The worlds best loan

[djrobsd]

Where’s your logic there, bsrsharma? I’m assuming you talk about the decline of the dollar? Well, when the dollar declines, you don’t think real estate values will stay up do you?! Quite the contrary, they will sink into a big hole, so 1/8th the value of the dollar in 30 years, will probably also mean the property will only be worth 1/8 its original value…

lol

I still see a big flaw in this Acorn program. They are giving you an interest only loan because you can’t afford to pay principal + interest. But, in 10 years, the loan re-casts itself, and you have to begin paying principal. I guess ACORN assumes your income will increase in 10 years and you’ll be able to afford the higher payments?

Looks like the same flawed logic as an ARM to me, only the rate is fixed, but the payment certainly isn’t.

Can a mortgage broker shed some light on how much the payment goes up after the interest only period is done?

[no_such_reality]

It’s a nice loan, with interest only, the payment is around $2400. Not including taxes and insurance.

When it recasts in 10 years… it basically turns into a 30 years fixed at 6.1% making the payment a touch under $2900.

At the income limit, the DTI front end is 33%. That doesn’t leave much for other debt however the income limit, being in California, it’ll greatly help on taxes moving his expense for the next ten years to about $2000/month after taxes.

As long as he’s close to that for comparable rent, he’s good. He’s not having to move every couple years. His rent doesn’t go up an annoying $75/month every year. In ten years, the market will be different.

[no_such_reality]

It’s a nice loan, with interest only, the payment is around $2400. Not including taxes and insurance.

When it recasts in 10 years… it basically turns into a 30 years fixed at 6.1% making the payment a touch under $2900.

At the income limit, the DTI front end is 33%. That doesn’t leave much for other debt however the income limit, being in California, it’ll greatly help on taxes moving his expense for the next ten years to about $2000/month after taxes.

As long as he’s close to that for comparable rent, he’s good. He’s not having to move every couple years. His rent doesn’t go up an annoying $75/month every year. In ten years, the market will be different.

[no_such_reality]

It’s a nice loan, with interest only, the payment is around $2400. Not including taxes and insurance.

When it recasts in 10 years… it basically turns into a 30 years fixed at 6.1% making the payment a touch under $2900.

At the income limit, the DTI front end is 33%. That doesn’t leave much for other debt however the income limit, being in California, it’ll greatly help on taxes moving his expense for the next ten years to about $2000/month after taxes.

As long as he’s close to that for comparable rent, he’s good. He’s not having to move every couple years. His rent doesn’t go up an annoying $75/month every year. In ten years, the market will be different.

[bsrsharma]

djrobsd – we are being so blinded by the flash of the bubble burst that sometimes we forget that macroeconomic dynamics are propelling us to high inflation regime. That means, his 475K loan today is already worth half of that in 10 years when he has to repay with cheap $. When $ declines, real estate prices go up due to the natural forces of inflation. That 475K will be barely sufficient to by a small condo in 10 years – think $8 gas, $15 minimum wage, $2000 rent for a one bedroom apartment, $2000 per Oz Gold, $300 Bbl oil – you get the picture. He will be paying $3000 per month on a monthly salary of of $20K! When everything else doubles, his repayments will look puny.

[bsrsharma]

djrobsd – we are being so blinded by the flash of the bubble burst that sometimes we forget that macroeconomic dynamics are propelling us to high inflation regime. That means, his 475K loan today is already worth half of that in 10 years when he has to repay with cheap $. When $ declines, real estate prices go up due to the natural forces of inflation. That 475K will be barely sufficient to by a small condo in 10 years – think $8 gas, $15 minimum wage, $2000 rent for a one bedroom apartment, $2000 per Oz Gold, $300 Bbl oil – you get the picture. He will be paying $3000 per month on a monthly salary of of $20K! When everything else doubles, his repayments will look puny.

[bsrsharma]

djrobsd – we are being so blinded by the flash of the bubble burst that sometimes we forget that macroeconomic dynamics are propelling us to high inflation regime. That means, his 475K loan today is already worth half of that in 10 years when he has to repay with cheap $. When $ declines, real estate prices go up due to the natural forces of inflation. That 475K will be barely sufficient to by a small condo in 10 years – think $8 gas, $15 minimum wage, $2000 rent for a one bedroom apartment, $2000 per Oz Gold, $300 Bbl oil – you get the picture. He will be paying $3000 per month on a monthly salary of of $20K! When everything else doubles, his repayments will look puny.

