of the loan for the buyer.

[NotCranky]

Dpsvend, What is the fixed period that they are offering you,5,7,10,15? are they 30 year loans or perhaps 40 or more?

HLS & dpsvend are these loans teaser rate loans or other form of hybrid?I think the borrower has to qualify for full PITI at highest fully indexed rate?

I am trying to figure out why a lender would prefer them over a fixed as dpsvend points out. I believe him , unless some sort of mistake is pointed out.Also the coincindence with what he is saying and the fact that you,HLS, came in here almost exclusively touting interest only loans can not go without notice.

[NotCranky]

Dpsvend, What is the fixed period that they are offering you,5,7,10,15? are they 30 year loans or perhaps 40 or more?

HLS & dpsvend are these loans teaser rate loans or other form of hybrid?I think the borrower has to qualify for full PITI at highest fully indexed rate?

I am trying to figure out why a lender would prefer them over a fixed as dpsvend points out. I believe him , unless some sort of mistake is pointed out.Also the coincindence with what he is saying and the fact that you,HLS, came in here almost exclusively touting interest only loans can not go without notice.

[HLS]

DPS, I AM a “loan agent” today.
I don’t care what 99 others do. I just might be 1 in 100.

Regardless of what you THINK, The FACT is that there is no commission AT ALL when you get quoted the right rate.

Think whatever you want about conspiracies, coincidences, and theories. I KNOW what the truth is.

Most people want to hear payment amounts, and obviously I/O is lower than full am. You can THINK whatever you want.

I KNOW what I am talking about, but you probably don’t believe me anyway.

I am almost afraid to ask if you found the right loan.

[HLS]

DPS, I AM a “loan agent” today.
I don’t care what 99 others do. I just might be 1 in 100.

Regardless of what you THINK, The FACT is that there is no commission AT ALL when you get quoted the right rate.

Think whatever you want about conspiracies, coincidences, and theories. I KNOW what the truth is.

Most people want to hear payment amounts, and obviously I/O is lower than full am. You can THINK whatever you want.

I KNOW what I am talking about, but you probably don’t believe me anyway.

I am almost afraid to ask if you found the right loan.

[Author]

Posts