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Realistbear

Be Warned--this Is Coming To Houses Near You

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http://www.boston.com/realestate/news/arti...oost/?page=full

Adjustable-rate loans come home to roost

Squeezed by rising interest rates, homeowners who stretched their finances to buy properties while the market was hot are scrambling to pay higher monthly payments on adjustable-rate mortgages that were the least expensive option at the time they purchased their homes.
An end to years of double-digit appreciation in Massachusetts home values has shut the door on refinancings that bailed thousands of homeowners out of bad financial decisions, said mortgage brokers and counselors as well as homeowners.
''The bottom line is so many people took the fashionable mortgage rather than the right mortgage," said Harry Brousaides Jr., president of NorthStar Mortgage Corp. in Westwood. Now, he said, ''they're sweating it and not knowing what the future will bring."
''People have put problems off by multiple financings and increasing equity," he said. As a last resort in a rising market, he said, people could sell the house and pay off the loans. But if prices decline, selling a house will not generate enough cash to pay off a loan.
''I have a sense it could get ugly soon," he said.
''So many people went rushing into the market because they didn't want to be left, but now these people are strapped," he said.

Irrational exhuberance has its price.

Edited by Realistbear

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Guest Bart of Darkness
''So many people went rushing into the market because they didn't want to be left, but now these people are strapped," he said.

Lambs to the slaughter.

Mint sauce anyone?

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My landlord is thinking of selling up because he took out a mortgage without realising it was interest only.

Idiot.

:o

are you sure he's selling coz it's IO? That's generally a better way to go for investment properties for tax reasons I believe.

Maybe he's selling for other reasons? e.g. rental not sufficiently covering IO repayments, or capital gain not going to be enough over next few years so better to sell now at small loss, and rebuy in a few years time?

I'd be really shocked if someone (LL or OO) didn't know the difference between IO and repayment.

Edited by xian

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IO stands for Idiots Only!!!!!!

IN a HP plateau or HP decline scenario, IO is only stupid if they cannot afford a savings vehicle, or select a poor one. (apart from not being sensible to buy in a declining market!)

Further, in a HPI or plateau scenario, taking a IO mortgage for a couple of years until you can afford capital repayment, is not necessarily stupid at all.

And over 25 years, (if you were ever going to stay in the property that long), given inevitable HPI, IO is not necessarily stupid at all (this is apart from mis-selling of endowments).

Edited by xian

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http://www.boston.com/realestate/news/arti...oost/?page=full

Adjustable-rate loans come home to roost

Squeezed by rising interest rates, homeowners who stretched their finances to buy properties while the market was hot are scrambling to pay higher monthly payments on adjustable-rate mortgages that were the least expensive option at the time they purchased their homes.
An end to years of double-digit appreciation in Massachusetts home values has shut the door on refinancings that bailed thousands of homeowners out of bad financial decisions, said mortgage brokers and counselors as well as homeowners.
''The bottom line is so many people took the fashionable mortgage rather than the right mortgage," said Harry Brousaides Jr., president of NorthStar Mortgage Corp. in Westwood. Now, he said, ''they're sweating it and not knowing what the future will bring."
''People have put problems off by multiple financings and increasing equity," he said. As a last resort in a rising market, he said, people could sell the house and pay off the loans. But if prices decline, selling a house will not generate enough cash to pay off a loan.
''I have a sense it could get ugly soon," he said.
''So many people went rushing into the market because they didn't want to be left, but now these people are strapped," he said.

Irrational exhuberance has its price.

Classic, this might just be a candidate for pinning on The Fridge (especially since it comes from boston.com).

frugalista

IN a HP plateau or HP decline scenario, IO is only stupid if they cannot afford a savings vehicle, or select a poor one. (apart from not being sensible to buy in a declining market!)

Further, in a HPI or plateau scenario, taking a IO mortgage for a couple of years until you can afford capital repayment, is not necessarily stupid at all.

And over 25 years, (if you were ever going to stay in the property that long), given inevitable HPI, IO is not necessarily stupid at all (this is apart from mis-selling of endowments).

It is not necessarily stupid but if you ever want to pay off the mortgage you must know what you are doing. You need to find a savings vehicle which will beat your IO interest rate after tax, so it's no good just saving cash.

frugalista

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True there are other factors as to why he had thoughts of selling, but finding out he still owed the same amount as he did six years ago has become the deciding factor

Well, some "adviser" explained that form of mortgage in detail then.

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IN a HP plateau or HP decline scenario, IO is only stupid if they cannot afford a savings vehicle, or select a poor one. (apart from not being sensible to buy in a declining market!)

Further, in a HPI or plateau scenario, taking a IO mortgage for a couple of years until you can afford capital repayment, is not necessarily stupid at all.

And over 25 years, (if you were ever going to stay in the property that long), given inevitable HPI, IO is not necessarily stupid at all (this is apart from mis-selling of endowments).

"inevitable HPI" - really? Surely only after a lifetime of HPDeflation during which time you've lost your job and been repossessed or panic-sold..

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"inevitable HPI" - really? Surely only after a lifetime of HPDeflation during which time you've lost your job and been repossessed or panic-sold..

Yes, over 25 years, inevitable. Give me a 25 year period where houses were worth less at the end than the beginning.

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True there are other factors as to why he had thoughts of selling, but finding out he still owed the same amount as he did six years ago has become the deciding factor

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"Yes, over 25 years, inevitable. Give me a 25 year period where houses were worth less at the end than the beginning"

Probably one of the most assinine comments I have seen on this forum.

Do people not understand the compound effect of annual inflation on real property prices? Do they also not understand how future demographics may impinge on an investment horizon as long as 25 years with regard to property prices?

Edited by Red Baron

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And the pain just got worse:

http://money.cnn.com/2006/02/02/real_estat...rates/index.htm

Mortgage rates leap higher
Declines in worker productivity and rising labor costs push rates on 30-year loan to six-week high.
February 2, 2006: 11:22 AM EST
NEW YORK (CNNMoney.com) - Mortgage rates jumped last week, pushed higher by signs of rising inflation, lifting rates on the 30-year loan to six-week highs.
The average rate for 30-year fixed-rate mortgages rose to 6.23 percent from 6.12 percent in the prior week, a Freddie Mac survey said.

In the bubble markets most people took out adjustable or IO mortagages. Carnage soon to follow. Is the UK any different?

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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