patrick.net

jdubbs29 says

Well, I stayed out of the craziness from 2005-2010, but started to look about 18 months ago. Found a place I wasn't absolutely crazy about, but was doable financially, and in a good area for $800K, well within my budget with about $200K down.

An $800K house with $200K down would be PITI of about $3800, which means you should be making over $11,000 a month, and that there's little chance that income would drop in the foreseeable future. If that's the case, sounds like you're doing really well. So what if you missed the bottom by a little bit? You know most people make half as much money and many still manage to buy houses, right?

PockyClipsNow says

800k means he could have lived there for like 1700 a month,

Utter bullshit. You are clueless.

Homeboy says

jdubbs29 says

Well, I stayed out of the craziness from 2005-2010, but started to look about 18 months ago. Found a place I wasn't absolutely crazy about, but was doable financially, and in a good area for $800K, well within my budget with about $200K down.

An $800K house with $200K down would be PITI of about $3800, which means you should be making over $11,000 a month, and that there's little chance that income would drop in the foreseeable future. If that's the case, sounds like you're doing really well. So what if you missed the bottom by a little bit? You know most people make half as much money and many still manage to buy houses, right?

ridiculous.
You cant count the principal payment as part of the mortage as its really a 'savings account' and is not required.

PockyClipsNow says

I base my numbers of a 3 or 5 year Intrest Only ARM loan which is at 2.75 or so. No principal payment.

What kind of retard would get an adjustable rate mortgage right now? Rates have nowhere to go but up. If you don't lock in the lowest interest rates in history, you are a fool.

Homeboy says

PockyClipsNow says

800k means he could have lived there for like 1700 a month,

Utter bullshit. You are clueless.

Dude I have a clue. I just spelled out how people are buying at these prices in this thread

http://patrick.net/?p=1223253

Dont want an arm loan then keep renting.

PockyClipsNow says

You cant count the principal payment as part of the mortage as its really a 'savings account' and is not required.

Huh? Did you mean downpayment? I didn't include the downpayment.

Homeboy says

PockyClipsNow says

I base my numbers of a 3 or 5 year Intrest Only ARM loan which is at 2.75 or so. No principal payment.

What kind of retard would get an adjustable rate mortgage right now? Rates have nowhere to go but up. If you don't lock in the lowest interest rates in history, you are a fool.

I have been hearing that line since 2001. Still waiting for rates to go up.

The principal part of the PITI is not needed if you get an IO loan.And if you do have one in your payment maybe its not comparable to renting as you are paying down the loan (like savings) vs rent where its all comparable to an intrest payment. does that make sense? Just get an IO loan is what im saying!

PockyClipsNow says

Dont want an arm loan then keep renting.

Or don't buy such an expensive house. Duh. Do you even have the slightest idea what happened in the last decade?

PockyClipsNow says

I have been hearing that line since 2001. Still waiting for rates to go up.

You are a fool. Those who learn nothing from history are doomed to repeat it.

PockyClipsNow says

The principal part of the PITI is not needed if you get an IO loan

Um, you know it doesn't stay interest-only forever, right? Do you even have the slightest idea why millions of people lost their homes?

MsBennet says

PockyClipsNow says

800k means he could have lived there for like 1700 a month

Where do you get these crazy numbers? A loan of 600K is not a 1700/mo house payment.

Yeah, I'm confused too. The math on an 800k home with 200k down, 1% property tax, and 3.4% interest rate is $3,260 per month. I even assumed the assessed value is 10% less than the price you paid ($720k). Add $60/month home insurance. Add $90/HOA. Assuming the 28% tax bracket and mortgage interest deduction. The average monthly cost your first year would be $2,770.

Which of my numbers do I need to change to get it to the $1700 calculation you mentioned?

Okay, with ARM of 2.75% you've still only reduced the average monthly cost your first year to $2,650. Congratulations you just bought yourself an assload of risk for $120 a month.

You're either trolling or you really shouldn't be buying a house if you have so little clue about the math and overall costs. The numbers in your head are nowhere near reality.

farmer11 says

The math on an 800k home with 600k down,

Actually, it's $200K down.

farmer11 says

You're either trolling or you really shouldn't be buying a house if you have so little clue about the math and overall costs.

