PMI Cancelled! W00t!

stanger_missle wrote: How does this work on VA home loans?

Your mortgage insurance is paid up-front in the form of a VA Funding Fee which is typically tacked-on to the loan balance.

In reply to bludroptop:

That makes sense. I do remember our mortgage payment being like $1200. Bad decisions all around

All loan types have some sort of Mortgage Insurance, they don't just all call it MI. VA & USDA have a funding fee and VA says they "guarantee" the loan. Same net effect.

And then there's the 1% or 0% down loans that aren't VA & USDA, the others don't work. It is quite common for 60% of them to go into default and for people to lose their homes.

Yeah my home was purchased with a usda loan, it was a better interest rate and came out cheaper then a first time home buyers loan even with there fee. Best part is the loan was sold to my personal bank so its all paid at one place!

In reply to carguy123:

I bought my first house in 2005 for $1000 cash and a handshake- borrowed everything else. I think back then I had some sort of 80-20 financing, with a baloon payment- forget exactly. I ended up refi-ing just before the bubble burst in 2007, so I ended up with a conventional loan, no PMI, and no balloon payment, at a really decent rate.

And then the whole market fell to pieces. I never missed a payment, though. Lots of folks did, though. Some of them are still working thru the system, even today. I know a guy who owes 300k on a house worth maybe 150k.

volvoclearinghouse wrote: I know a guy who owes 300k on a house worth maybe 150k.

That is a very rare thing as average home prices are above where they were just before things blew up.

carguy123 wrote:

volvoclearinghouse wrote: I know a guy who owes 300k on a house worth maybe 150k.

That is a very rare thing as average home prices are above where they were just before things blew up.

It's a E36 M3storm of factors: Bought at the peak of the market, refinanced it and took out "equity", then let the place deteriorate. I actually offered to buy it from him as a fixer-upper/ resell or rent, but he's so upside down on the place I couldn't make the numbers work to make it worth my while, and still give him a "fair" price. I honestly have no idea how he's going to get out of that mess.

volvoclearinghouse wrote:

carguy123 wrote:

volvoclearinghouse wrote: I know a guy who owes 300k on a house worth maybe 150k.

That is a very rare thing as average home prices are above where they were just before things blew up.

It's a E36 M3storm of factors: Bought at the peak of the market, refinanced it and took out "equity", then let the place deteriorate. I actually offered to buy it from him as a fixer-upper/ resell or rent, but he's so upside down on the place I couldn't make the numbers work to make it worth my while, and still give him a "fair" price. I honestly have no idea how he's going to get out of that mess.

I know the math says that you should invest any extra money, rather than applying it to your mortgage principal, but stories like this make me glad that I'll own my home much sooner than if I went the full 30 years.

In reply to STM317:

I think there's a pretty big difference between making solid financial decisions and digging one's self into a massive money grave.

In reply to volvoclearinghouse:

Absolutely. Seems like it takes a series of poor choices to end up in a situation like that. I typically find that I learn just as much, or more, from people doing "what not to do" as I would from people doing the right things. And this case is no different.

STM317 wrote: In reply to volvoclearinghouse: Absolutely. Seems like it takes a series of poor choices to end up in a situation like that. I typically find that I learn just as much, or more, from people doing "what not to do" as I would from people doing the right things. And this case is no different.

I had banks chasing me before the grand meltdown, begging to get a loan for a $300+k house. Sure, I might could have afforded it at that time, but as someone who has been laid-off three times, no way was I going to fall for that.

My daughter works a for a large bank trying to keep people from going into foreclosure. It seems 90% of these people are there because of their own lifestyle choices. Granted, these are the high-end houses, not the poor guy next door that lost his job. Some of the conversations she relates to me makes me wonder how these people ever got rich enough to buy the home in the first place. Several own multiple homes, including ski resorts, beachfront etc. One had just gotten back from a vacation to Mexico, but didn't see the need to make mortgage payments.

volvoclearinghouse that guy's story unfortunately isn't all that rare.

If you'll notice there was one thing that was a constant on every state that had huge issues during the recession - they allowed people to borrow 125% of a home's value, usually by using a credit card to fritter it away on meals, etc.

The states that didn't have the issues didn't allow that. Your house is not a bank!!! Buy wisely. Buy within your budget and buy with an eye towards reselling it, because one day you'll have to.

With that said right now you need to buy towards the top of your budget because the next time you buy home prices will be way up and so will interest rates. I would not be surprised that if you bought a house today and the next time you bought the interest rates wouldn't be twice as high as they are today.

Historically rates below 7% are an anomaly.

carguy123 wrote: I would not be surprised that if you bought a house today and the next time you bought the interest rates wouldn't be twice as high as they are today. Historically rates below 7% are an anomaly.

