Re: How can mortgage payment be this low?

Dana Compton wrote in message
<[EMAIL PROTECTED]>...
>I was saying that an adjustable rate mortgage is not a good idea except in
very
>certain situations. Like you will pay off the mortgage (from another
poster) or
>you will sell within a year.
>
>But I stick to the fact that for the average person it's bad deal
>
>>>"lpogoda" wrote;
>>You're young and buying a house for the first time.  You have a decent
job,
>>but because you're new and inexperienced, your annual earnings aren't what
>
>>others who've been there five or ten years are making.  You can reasonably
>>expect that in a few years you'll be making more, perhaps considerably
more.
>
>Dumb REALLY dumb idea. Always buy less house than you can afford and if
that
>means rent then rent or wait.

Money paid in rent is money gone forever.  If you plan on being in a
location for a few years, chances are your net cost will be lower if you buy
than if you rent.  Unless you're really stupid about it, or just plain
unlucky.  There seems little to gain by paying rent IF rent payments are
commensurate with mortgage payments.

>It's like the couples who are just married and
>both work and buy as much house as they can, THEN have a couple of kids.
The
>house ends up going to back to the bank. Around here we call it house poor.

'Course, you _could_ call it "kid poor" with as much justification.

>The other type where the loan rate is adjusted each year has no where to go
but
>up right now.


Possibly that will turn out to be the case.  Maybe it's even likely.  But
even so, consider -  assume a $200,000 loan for 30 years starting at 3.75%
with a 1.25% rise each year and a cap of 5 percentage points over the life
of the loan, so the maximum rate tops out at 8.75%.  The alternative is a
conventional fixed rate loan at 6.5%.  (Both reasonable rates in the
Philadelphia area according to yesterday's newspaper.

If we presume that the rate rises as fast as contractually allowed, after
five years the total interest paid on the adjustable loan will be
$59,594.10, and the total principal paid will be $12,112.98.  For the fixed
rate loan, the comparable figures are $63,070.08 for interest and $12,778.32
for principal.  The total paid on the adjustable loan will be $71,707.08 and
the total paid on the fixed loan will be $75,848.40.  In other words, for
the first 5 years anyway, the adjustable loan will cost fewer total dollars
($4,141.32 of them) than the fixed rate loan.  That neglects tax effects.

I lack the incentive to carry out the calculations any further, and though
it's obvious that sooner or later the adjustable will catch up and pass the
fixed loan, it's worth considering that the average mortgage historically
lasts 7 years or less.  Depending on how long you expect to hold the loan
and the particulars of the adjustable and fixed loans available to you, the
adjustable could be a pretty good deal.


>The other thing the ads don't tell you is that the more you borrow the
lower
>the rate. Over 100,000.00 is lower interest then it goes down again at 250k
As
>a general rule the lower the borrowed amount and the homes purchase price
the
>higher the interest rate and the better the credit. It has been proven that
>lower income people lose their houses more than higher income people, so
the
>lenders risk is higher.

Within rather broad limits, your rate is determined by the cost of money and
your credit rating.  Over the cut off for a "jumbo" loan, the rate goes up.

>
>Also if you are putting less than 20% down most places require you to carry
>mortgage insurance. It's not for you it's for them. If you defailt on the
loan
>then they are sure not to lose any money. I put a lot down on our house but
on
>my daughters house her payment was 350.00 a month and the default insurance
was
>about 35.00 on top of that.


Gee, way back when I bought my first house, the insurance was about double
that.  After the first year or two, it was still cheaper than the rent on my
last apartment.  Before tax considerations.

>So your payment is principal, interest. taxes, home owners insurance and
>default insurance if needed.
>
Minus any tax benefits.  And your overall cost is also minus what you net on
the eventual sale of the property.