I agree. I'm sure many people here do. I'm seeing lots of direct attacks on Patrick and his site which have saved many people from stupidity. There are many indirect attacks. I'm sure there are merits to the bulls arguments but anyone talking about doing IO loans is going back to talk that I heard from RE agents during the bubble. Somethings never change. With the current policies of the fed and government interventions in housing, we may well be doomed to hearing this talk for a while.

For the self-professed realtors out here on this site, I have some questions: When you go back to your sales meetings etc, do you get a lot of kudos for being out on the bear sites and taking down these bears? I mean, do you get a ton of street cred (or whatever goes for respect in those circles) for what you do? Does your presence on this site (counter intuitively) help your business?

If you find a place you like and can afford it, buy it. Timing the market for RE is insane. It's a house dammit, not a futures contract.

Blurtman says

If you find a place you like and can afford it, buy it. Timing the market for RE is insane. It's a house dammit, not a futures contract.

Not anymore ;) The riverboat gamblers have been out in full force and they finance and securitize anything and anybody as long as the interest rate is low enough.

do not buy in the BA. save money and retire early.

IDDQD says

MsBennet says

IDDQD says

MsBennet says

And 600K loan is a jumbo loan so you can't get the lowest interest rate.

In SFBA it's not jumbo up to $625,500. Which buys $780K house with 20% down.

Well, your numbers are still off.

"Off" how exactly? I'm pretty sure re 625 being roughly 80% of 780. ;)

1700 per month for a 600K house payment. That doesn't exist. Little thing called property tax.

I"m not trolling.
I have a 5 year IO arm at 2.875 finaced about 675k
After tax break i live there for 1800 a month. This doesnt count fire insurance. But there is no hoa.

i really dont see any intrest rate risk. However my situation is different i have enough cash to pay off the loan in full right now.

You people who think a rate spike will come so you get a 30 year fixed why dont you simply wait for the rate spike THEN BUY a home for half off? (because its not gonna happen)

3 Year Interest Only Adjustable Rate (unionbank.com)
(figures are for financing 729k)
Rate Points APR Closing Fees Payment Total Cost
2.750% 1.000% 3.258% $22,098.00 $1,670.63
3.000% 0.500% 3.271% $18,453.00 $1,822.50
3.125% 0.250% 3.278% $16,630.50 $1,898.44
3.250% 0.000% 3.284% $14,808.00 $1,974.38

Note the closing fees are estimates and way higher than will actually happen, i know I just closed one last year. call them up now!

Its true if you have no real down and have to go FHA then that loan is way more expensive.

PockyClipsNow says

3 Year Interest Only Adjustable Rate (unionbank.com)

(figures are for financing 729k)

Rate Points APR Closing Fees Payment Total Cost

2.750% 1.000% 3.258% $22,098.00 $1,670.63

3.000% 0.500% 3.271% $18,453.00 $1,822.50

3.125% 0.250% 3.278% $16,630.50 $1,898.44

3.250% 0.000% 3.284% $14,808.00 $1,974.38

Note the closing fees are estimates and way higher than will actually happen, i know I just closed one last year. call them up now!

So if go to www.mortgagecalculator.org and type in 729k over 30 years at 2.75% I'm getting a payment of $2,970. What am I doing different than you?

farmer11 says

PockyClipsNow says

3 Year Interest Only Adjustable Rate (unionbank.com)

(figures are for financing 729k)

Rate Points APR Closing Fees Payment Total Cost

2.750% 1.000% 3.258% $22,098.00 $1,670.63

3.000% 0.500% 3.271% $18,453.00 $1,822.50

3.125% 0.250% 3.278% $16,630.50 $1,898.44

3.250% 0.000% 3.284% $14,808.00 $1,974.38

Note the closing fees are estimates and way higher than will actually happen, i know I just closed one last year. call them up now!

So if go to www.mortgagecalculator.org and type in 729k over 30 years at 2.75% I'm getting a payment of $2,970. What am I doing different than you?

That calculator is adding a principal payment.

For IO loan you dont need that calculator its simple intrest.

So take 729,000 * .0275 this is 20,047 per year intrest or 1670 a month.

The prop tax should mostly be zeroed out by the tax break. Add fire ins and hoa and thats it.

As long as prices go up enough to sell and cover your 6% selling costs this loan seems pretty safe. 5 years should be plenty of time to get a 6% gain.

