The House Trap

[maktbone]

This is a perfect example of why I refuse to shell out good dollars to get an MBA at San Diego State. Don’t get me wrong, you can get a decent education for a reasonable price (unlike some of the UC MBA programs) and I’m sure not all the professors are bad, but I have to seriously question the legitimacy of certain courses. A finance professor should know better.

[LuckyInOC]

Patb, I don’t see why there is only one class of buyer who will use an I/O loan effectively.

[quote=patb]it struck me there is only one class of buyer who will use an I/O loan effectively. Someone who by nature will have a very serious increase in their income soon. Recent graduates from med school, People starting new small businesses (Franchises), people in apprenticeship programs.

But that’s maybe 1-2% of all buyers. I/O’s are otherwise a tool for flippers. if you aren’t amortizing the debt you will see a big spike in
payments, and for what?[/quote]

For those with 10 yr I/O loans, I don’t see why they could not afford the payments in the future?
Assume when they purchased a home with $3800 payment at 30% debt to income ratio. This would be about $152k annual or $13.7k monthly household income. Not much of a stretch. Now, fast forward 10 years with at nominal 3% annual pay increases. The income now would be $204k annual or $17.0k monthly. There is $4k of additional income to pay the maximum $2800 increase to $6700. If the borrowers happened to paid all their bills in the 10 years, they should have enough income to pay for the increase. If they did not work for a company that gets 3%+ year over year annual pay increases, then this type of loan wasn’t for them.

I have a coworker and his wife in a secure aerospace jobs that did the 10 yr IO loan in 2004 and he and his wife gets at least the annual 3% increase each and every year. Now, they may be upside down, but they still will be able to afford the payment. I believe his means met his ends and may come out unscathed. My coworker had to move to get his kids into a better Jr High & High School. The 3 and 5 yr I/O loans will have problems under these specific conditions.

I highly doubt there is any 10 yr I/O loans available, I haven’t checked. I might actually consider it now that home values are somewhat down and if we are in for a high inflationary period. I would even put my bank money as a down…

Lucky In OC

[LuckyInOC]

Patb, I don’t see why there is only one class of buyer who will use an I/O loan effectively.

[quote=patb]it struck me there is only one class of buyer who will use an I/O loan effectively. Someone who by nature will have a very serious increase in their income soon. Recent graduates from med school, People starting new small businesses (Franchises), people in apprenticeship programs.

But that’s maybe 1-2% of all buyers. I/O’s are otherwise a tool for flippers. if you aren’t amortizing the debt you will see a big spike in
payments, and for what?[/quote]

For those with 10 yr I/O loans, I don’t see why they could not afford the payments in the future?
Assume when they purchased a home with $3800 payment at 30% debt to income ratio. This would be about $152k annual or $13.7k monthly household income. Not much of a stretch. Now, fast forward 10 years with at nominal 3% annual pay increases. The income now would be $204k annual or $17.0k monthly. There is $4k of additional income to pay the maximum $2800 increase to $6700. If the borrowers happened to paid all their bills in the 10 years, they should have enough income to pay for the increase. If they did not work for a company that gets 3%+ year over year annual pay increases, then this type of loan wasn’t for them.

I have a coworker and his wife in a secure aerospace jobs that did the 10 yr IO loan in 2004 and he and his wife gets at least the annual 3% increase each and every year. Now, they may be upside down, but they still will be able to afford the payment. I believe his means met his ends and may come out unscathed. My coworker had to move to get his kids into a better Jr High & High School. The 3 and 5 yr I/O loans will have problems under these specific conditions.

I highly doubt there is any 10 yr I/O loans available, I haven’t checked. I might actually consider it now that home values are somewhat down and if we are in for a high inflationary period. I would even put my bank money as a down…

Lucky In OC

[LuckyInOC]

Patb, I don’t see why there is only one class of buyer who will use an I/O loan effectively.

[quote=patb]it struck me there is only one class of buyer who will use an I/O loan effectively. Someone who by nature will have a very serious increase in their income soon. Recent graduates from med school, People starting new small businesses (Franchises), people in apprenticeship programs.

But that’s maybe 1-2% of all buyers. I/O’s are otherwise a tool for flippers. if you aren’t amortizing the debt you will see a big spike in
payments, and for what?[/quote]

For those with 10 yr I/O loans, I don’t see why they could not afford the payments in the future?
Assume when they purchased a home with $3800 payment at 30% debt to income ratio. This would be about $152k annual or $13.7k monthly household income. Not much of a stretch. Now, fast forward 10 years with at nominal 3% annual pay increases. The income now would be $204k annual or $17.0k monthly. There is $4k of additional income to pay the maximum $2800 increase to $6700. If the borrowers happened to paid all their bills in the 10 years, they should have enough income to pay for the increase. If they did not work for a company that gets 3%+ year over year annual pay increases, then this type of loan wasn’t for them.

I have a coworker and his wife in a secure aerospace jobs that did the 10 yr IO loan in 2004 and he and his wife gets at least the annual 3% increase each and every year. Now, they may be upside down, but they still will be able to afford the payment. I believe his means met his ends and may come out unscathed. My coworker had to move to get his kids into a better Jr High & High School. The 3 and 5 yr I/O loans will have problems under these specific conditions.

