The 5/1 Interest Only ARM Returns

[(former)FormerSanDiegan]

[quote=patb]

so then pay it off[/quote]

The point is it’s a cheap source of capital.

One could use their money to generate a better rate of return than the rate on the note, which is likely in the 5% range (e.g. use to grow their business, exercise and sell their in-the-money stock options, buy REOs for cash, etc).

If the rate jumps in the future, then it might make sense to reduce or eliminate the debt, versus these other purposes.

The cost of capital is in the 5-6% range for corporations. For small companies/sole proprietors, I doubt one could access this much capital at anywhere near these rates.

[(former)FormerSanDiegan]

[quote=jpinpb]
Why not just rent from the banks in perpetuity and be done w/it.

Home ownership. HA![/quote]

Yep. it’s essentially that in the loans you linked.

[(former)FormerSanDiegan]

[quote=jpinpb]
Why not just rent from the banks in perpetuity and be done w/it.

Home ownership. HA![/quote]

Yep. it’s essentially that in the loans you linked.

[(former)FormerSanDiegan]

[quote=jpinpb]
Why not just rent from the banks in perpetuity and be done w/it.

Home ownership. HA![/quote]

Yep. it’s essentially that in the loans you linked.

[(former)FormerSanDiegan]

[quote=jpinpb]
Why not just rent from the banks in perpetuity and be done w/it.

Home ownership. HA![/quote]

Yep. it’s essentially that in the loans you linked.

[(former)FormerSanDiegan]

[quote=jpinpb]
Why not just rent from the banks in perpetuity and be done w/it.

Home ownership. HA![/quote]

Yep. it’s essentially that in the loans you linked.

[CA renter]

[quote=jpinpb]Hold the phone, everyone. These are even uglier loans:

Remember those horrific option ARMs? Well they are now morphing into other products
Shocked yet? Well how about a 40 year IndyMac loan modification.
An example, Modified Unpaid Principal Balance 472,136. Maturity Date 6/1/46.

I guess we’ll be kicking the can until it’s time for the newborns of today to be old enough buy.[/quote]

Great link, jpinpb. One of the comments from that link:

Comment by Dutch123
July 14th, 2010 at 4:34 pm

Is it safe to say that the deadbeat will rent the house out for $2500, take the $800 differential between the modified payment and rent collected and go rent an apartment. Basically living for free?
——————

This is exactly the problem, and we’ve heard of examples right here on this blog (someone sdr knows?) where people got mods on **rental homes** and are now getting positive cash flow thanks to taxpayers!

It is disgusting!

I know someone who got a HAMP modification and the terms were similar, exept that the amortized payment had a fixed rate after the initial period with a well “below market” rate. They had a 5 or 10 year period of interest-only at 3.5% (sorry, can’t remember how many years initially), then the loan converted to the “full” interest & principal at 5.XX% FIXED (don’t remember the exact rate) for the remaining 35-40 years.

I’m still waiting for a govt program that’s aimed at “keeping renters in their homes” by giving us an additional $1,000/month or so…you know, to “prevent the destruction of the financial system(!!!!)” or somesuch.

[CA renter]

[quote=jpinpb]Hold the phone, everyone. These are even uglier loans:

Remember those horrific option ARMs? Well they are now morphing into other products
Shocked yet? Well how about a 40 year IndyMac loan modification.
An example, Modified Unpaid Principal Balance 472,136. Maturity Date 6/1/46.

I guess we’ll be kicking the can until it’s time for the newborns of today to be old enough buy.[/quote]

Great link, jpinpb. One of the comments from that link:

Comment by Dutch123
July 14th, 2010 at 4:34 pm

Is it safe to say that the deadbeat will rent the house out for $2500, take the $800 differential between the modified payment and rent collected and go rent an apartment. Basically living for free?
——————

This is exactly the problem, and we’ve heard of examples right here on this blog (someone sdr knows?) where people got mods on **rental homes** and are now getting positive cash flow thanks to taxpayers!

It is disgusting!

I know someone who got a HAMP modification and the terms were similar, exept that the amortized payment had a fixed rate after the initial period with a well “below market” rate. They had a 5 or 10 year period of interest-only at 3.5% (sorry, can’t remember how many years initially), then the loan converted to the “full” interest & principal at 5.XX% FIXED (don’t remember the exact rate) for the remaining 35-40 years.

I’m still waiting for a govt program that’s aimed at “keeping renters in their homes” by giving us an additional $1,000/month or so…you know, to “prevent the destruction of the financial system(!!!!)” or somesuch.

[CA renter]

[quote=jpinpb]Hold the phone, everyone. These are even uglier loans:

Remember those horrific option ARMs? Well they are now morphing into other products
Shocked yet? Well how about a 40 year IndyMac loan modification.
An example, Modified Unpaid Principal Balance 472,136. Maturity Date 6/1/46.

I guess we’ll be kicking the can until it’s time for the newborns of today to be old enough buy.[/quote]

Great link, jpinpb. One of the comments from that link:

Comment by Dutch123
July 14th, 2010 at 4:34 pm

Is it safe to say that the deadbeat will rent the house out for $2500, take the $800 differential between the modified payment and rent collected and go rent an apartment. Basically living for free?
——————

This is exactly the problem, and we’ve heard of examples right here on this blog (someone sdr knows?) where people got mods on **rental homes** and are now getting positive cash flow thanks to taxpayers!

It is disgusting!

I know someone who got a HAMP modification and the terms were similar, exept that the amortized payment had a fixed rate after the initial period with a well “below market” rate. They had a 5 or 10 year period of interest-only at 3.5% (sorry, can’t remember how many years initially), then the loan converted to the “full” interest & principal at 5.XX% FIXED (don’t remember the exact rate) for the remaining 35-40 years.

