$160k Loan For $750/month?

[ToolMan]

I have a question about these mortgage ads I see on this stie and others. How is possible to have a $750.00 laon payment on a $160K? My research tells me at 5.5% interest for 30 years - the payment is over $900.00. And 5.5% rates aren't around anymore.

Are they not considering taxes and insuranace that get escrowed? Or are they talking about a 20% down payment?

[HeightsGuy]

It's kinda like all the ads in the Chronicle every Saturday morning that say you can buy a brand new Chevy Silverado extended cab for 14,988.00. It may exist, but you'll never get to see it when show up at the dealer asking for it.

[kjb434]

These loans are interest only loans. Only use these loans if you are going to resale for profit quickly. If you plan to live in the house for more than 5 years, they are not good. Your payment will rise instantly after a certain period. It's all in the fine print.

This is what is fearing many people on Wall Street because so many people are doing interest only loans and don't know what they are getting themselves into. They may not be able to afford the house once the real payments start. This is the real estate bubble that may burst.

JUST DON'T DO IT UNLESS YOU KNOW YOU ARE GOING TO PROFIT FROM A QUICK RESALE!!!

[RedScare]

Just saw this in USA Today.

http://www.usatoday.com/money/perfi/housin...sing-usat_x.htm

Texas real estate posted lowest increase in value in 2004. Another reason to not get interest only mortgages.

On a related note, my first thought reading this was 'damn, last in increase'. But after thinking about this for a minute, I can't think of much good a red hot housing market brings...other than quick profits for house flippers...who have no concern for the community, only their profits.

Pricing people out of homes, rising property taxes, all sorts of bad stuff, not much good.

Thoughts?

[Trophy Property]

These loans are interest only loans.  Only use these loans if you are going to resale for profit quickly.  If you plan to live in the house for more than 5 years, they are not good.  Your payment will rise instantly after a certain period.  It's all in the fine print.

This is what is fearing many people on Wall Street because so many people are doing interest only loans and don't know what they are getting themselves into.  They may not be able to afford the house once the real payments start.  This is the real estate bubble that may burst. 

JUST DON'T DO IT UNLESS YOU KNOW YOU ARE GOING TO PROFIT FROM A QUICK RESALE!!!

<{POST_SNAPBACK}>

Agree for the most part, but there are a few reasons a borrower would want to do this. Like you said, re-sale or profit quickly, but also if you already have substantial equity in your home and you want to free up some cash flow for other investments. I think it could be used in that sense. I was tempted, but I figured I would still pay extra equity so I just kept my 5% mortgage.

[kjb434]

^^^

Good point. I have might set up on a APR that is fixed for 10 years. I'm in a neighborhood that is gentrifying and fast. I figure by ten years I'll resale or just refinance to finish paying off the home. The value has already increased by $10k. The Cottage Grove area of Houston, where I live has some of the fasting rising land costs, but not necessarily the most expensive. Right now it is around $20 per square foot.

I probably could have done the interest only method, but I don't know my exact future plans. I think I want to live here a while and not worry about moving.

[jm1fd]

I figure by ten years I'll resale or just refinance to finish paying off the home.  The value has already increased by $10k.  The Cottage Grove area of Houston, where I live has some of the fasting rising land costs, but not necessarily the most expensive.  Right now it is around $20 per square foot.

<{POST_SNAPBACK}>

You've missed the big jump in value over there....the time to buy was before anybody thought about building towhouses. I'm sure it'll increase as time goes by, but no big leaps.

[Sunstar]

One of the things that has many economists concerned is the low interest rates on mortgages. While the Fed has raised the prime interest rate serveral times, it appears that long term interest rates have actually fallen. I'm guessing that most people shopping around for mortgages right now are locking in rates of around 5%.

This encourages a lot of house flippers to buy for the short term, and also increases the number of buyers who want to take advantage of the lower interest rates. All of this contributes to driving up prices and may end up leading to a dreaded bubble in the housing market (if there isn't one already). If you think the economy has been bad for the past few years, watch what will happen if the housing market crashes.

[kjb434]

Well good thing the economy is doing great since the tax cuts. The housing bubble to me will be the people who can't afford these homes once the real mortgage hits. Also, I don't think there will be a national bubble bursting. Only certain markets.

Also, jm1fd, I bought one of the town homes. I wasn't looking for investment other than just owning a new house that will rise somewhat in value. And it has too and will go up some more. If I wasn't in college a while back and had some money, buying land in this area would have been real good. The area has gone from $2 per square foot to $20 per square foot.

[jt16]

housing bubbles are usually geographical, but if it's drastic enough it can spread across the country. I read an article that said 60% of all mortgages in CA were either interest only or 5 yr. ARMS in 4th qtr 2004. That's a lot of people in homes they can't afford.