Historically, yes, you are correct. However, historically we've never had the amount of debt that we (as a nation, collectively) have today, either. So, if rates go up BIG TIME it's going to put a whole lot of hurt on the country. Credit cards, home loans, auto loans, student loans- we are a debtor nation more than ever, and the Fed knows this. Yes, they bumped rates a 1/2 a % in the last year but I don't forsee rates doubling. You take all these kids with 6 figure student loans, 5 figure credit card debt, an 8 year car note...then double their rate? You'd see the sky fall in this country. Civil unrest. And then some populist would run for office promising all sorts of "free" stuff, drive the government's debt up even further, and eventually the whole things will just crash down. Inflation will go bonkers.

My dad tells me the story some times of the late 1970s, when home loans were double-digit percentages. He went to the bank to take out a CD and they were paying something insane like 8%. He told me he was standing there in the bank, emptying change out of his pockets to put as much as possible into that CD.

Things sure are different.

volvoclearinghouse wrote: ...And then some populist would run for office promising all sorts of "free" stuff...

We're smart enough not to fall for that.

Oh wait...

You're both sort of right. There is a lot of economic and political pressure to keep mortgage rates low and increase access to home ownership. At the same time, a 'healthy' economy would probably support long term fixed rates in the 6% range. A healthy economy has been somewhat elusive.

spitfirebill wrote:

STM317 wrote: In reply to volvoclearinghouse: Absolutely. Seems like it takes a series of poor choices to end up in a situation like that. I typically find that I learn just as much, or more, from people doing "what not to do" as I would from people doing the right things. And this case is no different.

I had banks chasing me before the grand meltdown, begging to get a loan for a $300+k house. Sure, I might could have afforded it at that time, but as someone who has been laid-off three times, no way was I going to fall for that. My daughter works a for a large bank trying to keep people from going into foreclosure. It seems 90% of these people are there because of their own lifestyle choices. Granted, these are the high-end houses, not the poor guy next door that lost his job. Some of the conversations she relates to me makes me wonder how these people ever got rich enough to buy the home in the first place. Several own multiple homes, including ski resorts, beachfront etc. One had just gotten back from a vacation to Mexico, but didn't see the need to make mortgage payments.

My ex and her new husband still have the 250K house unoccupied and unrentable due to sewer backup) she got in the divorce and their 400K house when he got laid off from his 400K a year job. After a few months of unemployment he's employed again at something like 1/4 of that.

And they are in Cancun right now.

Here's a history of debt in the U.S, over the last 80 years or so, adjusted for inflation:

Shocking.

In reply to volvoclearinghouse:

Doesn't really look sustainable does it? So what's the solution, buckle down as a society and gradually pay off our debts or go out in a blaze of credit card glory?

volvoclearinghouse wrote: Historically, yes, you are correct. However, historically we've never had the amount of debt that we (as a nation, collectively) have today, either.

You could say that just about any time in history. In simplistic terms, rates are a function of the economy. The better the economy is performing the higher the rates. So as the economy improves, you do want that don't you?, the higher the rates will rise.

We've had abnormally low rates that simply cannot be continued. It hurts savings and investing. Now that things are performing again the only thing you can expect is for rates to climb. Not only on your mortgage, but also on all your savings accounts.

Your Dad's 8% is closer to a norm than what we have now.

Nostradamus I ain't, but mark my words you are going to see a time in the not too distant future that you'll wish you'd maximized what you bought now so that you could live in it longer in order to utilize the extra low rates you were able to get today.

We are going to see a resurgence in home improvement as people try to build on to keep from having to buy the much higher priced homes and pay that interest rate.

I built more home than I need (I have an unfinished game room, bathroom and bedroom) and got a low % fixed rate loan to maximize my time in the house PLUS also maximize what I could sell it for later.

I'm gradually finishing out the upstairs. My only goal is to have it done just before I sell it so that I have an extra 1,600 sq feet to sell.

In reply to carguy123:

Wouldn't an increase in mortgage rates reduce the field of potential home buyers, therefore reducing demand and competition for homes, and causing prices to drop? If anything, people in the future may be looking to spend less on a house if they know the interest is going to be much higher.

Seems like it might be better to sell now, while markets are hot and buy less house so that you have more liquid money for when rates go up, and you're less leveraged in your home.

STM317 you are using logic. STOP THAT!!!!

Actually it's not that simple. When the economy is booming and rates are high there's more money to throw around and people find it easier to qualify. How counter intuitive is that!?

More homes are bought while rates are rising than when they are dropping.

The reason is simple, rising rates are a by product of an improving economy. Conversely falling rates are a sign of an economy in trouble. When things get tough people pull in their horns and get ready to wait it out, but when rates are rising people are rushing in to buy something before the rates get even higher.

I had a 16% ARM loan and was tickled to get it. I also made a ton of money on that house.

In reply to volvoclearinghouse:

After we locked in the rate on our mortgage last summer, I was talking to my dad and he whipped out this 50 year mortgage rate chart (which he apparently just carries around in his briefcase??). Really puts it in perspective, I'm sure I'll never see a rate this good again in my lifetime.

Furious_E wrote: , I'm sure I'll never see a rate this good again in my lifetime.

You'd better hope you never see a rate this good in your lifetime because if you do it's because of another massive recession or Depression. Times have to be tough to generate these rates.

