Comments on: Beware of Nightmare Mortgages

By: Dave

Dave — Fri, 08 Sep 2006 20:46:50 +0000

Unfortunately, I’m finding that one segment of society that it getting creamed by these loans is the elderly (and close to retirement age- as in just retired). I’ve had clients come in to my office to discuss their estate plans and they disclose their intention to refinance their mortgage or worse yet, to take out a mortgage on a house that’s already paid for or close to it. They’ve usually got the “1% mortgage rate” flyer in hand and are ready to go. Unfortunately, when you look at those things you usually find a couple of things. A) The 1% is only for one or two months. B) After the initial 1% period the mortgage becomes an ARM. Other times the mortgage becomes one that will escalate to a different interest rate at the discretion of the lender. There are usually limits on how fast they can raise it (1-2 times per year) and a cap on the upper limit. Although this is not inherently bad, the next bit is- there is usually an option to allow you set your payment structure. What then happens is a situation in which the lowest payment (the most frequently chosen plan) allows the interest to accumulate faster than the payments. In other words, you’re never going to pay down your mortgage, you’ll just be incurring negative equity. Then, when the negative equity hits a certain percentage of the overall loan (because at that point they’re extending you additional credit), the payment plan shifts AGAIN, so that now they dictate the minimum payment so as to ensure the pay-off of the negative equity within a certain period of time. This jacks the payments WAY WAY up. Screwsville.

I routinely counsel people who are not extremely sophisticated financially to run like hell from these things. They’re just dangerous. And don’t even get me started on a 50 year mortgage…

By: Melissa

Melissa — Fri, 08 Sep 2006 00:09:02 +0000

I like your blog, but I don’t understand posts like these. I have done a lot of research on the 1% loans and if you look at them over a 5 yr period you come out the same, BUT you had the flexibility to have more cash in your pocket IF YOU WANT IT. That’s a crucial piece of information for people who need flexibility in their cash flow (like self employed, or real estate investors etc…)

By: Ed

Ed — Thu, 07 Sep 2006 03:58:48 +0000

I quickly browsed the business week article and a common thread of the people/couples that were used as an example said “we didn’t know what we were doing, why would we trade in our 5% mortgage for this one” Well just think about it…how can you have a $1500 house payment drop to $700 for a few years and not expect it to be added to your mortgage, esp. when interest rates are going up? Does the other part of the $1500 payment just disappear? How can anyone with any common sense think that a 1% mortgage is legit when everyone else is offering 5.5%? Now they all say poor me I didn’t know what I was doing, there will probably be a class action suit against the mortgage companies where the lawyers will be getting a pretty penny. If it sounds too good to be true it probably is!!

By: Larry Nusbaum

Larry Nusbaum — Wed, 06 Sep 2006 16:10:36 +0000

“Read the fine print of any contract you sign. Burger gave up a 5.1% fixed rate — which is mind-boggling — for a nightmare loan. It’s a mistake that will cost him dearly.”

THE PROBLEM IS CAN WE BELIEVE WHAT HE SAID ABOUT HIS 5.1% LOAN? MAYBE IT WASN’T A TRADITIONAL FIXED RATE, FULLY AMORTIZING LOAN…..MAYBE.

By: Larry Nusbaum

Larry Nusbaum — Wed, 06 Sep 2006 16:08:53 +0000

I am working on a post on How to Get Rich Slowly investing in Real Estate.
In the meantime, I read the article and wrote:

http://millionairenowbook.blogspot.com/2006/09/is-it-housing-bubble-or-credit-bubble.html