So main benefits of this loan are:
1. no principal payment allowing you to qualify for MUCH HIGHER LOAN
2. principal payment is not a tax write off anyway
3. if you want to make principal payments, do it there is no prepay (at unioinbank anyway)
4. Pretty low rates, lower than the FHA or 30 year fixed.

My friend with kids is scared to death of this loan when I told him. (hes afraid of rate spike and having to refi into 7% ha!)
Well that didnt happen yet but his job relocated him from LA to Fremont,ca - HES FUKED ANYWAY with no rate spike- has to get half the house he has now.

Anyway my point is there is so much more that will submarine 'your house' that is not in your control so may as well get an ARM loan. Divorce, illness,job loss all these are constantly happening all around us, im more worried about those than a bond market blow up.

SFace says

Everyone who borrows above 625K are on floating rate (5 year fixed perhaps). I repeat, no one uses a fixed rate mortgage so need to talk about a 30 year mortgage in silicon Valley. It doesn't exist.

The type of loan Porky described is the norm. (80%)

prior to 2000, fixed 30 yr was the norm. 90-95%... before the insanity began.

during normal market period, pre2000, we didnt need crazy loans to buy a home.

everyone is just committing financial suicide for all the wrong reasons.

Homeboy says

Homeboy says

What kind of retard would get an adjustable rate mortgage right now? Rates have nowhere to go but up. If you don't lock in the lowest interest rates in history, you are a fool.

difficult to say what prices will do given what rates do.. rates go down and so do prices...
it was true in early 90s and more recently.. rates going up.. prices can still go down ... or up based on irrational expectations of home buyers.

But we may well still see protracted low rates for a very long time still. yes its crazy !

SFace says

30 years fixed rate mortgage have been the wrong/disaster choice for 30 years. people are smartening up.

like i said.. after 2000.. EVERYTHING went to shit...

SFace says

Most in silicon Valley moved on and continue to live their lives and take on floating rate mortgages.

how old are you again, how long have you been around that makes you an expert on the economic norm and what people can control. ... please ! some chump from the city is going to tell me what the economic norm is in Silicon Valley. Laughable!

Yes... after 2000, all we have is hustlers and fraudsters...every jack ass started to hustle homes like a ATM money making machine..

if you have no concept of the past.. you have no concept what is normal... fraudsters are very good at creating distractions." this time its different". LOL!

Homeboy says

I'm gonna be laughing my ass off in 7 years when I'm still paying the same
low rate and these other suckers' time-bomb loans blow up in their faces.

What makes you think interest rates are going to go up in the medium term?

Why would you be laughing when the resale value of your home will be cratering as interest rates rise?

None of the ~20 people I know here in the SFBA has an adjustable mortgage, every single one either 15 or 30 year fixed. While this is not statistically significant, I highly doubt that floating mortgages are the norm. And if they are on the rise it won't be long until the next disaster. Fine with me as long as they don't get bailed out again ;)

yup1 says

What makes you think interest rates are going to go up in the medium term?

Rates don't have to go up. If you get an interest-only loan, your payment goes up dramatically at the end of the interest-only period, even if rates haven't gone up. What's more, you still owe the ENTIRE balance of your loan, because you haven't paid down the principal at all. What's the advantage to taking out an interest-only ARM?

I think that, sometime in the next 30 years, interest rates will go higher than they are now. If you have an ARM, you will have to pay that higher rate, I will never have to pay a higher rate.

Are you guys even aware that the mortgage rates we currently enjoy are unheard of in history? This is the lowest they have ever been. I don't understand why you would believe they will stay at their lowest forever. Do you even know that the universe existed before the year 2000?

Note that chart stops in 2009. The bottom of the chart is 4%. I believe rates are around 3.5% right now.

yup1 says

Why would you be laughing when the resale value of your home will be cratering as interest rates rise?

A) I doubt the resale value of my home is going to "crater". B) I have no plans to sell it anyway.

My payment will never change.

1) nobody can predict rates in the near to intermediate term.
nobody.

2) long term, odds are rates will increase.

3) any purchase strategy that requires rates to decrease or stay flat over the long term is dumb.

mell says

Fine with me as long as they don't get bailed out again ;)

You know they WILL get bailed out, right?

Homeboy says

mell says

Fine with me as long as they don't get bailed out again ;)

You know they WILL get bailed out, right?

