Mortgages: Are Americans that Short-sighted?
My wife and I have been going through the fun process of house-shopping (some sarcasm intended). One thing that has really surprised me is that the lenders we have talked to are still pushing ARM’s and other “creative” financing options to get people to buy houses they can’t afford.
Haven’t we been through this before? Isn’t that why banks are writing down billions of dollars right now?
The last mortgage company I talked to kept trying to tell me that I should pay more for a house in order to buy the interest rate down - it doesn’t stop there - for 2 years. That’s it - pay 3% more for your house so you have a lower payment… for 2 years.
So what that tells me is that at least some people are willing to implicitly bet that their income will increase over the next 2 years despite all of the economic data that would should convince them otherwise. Oh well - hopefully it will leave plenty of nice houses on the market for good prices when the next wave of ARM’s resets…
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Wow - I do not envy anyone who is house shopping right now. Inventories are at all time highs as well as foreclosures. The values of homes have only just begun to drop and you’ll be hearing “never a better time to buy!” the whole way down to the bottom.
Just look at Japan - nobody has made money on their home since the late 80’s early 90’s. We’re in about the same position as them - house prices 400% historical highs, the market falling apart around us.
I can’t imagine a worse time to buy a house.
So may the force be with you.
Comment by Sam — November 30, 2007 @ 12:38 pm
Haha - I definitely wouldn’t agree that things are quite that bleak. I mean, if your theory is true then technically anybody who bought a house a year ago bought at a worse time than now, right? (since prices have already fallen significantly)
I guess time will tell…
Comment by Preston — November 30, 2007 @ 3:44 pm
Sam, we are not at all anywhere in the same position as Japan. Japan has experienced an incredible decrease in population size thereby eliminating demand for homes. Add this to the fact that Japans culture has pretty much flat-lined in getting people married and moved out of their parents house.
This is not the case in America.
Preston: An ARM is not really the problem. An ARM is made for people that plan on refinancing or selling within a few years. Some people have used them as a promise of a higher future income which is stupid. If you use an ARM for what it is intended then it can be a great program.
For you, I don’t think it would be because you have enough money to put in a good down payment and I suspect you won’t be rolling your house in the next few years.
Comment by Dan — December 2, 2007 @ 2:21 am
Dan - good point on ARM’s. I guess I was specifically referring to the fact that they were trying to get me to buy a more expensive house than I could afford. You’re right - there are situations where ARM’s make sense.
Comment by Preston — December 2, 2007 @ 2:38 am
“One thing that has really surprised me is that the lenders we have talked to are still pushing ARM’s and other “creative” financing options to get people to buy houses they can’t afford.”
What the lenders should be telling you about is home equity acceleration:
More and more folks are using a Home Equity Line of Credit (HELOC) as an interest cancellation account to accelerate their home equity and payoff their home *years* sooner than listed on their mortgage amortization schedule.
Unfortunately, today’s Real Estate market means that folks can no longer count on appreciation to build home equity. Those who realize that they need to pay down their current mortgage debt are looking for alternate ways to aggressively (yet safely) build equity.
And they’ve discovered a perfect online system to do that; they can focus on their wealth accumulation goals while accelerating their equity simply by using a Home Equity Line of Credit to ‘power’ the Money Merge Account™ financial solutions program.
A typical 30 year loan (of whatever type) can be paid down in 1/3 to 1/2 the time — it’s a great way to save *huge* amounts of income by eliminating a mortgage amortization front-end interest load. (On a million-plus dollar home, I’ve personally seen where the Money Merge Account™ program will save the homeowner $750,000 in interest charges!)
And the best thing – homeowners don’t have to refinance their existing mortgage or, in most cases, make any adjustments to their lifestyle.
It is unfortunate that most of us were never taught to follow three essential principles: (1) Avoid paying interest, whenever possible, (2) Use other people’s money, whenever possible and (3) Find and use a financial system that will guide you, especially if you have the tendency to go off-track. The Money Merge Account™ software and the program’s counselors use these principles to keep each homeowner focused on their wealth accumulation goals.
I’d be happy to provide further details…
Comment by Lee Matthews -- Financial Concepts West — February 6, 2008 @ 1:01 pm
A typical 30 year loan (of whatever type) can be paid down in 1/3 to 1/2 the time — it’s a great way to save *huge* amounts of income by eliminating a mortgage amortization front-end interest load. (On a million-plus dollar home, I’ve personally seen where the Money Merge Account™ program will save the homeowner $750,000 in interest charges!)
And the best thing – homeowners don’t have to refinance their existing mortgage or, in most cases, make any adjustments to their lifestyle.
Comment by Goyin — June 5, 2008 @ 2:37 pm