[(former)FormerSanDiegan]

The higher conforming loan limit also applies to Guam and the US Virgin Islands.

Guam ?
Can;t be expensive there.

Methinks it has something to do with political pull. Perhaps Sen Stevens and Sen Inoue had something to do with it. In Alaska’s case it falls in the same category as the bridge to nowhere.

[(former)FormerSanDiegan]

Gary – Are you inadvertently hitting control characters (such as the less-than or greater-than symbols) or hitting the tab key ? Is so, than what is probably

[(former)FormerSanDiegan]

Gary – Are you inadvertently hitting control characters (such as the less-than or greater-than symbols) or hitting the tab key ? Is so, than what is probably

[(former)FormerSanDiegan]

kaycee –

The 1-year LIBOR rate is currently 5.26% (6-month LIBOR is 5.33), so your fully indexed rate would be something like 7.55% today. Not a great deal, but with the low maximum of 9.125, your upside interest rate risk is limited to only an additional ~1.6% increase in LIBOR.

Check to make sure that the initial cap is 2%. Sometimes the initial reset cap is higher than subsequent resets.

[(former)FormerSanDiegan]

kaycee –

The 1-year LIBOR rate is currently 5.26% (6-month LIBOR is 5.33), so your fully indexed rate would be something like 7.55% today. Not a great deal, but with the low maximum of 9.125, your upside interest rate risk is limited to only an additional ~1.6% increase in LIBOR.

Check to make sure that the initial cap is 2%. Sometimes the initial reset cap is higher than subsequent resets.

[(former)FormerSanDiegan]

HLS –

I respect your opinion, and appreciate the perspective and honesty that you bring to the board

But, based on the facts posted and the assumptions enumerated below I still think it would be a keeper loan for me.

Granted I have not seen that additional terms such as index, margin and caps stated, and if these differ significantly from my assumptions I could change my mind. So, there are several big IFs here.

(Note: Never take out an ARM if you don;t know your caps, margin, and index and all terms of the loan such as pre-payment penalties, etc).

Here’s why I think it’s a keeper:

1. She said it will likely re-set to about 6%. I assume that the first adjustment to ~ 6% reflects an the fully indexed rate (e.g. LIBOR at ~ 5,2 + 1% margin or some other combination) First adjustments are typically capped at the max rate increase (e.g. 5%, but don;t know in this case).

2. If her 5/1 ARM was originally at 4.125% it is very likely that the maximum rate was set at 4.125+5 % or 9.125%, based on similar terms to 5/1 ARMS I investigated in the 2002-2003 time frame.

So, if I could turn back time and grab this loan (as I understand/interpret it), I would. In a heartbeat.

Reasons: The fully indexed rate is currently less than most 30-year fixed rates. And this is at a time when the yield curve is flat or slightly inverted. The spread is likely to be much greater if inflation increases.

The maximum rate may only by 9.125%. That’s a hefty increase from her original rate, but pretty good insurance if inflation rages in the future.

Again, if one has sufficient reserves my opinion is that this loan could be a keeper.

(Point may be mute, since the property is kinda sold in a rent-to-own way.)

P.S. – Post edited for typos and clarity.

[(former)FormerSanDiegan]

HLS –

I respect your opinion, and appreciate the perspective and honesty that you bring to the board

But, based on the facts posted and the assumptions enumerated below I still think it would be a keeper loan for me.

Granted I have not seen that additional terms such as index, margin and caps stated, and if these differ significantly from my assumptions I could change my mind. So, there are several big IFs here.

(Note: Never take out an ARM if you don;t know your caps, margin, and index and all terms of the loan such as pre-payment penalties, etc).

Here’s why I think it’s a keeper:

1. She said it will likely re-set to about 6%. I assume that the first adjustment to ~ 6% reflects an the fully indexed rate (e.g. LIBOR at ~ 5,2 + 1% margin or some other combination) First adjustments are typically capped at the max rate increase (e.g. 5%, but don;t know in this case).

2. If her 5/1 ARM was originally at 4.125% it is very likely that the maximum rate was set at 4.125+5 % or 9.125%, based on similar terms to 5/1 ARMS I investigated in the 2002-2003 time frame.

So, if I could turn back time and grab this loan (as I understand/interpret it), I would. In a heartbeat.

Reasons: The fully indexed rate is currently less than most 30-year fixed rates. And this is at a time when the yield curve is flat or slightly inverted. The spread is likely to be much greater if inflation increases.

The maximum rate may only by 9.125%. That’s a hefty increase from her original rate, but pretty good insurance if inflation rages in the future.

Again, if one has sufficient reserves my opinion is that this loan could be a keeper.

(Point may be mute, since the property is kinda sold in a rent-to-own way.)

P.S. – Post edited for typos and clarity.

[(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.

[(former)FormerSanDiegan]

An historical anecdote on a lease-option I considered …
I once considered buying a house in Ocean Beach on a lease purchase. This was in 1996. The San Diego market really stank at the time. The seller wanted me to rent for something like 12-24 months at a rate that was about $300 above market (to be applied to purchase, if I elected the option). The price was set at two discrete points. 12 months in it was about 7% above the current price (about 200K at the time), then would go up another 7% if I waited 2 years.

This was at a time when the market had been DOWN for 5-6 years. The deal was clearly intended to be a win-win for the seller, not the buyer.

[(former)FormerSanDiegan]

An historical anecdote on a lease-option I considered …
I once considered buying a house in Ocean Beach on a lease purchase. This was in 1996. The San Diego market really stank at the time. The seller wanted me to rent for something like 12-24 months at a rate that was about $300 above market (to be applied to purchase, if I elected the option). The price was set at two discrete points. 12 months in it was about 7% above the current price (about 200K at the time), then would go up another 7% if I waited 2 years.

This was at a time when the market had been DOWN for 5-6 years. The deal was clearly intended to be a win-win for the seller, not the buyer.

[(former)FormerSanDiegan]

Typically rent-to-own deals include rents ABOVE the market rate, with some non-refundable portion being applied to the down payment. This appearance of skin-in-the-game on the renter-buyer’s side is what might keep them in the deal 24 months from now. Giving them below market rent rate and essentially a free option to buy is a bit of a raw deal for you.

On the positive side, it sounds like you have it rented at a rate that about covers your monthly carrying costs. That’s not so bad.

[(former)FormerSanDiegan]

Typically rent-to-own deals include rents ABOVE the market rate, with some non-refundable portion being applied to the down payment. This appearance of skin-in-the-game on the renter-buyer’s side is what might keep them in the deal 24 months from now. Giving them below market rent rate and essentially a free option to buy is a bit of a raw deal for you.

On the positive side, it sounds like you have it rented at a rate that about covers your monthly carrying costs. That’s not so bad.

[(former)FormerSanDiegan]

“I do not think it is different this time in either market, cycles exist, and they will play out.”

Well said.

[(former)FormerSanDiegan]

“I do not think it is different this time in either market, cycles exist, and they will play out.”

Well said.

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