[kewp]

bsrsharma,

Wages are not inflating.

Wages are flat.

[kewp]

bsrsharma,

Wages are not inflating.

Wages are flat.

[kewp]

bsrsharma,

Wages are not inflating.

Wages are flat.

[bsrsharma]

A brisk rise in American wages
Pay rose faster than the cost of living for the first time in years.

American paychecks are rising again at a pace not seen since the 1990s.
The pay increase amounts to 4 percent on average over the past 12 months, and it comes at a very helpful time for millions of households.

For three years, pay increases haven’t kept pace with the rising cost of living. Then came this year’s housing slowdown, which has further squeezed family finances.

Those setbacks, however, are now being offset by rising income. Four percent may not sound like much, but you have to look back to 1997 to find a calendar year with a gain that big.

Equally significant, tamer energy prices mean that the “real” wage gains, after inflation, are above 3 percent for the past 12 months. That, too, hasn’t happened since the 1990s, even though the economy has been expanding over the past five years………..

http://www.csmonitor.com/2006/1120/p01s03-usec.html

[bsrsharma]

A brisk rise in American wages
Pay rose faster than the cost of living for the first time in years.

American paychecks are rising again at a pace not seen since the 1990s.
The pay increase amounts to 4 percent on average over the past 12 months, and it comes at a very helpful time for millions of households.

For three years, pay increases haven’t kept pace with the rising cost of living. Then came this year’s housing slowdown, which has further squeezed family finances.

Those setbacks, however, are now being offset by rising income. Four percent may not sound like much, but you have to look back to 1997 to find a calendar year with a gain that big.

Equally significant, tamer energy prices mean that the “real” wage gains, after inflation, are above 3 percent for the past 12 months. That, too, hasn’t happened since the 1990s, even though the economy has been expanding over the past five years………..

http://www.csmonitor.com/2006/1120/p01s03-usec.html

[bsrsharma]

A brisk rise in American wages
Pay rose faster than the cost of living for the first time in years.

American paychecks are rising again at a pace not seen since the 1990s.
The pay increase amounts to 4 percent on average over the past 12 months, and it comes at a very helpful time for millions of households.

For three years, pay increases haven’t kept pace with the rising cost of living. Then came this year’s housing slowdown, which has further squeezed family finances.

Those setbacks, however, are now being offset by rising income. Four percent may not sound like much, but you have to look back to 1997 to find a calendar year with a gain that big.

Equally significant, tamer energy prices mean that the “real” wage gains, after inflation, are above 3 percent for the past 12 months. That, too, hasn’t happened since the 1990s, even though the economy has been expanding over the past five years………..

http://www.csmonitor.com/2006/1120/p01s03-usec.html

[Ex-SD]

I think that the $475k house that he bought will be worth no more than $300k in 10 years so when the interest only portion is up, he will start paying for P&I for 30 years for an overpriced property. The bottom for housing prices in SoCal won’t hit until at least the end of 2011 but most likely 2012 or later. When the bottom hits, prices will not go up for years because the average incomes for buyers in SD don’t equal what it takes to get a loan. Prices will only be able to rise according to income rising along with inventory & demand. After this fiasco, banks will not be handing out loans like candy to trick or treaters and buyers will not be so eager to buy a home that they can’t use as a get rich quick scheme or an ATM.
If he’s happy with the loan, more power to him but it’s not something I would advise any of my children to do.

[Ex-SD]

I think that the $475k house that he bought will be worth no more than $300k in 10 years so when the interest only portion is up, he will start paying for P&I for 30 years for an overpriced property. The bottom for housing prices in SoCal won’t hit until at least the end of 2011 but most likely 2012 or later. When the bottom hits, prices will not go up for years because the average incomes for buyers in SD don’t equal what it takes to get a loan. Prices will only be able to rise according to income rising along with inventory & demand. After this fiasco, banks will not be handing out loans like candy to trick or treaters and buyers will not be so eager to buy a home that they can’t use as a get rich quick scheme or an ATM.
If he’s happy with the loan, more power to him but it’s not something I would advise any of my children to do.

[Author]

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