Lots of good points for discussion here.

KyAllroad wrote: In reply to volvoclearinghouse: Doesn't really look sustainable does it? So what's the solution, buckle down as a society and gradually pay off our debts or go out in a blaze of credit card glory?

And then...

carguy123 wrote:

volvoclearinghouse wrote: Historically, yes, you are correct. However, historically we've never had the amount of debt that we (as a nation, collectively) have today, either.

You could say that just about any time in history. In simplistic terms, rates are a function of the economy. The better the economy is performing the higher the rates. So as the economy improves, you do want that don't you?, the higher the rates will rise.

My point with the graph was to show that we have A LOT more debt now, both publicly and privately, in REAL dollars, as a nation, than we've ever had before. If interest rates go up- some of that debt won't be affected immediately (for example, 30 year locked-in mortgages) but most of the student loans, car loans, HELOCs (Home Equity Lines of Credit), and credit cards will go up. AND- most importantly, the government's debt, which is practically all financed through short-term borrowing, will become MASSIVELY more expensive to service. This will lead to either big tax hikes, big spending cuts in other areas, or simply piling on more debt.

carguy123 wrote: We've had abnormally low rates that simply cannot be continued. It hurts savings and investing. Now that things are performing again the only thing you can expect is for rates to climb. Not only on your mortgage, but also on all your savings accounts.

Our savings rate in this country is extremely low- I think it may even be negative (people spending more than they make) which seems unsustainable. Then again, the government's been spending more than it makes for a long time now!

What "investing" you're now seeing, at least in terms of capital improvements, is being financed via debt, rather than from savings, simply because debt is so cheap. Heck, before I got married I took 10,000 out of a HELOC I had and put it into the market- I made about 10% or so in a year, paid off the HELOC (whose interest was tax dedecutible, anyway) and came out money ahead. It was just sort of an experiment to see if I could, as I only ended up ahead $700 or so, but still...imagine that repeated over and over again...

There's so many other things that are all interconnected here. Remember "stagflation"? Yeah- that was another yummy product of the 1970s. Inflation + stagnant economic growth. From what I've read (I get the Wall Street Journal) the Fed's rate hikes are generally tied to inflation, and trying to keep it in check. But if the situation I laid out above unfolds, we could end up with massive inflation if the government prints its way out of the debt situation. And the economy won't exactly be going gangbusters, either, since money will be diverted from spending to paying on interest on existing debt.

carguy123 wrote: Nostradamus I ain't, but mark my words you are going to see a time in the not too distant future that you'll wish you'd maximized what you bought now so that you could live in it longer in order to utilize the extra low rates you were able to get today. We are going to see a resurgence in home improvement as people try to build on to keep from having to buy the much higher priced homes and pay that interest rate. I built more home than I need (I have an unfinished game room, bathroom and bedroom) and got a low % fixed rate loan to maximize my time in the house PLUS also maximize what I could sell it for later. I'm gradually finishing out the upstairs. My only goal is to have it done just before I sell it so that I have an extra 1,600 sq feet to sell.

We didn't buy a cheap house, we bought a lot of house for the money, since we got it on a short sale. The P/O paid over twice what we paid for the house when they bought it, and our most recent appraisal shows it right back up around that value. So we're very equity-positive right now. And, as you note, we have been making improvements to the place.

We also own a rental home which returns about 1% of the current mortgaged amount every month in rent. This works out to be about 50% more than the mortgage payment, every month. Interestingly, I paid more for the rental house than I did for our current home (bought the rental in 2005 vs this house in 2013).

I don't know that we're going to see economic growth like we've seen in the past again. I look back over the past ~80 years and I see a) economic growth fueled by WWII and it's aftermath, where the U.S. was the powerhouse of the world and basically everywhere else was a developing nation. And then I see b) The Baby Boom generation, a big population increase, particularly in the middle class. Next there's c) women entering the workforce in large numbers, effectively increasing many households' income by 50% or more. Then, d) interest rates dropped, which allowed massive borrowing to fuel spending to drive the economy.

I just don't know where we go from here. Population is not growing as fast as it had in the 50's and 60's (especially not among the middle class- though poorer people still seem to be, regrettably, breeding as fast as ever), college degrees are the norm, there's no third spouse to go to work and increase household incomes, and interest rates aren't going any lower. Is some massive technological spurt going to come along to boost GDP? Or has all the "low hanging fruit" already been picked?

The stock market has been on a tear recently- and this even while interest rates have crept up. This seems to be performance-based: stocks are doing well because the economy is doing well, as signalled by rising interest rates. However, if rates go up too much, money will flow out of stocks and into savings, which will drive the market down. If I could get 8% on my money in a CD, I don't think I'd be as heavily invested in stocks. And again, if my HELOC was at 8% instead of 3%, I don't think I'd be borrowing from it to buy stocks. Once again, multiply that times all the other people in this country who make financial decisions...

In reply to volvoclearinghouse:

Very thought provoking. Thanks for taking the time to write it. I know that is not a small task (at least for me) to organize all those thoughts.