I highly doubt there is any 10 yr I/O loans available, I haven’t checked. I might actually consider it now that home values are somewhat down and if we are in for a high inflationary period. I would even put my bank money as a down…

Lucky In OC

[LuckyInOC]

Patb, I don’t see why there is only one class of buyer who will use an I/O loan effectively.

[quote=patb]it struck me there is only one class of buyer who will use an I/O loan effectively. Someone who by nature will have a very serious increase in their income soon. Recent graduates from med school, People starting new small businesses (Franchises), people in apprenticeship programs.

But that’s maybe 1-2% of all buyers. I/O’s are otherwise a tool for flippers. if you aren’t amortizing the debt you will see a big spike in
payments, and for what?[/quote]

For those with 10 yr I/O loans, I don’t see why they could not afford the payments in the future?
Assume when they purchased a home with $3800 payment at 30% debt to income ratio. This would be about $152k annual or $13.7k monthly household income. Not much of a stretch. Now, fast forward 10 years with at nominal 3% annual pay increases. The income now would be $204k annual or $17.0k monthly. There is $4k of additional income to pay the maximum $2800 increase to $6700. If the borrowers happened to paid all their bills in the 10 years, they should have enough income to pay for the increase. If they did not work for a company that gets 3%+ year over year annual pay increases, then this type of loan wasn’t for them.

I have a coworker and his wife in a secure aerospace jobs that did the 10 yr IO loan in 2004 and he and his wife gets at least the annual 3% increase each and every year. Now, they may be upside down, but they still will be able to afford the payment. I believe his means met his ends and may come out unscathed. My coworker had to move to get his kids into a better Jr High & High School. The 3 and 5 yr I/O loans will have problems under these specific conditions.

I highly doubt there is any 10 yr I/O loans available, I haven’t checked. I might actually consider it now that home values are somewhat down and if we are in for a high inflationary period. I would even put my bank money as a down…

Lucky In OC

[LuckyInOC]

Patb, I don’t see why there is only one class of buyer who will use an I/O loan effectively.

[quote=patb]it struck me there is only one class of buyer who will use an I/O loan effectively. Someone who by nature will have a very serious increase in their income soon. Recent graduates from med school, People starting new small businesses (Franchises), people in apprenticeship programs.

But that’s maybe 1-2% of all buyers. I/O’s are otherwise a tool for flippers. if you aren’t amortizing the debt you will see a big spike in
payments, and for what?[/quote]

For those with 10 yr I/O loans, I don’t see why they could not afford the payments in the future?
Assume when they purchased a home with $3800 payment at 30% debt to income ratio. This would be about $152k annual or $13.7k monthly household income. Not much of a stretch. Now, fast forward 10 years with at nominal 3% annual pay increases. The income now would be $204k annual or $17.0k monthly. There is $4k of additional income to pay the maximum $2800 increase to $6700. If the borrowers happened to paid all their bills in the 10 years, they should have enough income to pay for the increase. If they did not work for a company that gets 3%+ year over year annual pay increases, then this type of loan wasn’t for them.

I have a coworker and his wife in a secure aerospace jobs that did the 10 yr IO loan in 2004 and he and his wife gets at least the annual 3% increase each and every year. Now, they may be upside down, but they still will be able to afford the payment. I believe his means met his ends and may come out unscathed. My coworker had to move to get his kids into a better Jr High & High School. The 3 and 5 yr I/O loans will have problems under these specific conditions.

I highly doubt there is any 10 yr I/O loans available, I haven’t checked. I might actually consider it now that home values are somewhat down and if we are in for a high inflationary period. I would even put my bank money as a down…

Lucky In OC

[AK]

10 year I/Os are still available.

I looked into it but if 1 year LIBOR rates go back to historical norms, the payment shock at the 10 year mark will be nothing short of astonishing.

Chances are that one would be able to sell or refinance, but … stuff happens.

[AK]

10 year I/Os are still available.

I looked into it but if 1 year LIBOR rates go back to historical norms, the payment shock at the 10 year mark will be nothing short of astonishing.

Chances are that one would be able to sell or refinance, but … stuff happens.

[AK]

10 year I/Os are still available.

I looked into it but if 1 year LIBOR rates go back to historical norms, the payment shock at the 10 year mark will be nothing short of astonishing.

Chances are that one would be able to sell or refinance, but … stuff happens.

[AK]

10 year I/Os are still available.

I looked into it but if 1 year LIBOR rates go back to historical norms, the payment shock at the 10 year mark will be nothing short of astonishing.

Chances are that one would be able to sell or refinance, but … stuff happens.

[AK]

10 year I/Os are still available.

I looked into it but if 1 year LIBOR rates go back to historical norms, the payment shock at the 10 year mark will be nothing short of astonishing.

Chances are that one would be able to sell or refinance, but … stuff happens.

[patb]

lucky

why not a 10/20 ARM?

Then you are making amortizing payments and the payment transition
is far less shocking.

[patb]

lucky

why not a 10/20 ARM?

Then you are making amortizing payments and the payment transition
is far less shocking.

[patb]

lucky

why not a 10/20 ARM?

Then you are making amortizing payments and the payment transition
is far less shocking.

[patb]

lucky

why not a 10/20 ARM?

Then you are making amortizing payments and the payment transition
is far less shocking.

[Author]

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