I’m still waiting for a govt program that’s aimed at “keeping renters in their homes” by giving us an additional $1,000/month or so…you know, to “prevent the destruction of the financial system(!!!!)” or somesuch.

[CA renter]

[quote=jpinpb]Hold the phone, everyone. These are even uglier loans:

Remember those horrific option ARMs? Well they are now morphing into other products
Shocked yet? Well how about a 40 year IndyMac loan modification.
An example, Modified Unpaid Principal Balance 472,136. Maturity Date 6/1/46.

I guess we’ll be kicking the can until it’s time for the newborns of today to be old enough buy.[/quote]

Great link, jpinpb. One of the comments from that link:

Comment by Dutch123
July 14th, 2010 at 4:34 pm

Is it safe to say that the deadbeat will rent the house out for $2500, take the $800 differential between the modified payment and rent collected and go rent an apartment. Basically living for free?
——————

This is exactly the problem, and we’ve heard of examples right here on this blog (someone sdr knows?) where people got mods on **rental homes** and are now getting positive cash flow thanks to taxpayers!

It is disgusting!

I know someone who got a HAMP modification and the terms were similar, exept that the amortized payment had a fixed rate after the initial period with a well “below market” rate. They had a 5 or 10 year period of interest-only at 3.5% (sorry, can’t remember how many years initially), then the loan converted to the “full” interest & principal at 5.XX% FIXED (don’t remember the exact rate) for the remaining 35-40 years.

I’m still waiting for a govt program that’s aimed at “keeping renters in their homes” by giving us an additional $1,000/month or so…you know, to “prevent the destruction of the financial system(!!!!)” or somesuch.

[CA renter]

[quote=jpinpb]Hold the phone, everyone. These are even uglier loans:

Remember those horrific option ARMs? Well they are now morphing into other products
Shocked yet? Well how about a 40 year IndyMac loan modification.
An example, Modified Unpaid Principal Balance 472,136. Maturity Date 6/1/46.

I guess we’ll be kicking the can until it’s time for the newborns of today to be old enough buy.[/quote]

Great link, jpinpb. One of the comments from that link:

Comment by Dutch123
July 14th, 2010 at 4:34 pm

Is it safe to say that the deadbeat will rent the house out for $2500, take the $800 differential between the modified payment and rent collected and go rent an apartment. Basically living for free?
——————

This is exactly the problem, and we’ve heard of examples right here on this blog (someone sdr knows?) where people got mods on **rental homes** and are now getting positive cash flow thanks to taxpayers!

It is disgusting!

I know someone who got a HAMP modification and the terms were similar, exept that the amortized payment had a fixed rate after the initial period with a well “below market” rate. They had a 5 or 10 year period of interest-only at 3.5% (sorry, can’t remember how many years initially), then the loan converted to the “full” interest & principal at 5.XX% FIXED (don’t remember the exact rate) for the remaining 35-40 years.

I’m still waiting for a govt program that’s aimed at “keeping renters in their homes” by giving us an additional $1,000/month or so…you know, to “prevent the destruction of the financial system(!!!!)” or somesuch.

[sdrealtor]

Before the lynch mob gets any further out of hand, all the mods I have seen and heard about are for primary residences not rental properties.

The mod example I provided was for my friends 10+ yr primary residence not a rental property. I said he could rent it out not that he would. Its his home and he will stay there though he has and may take in a roomate. The modification is allowing him a couple years to get back on his feet and he is well on his way. In the end after a few years of interest rate subsidy he will eventually have to pay back the entire principal of the loan. It was a good deal for all as they do a NPV calculation to make sure of that. If it wasnt the lender wouldnt have done it.

HAMP modifications are for 5 years at a low start rate increasing 1% per year until reaching the current market today they are qualifying under.

[sdrealtor]

Before the lynch mob gets any further out of hand, all the mods I have seen and heard about are for primary residences not rental properties.

The mod example I provided was for my friends 10+ yr primary residence not a rental property. I said he could rent it out not that he would. Its his home and he will stay there though he has and may take in a roomate. The modification is allowing him a couple years to get back on his feet and he is well on his way. In the end after a few years of interest rate subsidy he will eventually have to pay back the entire principal of the loan. It was a good deal for all as they do a NPV calculation to make sure of that. If it wasnt the lender wouldnt have done it.

HAMP modifications are for 5 years at a low start rate increasing 1% per year until reaching the current market today they are qualifying under.

[sdrealtor]

Before the lynch mob gets any further out of hand, all the mods I have seen and heard about are for primary residences not rental properties.

The mod example I provided was for my friends 10+ yr primary residence not a rental property. I said he could rent it out not that he would. Its his home and he will stay there though he has and may take in a roomate. The modification is allowing him a couple years to get back on his feet and he is well on his way. In the end after a few years of interest rate subsidy he will eventually have to pay back the entire principal of the loan. It was a good deal for all as they do a NPV calculation to make sure of that. If it wasnt the lender wouldnt have done it.

HAMP modifications are for 5 years at a low start rate increasing 1% per year until reaching the current market today they are qualifying under.

[sdrealtor]

Before the lynch mob gets any further out of hand, all the mods I have seen and heard about are for primary residences not rental properties.

The mod example I provided was for my friends 10+ yr primary residence not a rental property. I said he could rent it out not that he would. Its his home and he will stay there though he has and may take in a roomate. The modification is allowing him a couple years to get back on his feet and he is well on his way. In the end after a few years of interest rate subsidy he will eventually have to pay back the entire principal of the loan. It was a good deal for all as they do a NPV calculation to make sure of that. If it wasnt the lender wouldnt have done it.

HAMP modifications are for 5 years at a low start rate increasing 1% per year until reaching the current market today they are qualifying under.

[Author]

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