Yeah, unfortunately. Although I think interest rates will keep rising and the fed will run out of steam and will have to wind down which makes future bailouts much more difficult. 16 trillion and counting.. ;)

Homeboy says

mell says

Fine with me as long as they don't get bailed out again ;)

You know they WILL get bailed out, right?

agree... and WE pay for it.

SFace says

contrary to popular belief, taxpayer don't really lose in a capital infusion, it is the shareholder and bondholder.

you mean those who have savings/investments/pensions... who are the shareholders/bondholder other than US

WE or US its the same..

SFace says

contrary to popular belief, taxpayer don't really lose in a capital infusion, it is the shareholder and bondholder. That's why they only infuse companies that will survive. The US government/taxpayer gets paid every red penny with interest eventually.

Ooh, I love fairy tales. Tell us another.

Homeboy says

A) I doubt the resale value of my home is going to "crater".

So you link a chart and say that rates are going to go up, but you doubt the resale value of your home will crater if rates go to the historic norm. Did you fail math?

Homeboy says

B) I have no plans to sell it anyway.

My payment will never change.

If rates rise you wont be able to sell it for the price you paid because you wouldnt be able to afford it at the price you paid at a higher interest rate. The very essence of a bubble, when you cant afford to buy the very home that you own because the payment would be too high.

SFace says

* you'll have to realize the delta of the two loans. A 30 years fixed rate and 5 year arm has about a 1 % APR delta.

Speak English.

SFace says

* So in 5 years, the ARM holder will save a lot of interest up-front vs the fixed. It will have to flip by 2% to even have the argument that 30 year fixed are better.

That's nonsense. You do not "save a lot of interest" with an interest-only ARM. Exactly the opposite. First, let's stick to 3 year interest only ARMs, since that's what we're discussing. If you only make the minimum payment, after 3 years, you STILL OWE THE ENTIRE BALANCE OF THE LOAN. So you have made mortgage payments for 3 years and have not paid down the principal even ONE CENT. It's amazing that people can't figure out what "interest only" means, but many don't seem to be able. The bank even warns you, but you do have to click open a pop-up window to see it:

"With an interest only mortgage payment, you will not pay down the loan's principal balance during the interest-only period. Once the interest-only period ends your payments will increase to pay back the principal and interest. Contact your mortgage consultant to determine what your payments might be once the interest-only period ends."

Hint: they ain't gonna be lower.

SFace says

* There's always a cap (annual and lifetime) perhaps 5%. So the worst it can go is 7.875%

Union Bank says it's 6%. I would rather pay 3.875% for 30 years (fixed rate) than pay as much as 9.25%.

SFace says

* you mitigate that risk if you have the ability to pay off the funds anytime. Most ARM borrowers have the means to pay off chunks. The point of interest only ARM is to build assets. 7% of 100K is only 7K or 7% of 0 is 0.

I agree that's the point. So why is Pocky advising people to use an interest-only ARM to buy a house they couldn't otherwise afford?

The only reason you might want a 3-1 interest-only ARM is if you have some super great place to put your money where you'll earn more than the amount you lose by not paying down the principal on your house. There is no such place at this particular time. So I see no reason for ANYONE to take out such a loan, and ESPECIALLY someone who is stretching his resources to try to buy a house outside of his affordability.

SFace says

* Over the course of the next 10 years, there will be other outs. When interest rates rise, assets ride along with it.

All the more reason to have a fixed rate loan. If interest rates rise and I have an ARM, my home payment will be higher, so I would be LOSING assets.

SFace says

* There's no best answer but there are compelling reason to use IO arms. To me 30 year fixed rate is expensive insurance which may benefit some people and useless for others.

The way it is being proposed here in this thread would fall under the "useless" category.

yup1 says

If rates rise you wont be able to sell it for the price you paid because you wouldnt be able to afford it at the price you paid at a higher interest rate. The very essence of a bubble, when you cant afford to buy the very home that you own because the payment would be too high.

What's your point?

PockyClipsNow says

You people who think a rate spike will come so you get a 30 year fixed why dont you simply wait for the rate spike THEN BUY a home for half off?

First of all, I don't think home prices will fall 50% when interest rates go up. That's pretty ridiculous. Second, if I wait for interest rates to go up, then I'm stuck with a higher interest rate. I got a low interest rate by buying in 2012. So why would I want to wait for them to go up?