Quote:
Originally Posted by cabinover
wouldn't everyone come out better in the end? I'm talking about the folks that could afford a decent sized mortgage if the APR hadn't jumped at the end of an ARM?
Say a family is on the hook for $125K at 10% now. If they could afford a 7% note wouldn't the bank be foolish to turn their noses up at this offer and keep the mortgage above water?
Your thoughts, I'm not a financier, but I do fancy some things  |
Well, you're on the right track, but there are a couple of things to consider.
To start with, the banks are in the banking business, not the repossessing business. They really want you to stay in your house, and make the payments. And the longer it takes, the better they like it. They will work with you if they can, it's in their best interest.
What has happened is that a lot of folks picked up 100% mortgages at "teaser rates"...which doesn't even pay the interest on the loan. So every month they live there they're getting more upside down in their loan.
This worked great while property values were expanding something like 20% in places...you could sell out and turn a profit with very little invested. Then property values started going negative...your 125K home is now worth 100K, and once you add in what you haven't been paying for due to the "teaser rate", you now owe 130K.
So now you're on the hook for 130K for a property that's worth only 100K. The smartest thing you can do at this point is to walk away.
This is all hypothetical, so we'll adjust a few things. 125K won't even buy you much here in Bugtussell, probably wouldn't buy you a packing crate in some markets. The bigger the loan, the more interest you pay.
I think that a 30 yr fixed is around 5.5% at the time, provided you have a good credit rating. Which is going to cost you app $460 per month before you touch the principal. Get a 200K note, it's twice that. Don't forget taxes, insurance, and upkeep.
A lot of times, a banker will cut you some slack and take a loss to put you in a house, or car, or whatever. A loss is better than a beating. They really want you to succeed, and eventually own your property...but they are in no hurry for you to pay for it.
Actually, right now is a good time to buy a distressed property, provided you use your head. Just remember, the good one's have already been snapped up by the people in the loop.
Chas