Posted on 10/18/2008 11:35:09 AM PDT by CaptainMorgantown
It could be. I don’t know that for sure. It is possible that the lower price at 15% for a 30 year fixed could result in the same monthly payment as the higher price on a 6% 30 year fixed. My concern is, that it will take a lot longer for prices to fall drawing out the length of the crisis and it will make a lot more people upside-down, causing more foreclosures, causing less people to make payments to banks, and so increasing the scale of the crisis.
This is not about right or wrong so much as Bazooka Hank and Chopper Ben are trying to “fix” the crisis. If 30 year mortgage rates soar, their “fix” is going to be much weaker than it would be.
FWIW, I think Bazooka and Chopper are pushing on a string and the crisis needs to unwind itself in it’s own time and scale of deleveraging.
The point of my post was that Chopper and Bazooka are pushing on a string if they are trying to put a floor under housing that is pulled away with higher mortgage rates.
FWIW, I am all cash. I would live to be able to buy a home for $10,000 cash and get shares of Goldman sachs for $0.10. That said, if we get there, I won’t be needed my cash balances before I’ll be needing my stockpile of lead supplies.
We bought our farm in 1993 at 7%. I’ve never bothered to adjust it as rates fell...the lowest by us was 5 3/4% a number of years back.
We’ve just always paid extra on the principle each month ($25-$100 each month, depending, with no pre-payment penalties) and that’s done more for us than a lower rate or a scary ARM loan could have done.
Pardon my French, but 7% ain’t sh!t and is nothing to “panic” over, LOL!
Nailed it!!!
Dave Ramsey is right on this. The best mortgage out there is the 100% downpayment plan. I wish I’d signed onto it.
When we bought our first house, we assumed a loan at 13% and were grateful for the deal. We were thrilled when we got to refinance it a few years later at 8%.
Guess it’s all perspective.
My wife and I bought our first house on the backside of Carter’s Misery Mess and thought we really lucked out when rates were at 16%, then dropped to 12% (where we locked in a 30yr fixed) and then watched them rise again to 14%.
Now we have a bigger better house with a 5.75 fixed. Which right now feels great.
Me too, but I thought it smarter to buy BEFORE the kids grew up and left for college rather than after!
Tell Dave Ramsey I did a zero down VA and I'm still paying....but I have NO regrets.
Finally, the price (interest) is beginning to reflect the actual risk premium, again.
And this is a GOOD thing - for taxpayers.
Freedom_Is_Not_Free, you are right, the price of the loan will hurt home sales, since these two goods are “Complements” (mortgages & homes).
But the problem isn’t the interest rate, it’s the price controls (ceilings) on interest that govt. originally introduced to “help” those who really could not afford a house pay the loans, that caused the spur in building boom - and housing glut we have today.
The price will REMAIN depressed until real demand - by people who can actually AFFORD to pay for mortgages - catches up with all these extra homes (supply we have).
I hope this helps.
I teach Econ 101 BTW.
(:
4L
“Tell Dave Ramsey I did a zero down VA and I’m still paying....but I have NO regrets.”
And paying, and paying, and paying, and paying, and paying.
So how long is your indenture? 15 years or 30?
There are many difficulties with that. A lender needs to be able to refuse a loan to someone who he judges not to be creditworthy. If a person could sell his house and, without the lender's consent, have the loan taken over by someone who won't pay it, lending would be a lot more risky; indeed, it would pose the type of moral-hazard risk that would be anathema to prudent lenders.
There can be some advantages to getting a mortgage even cash would be on hand for a purchase, if interest rates are more likely to go up than down.
If instead of buying a $100,000 house with cash you put down $20,000 and take out an $80,000 mortgage and then put your $80,000 into risk-free deposits, then you have to pay the difference in interest between the mortgage and the deposits, but if interest rates go up those deposits may end up paying as much or more interest than the mortgage. Further, if you lose your job or otherwise find yourself in financial difficulty, you'll have your deposit account available to draw from.
There's a price for that strategy, and it may or may not be worth paying, but as insurance against many things that could happen it doesn't seem unreasonable.
You need to factor inflation into it. Sure, housing is its own market, separate in many ways from inflation. If inflation is higher than the bank savings rate (and all indications say it is significantly so) then saving your money has little advantage at all.
If you can fix your rate at 6% today and in a few years the savings rate goes up to 8% then yes, you would come out ahead on your home (but maybe not on anything else if inflation is 9%).
I thought that way 9 years ago when I bought my house. I refinanced it twice each at lower rates. If I had adjustable rates I would have saved about 1/2 the cost of the house in 9 years. But I thought the rates were so low I should lock them in. So far I was wrong and have been paying a lot more than other people for a fixed rate mortgage all these years.
Now we shall see, over the next 20 years, how things turn out. Maybe interest rates will never go very high again, but I am fairly certain inflation is going to be a b***h.
Sure. In case of inflation, you get to pay off your mortgage in less valuable dollars.
If you took out a mortgage at 6% and put your money in CDs at 4% to start with, then if CD interest rates remained at 4% you'd have to add money at the end to finish paying off the mortgage. If the CD rates rise up above 6%, then you'll have money left over at the end.
If inflation rises, that will tend to push the nominal rates on CDs upward as well. Depending on the duration of the CDs there may be some lag before the CDs increase in value, but they will. If the CDs pay 9%, even if inflation is 10%, you'll still be better off than you would be if you'd spent all the money on the house and had none in monetary assets.
“There can be some advantages to getting a mortgage even cash would be on hand for a purchase, if interest rates are more likely to go up than down.”
That’s a very big “IF” and most likely priced into the interest rate you pay on your mortgage.
Debt is usually a bad deal, and I think you’ll find that most people who live in homes they own free and clear would not choose to put a mortgage on it in order to put the money into some other investment.
This quote is in direct opposition to the fact that the bailout caused the high rates.
I had a much sought after loan at 16% all lined up. At the last minute it got bumped half a point and I had to walk.
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