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| 2007/12/10-14 [Finance/Banking] UID:48772 Activity:high |
12/10 Does anyone on motd actually know someone else using 0% down
interest only home loans? I don't, and I can't imagine any
Berkeley grads stupid enough to do so.
\_ I knew someone who got a 105% loan but she got lucky, didn't get
fired, and converted a year ago. She was not a Cal grad.
\_ Of course I do. It's not really stupid. It's something smart
people do all the time. The product is really intended for
developers and/or investors who know what they are doing and
the risks involved or else disciplined people who have a
fluctuating income (e.g. small business owners who pay a
massive chunk of principle at the end of each quarter/year when
they had good business and have the extra cash). Most people never
pay their mortgage off anyway (until they sell) and principle is
such a small part of the payment that it can make sense to not
commit to it. I would have done it if I could have gotten a better
rate that way, but usually you won't. You just pay principle when
you want to, but you're not committed to it. In my world,
that's smart.
\_ principal
\_ Ironically, I spelled it "principal" and then checked the
web which had it "principle". The web site I looked at
was retarded and you are correct.
\_ I know someone who got their townhouse in DC that way. She is a
Cal undergrad and Yale grad school grad. I talked her into refi'ing
into a 30 year fixed rate about 18 months ago. She was planning on
doing it anyway, when her rate reset this year, but I think she
is glad she listened to me and did it early.
\_ Variable rate and interest only are two different things
completely. She could've refinanced into a fixed rate
interest only if she wanted.
\_ It was actually both a variable rate and an interest only
loan (with a higher rate variable 2nd, making it a no
money down loan as well). Were people actually signing up
for fixed rate, interest only loans? What was the term, i.e.
how long was the loan for? Life?
\_ Works just like variable rate except the interest rate
doesn't fluctuate.
http://tinyurl.com/2npzy8
\_ Not how I think of it. Those are 5 or 7 year fixed
rate loans only, they vary after that, so they are
really ARMs.
\_ Um, no. Some are fixed for 5 or 7 years and some are
fixed for the life of the loan. Look at the Smart30
offering and compare to SmartChoice:
http://tinyurl.com/2lcyub
Both are interest-only.
\_ Those are still only fixed for 10 years. An
interest-only loan, by definition, would never
get paid off, so it is kind of silly to claim
that the loan rate is fixed for the "life of
the loan." The Smart30 converts to a standard
fixed rate fully amortizing loan after 10 years.
\_ Are you an idiot? I hate to call names,
but read the damn link! They are fixed for
the life of the loan! Read the column that
says "fixed-rate period". What does it
say? Term of loan! Term of loan is not 10
years. Jeebus! How it's amortized has
nothing to do with the rate being fixed or
not. The loan may *never* be paid off and
it could still be at a fixed rate! That
this loan has a 10 year interest-only
period has nothing to do with whether the
rate is fixed or not.
\_ Yes, I read the link. You don't understand
what you are talking about. No one offers
a loan of infinite duration, which is what
a fixed-rate, non-amortizing loan would be.
The Smart30 is an interest only loan for
10 years, then a standard 20 year fixed
rate fully amortizing loan after that. They
both have the same interest rate, yes.
\_ No one is talking about amortization
here but you! You said "Those are 5
or 7 year fixed rate loans only, they
vary after that" which is WRONG.
Then you said "Those are still only
fixed for 10 years" which is also
WRONG! When I showed you proof you
started talking about amortization. WTF?!
I have completed all the coursework
to be a mortgage broker, so I
definitely know what I am talking
about and you are a buffoon!
Further, your reading comprehension
is terrible. I never said any of
those loans were infinite duration,
but certainly such loans are possible -
and with a fixed rate, too! I'll
make you one if you want it!
\_ Interest-only means the same things
\_ Interest-only means the same thing
as non-amortizing. You are really
clueless if you don't realize that.
Show me a fixed-rate, interest only
loan of inifinite duration, I would
loan of infinite duration, I would
be amused to know of it. As far as
I know there have only been a few
cases of this kind of note in history.
http://www.csua.org/u/k7p (tutorial)
http://www.csua.org/u/k7q (history)
Read about the losrenten and the
consols. You are talking about setting
up a perpetual annuity.
\_ You are going off on a tangent
now. Please to be acknowledging
that your two above assertions
about fixed-rate loans were
wrong and then we can talk about
amortization (or not).
\_ My initial question was "what
is the term for the fixed-rate,
interest only loan?" which you
have never really answered
except with nonesense like
"the entire term of the loan
you idiot!" Yes, I glanced at
some of the links and thought
that the longest interest only
loan was 7 years, when it was
actually 10, but you still have
not even come close to answering
my initial question. What you
call a "tangent" is actually
my initial question. Work on
your own comprehension skills.
And yes, we use the word "vary"
to mean different things. You
use it to mean the interest
rate varies, while I use it to
mean the payment varies. I think
that is the root of our
confusion.
\_ I think it was clear what
you were talking about
when you used the term
ARM and you were incorrect.
\_ My original question was:
"Were people actually signing up
for fixed rate, interest only
loans? What was the term...?"
So no, this is not a "tangent"
as you call it, it is the
original question. Your response
"the life of the loan" makes
no sense, unless you are
claiming a perpetual annuity.
It is actually kind of amusing
that you claim I have reading
comprehension problems,
considering I got a 750 on the
verbal part of the GRE. Perhaps
the communication problem is
not really on my end.
original question.
\_ What does "ARM" (a term
you used and which has
a clear meaning) mean on
your planet? You said
"Those are 5 or 7 year
fixed rate loans only, they
vary after that, so they are
really ARMs" which is
WRONG and "Those are still
only fixed for 10 years"
which is WRONG. You
have yet to demonstrate
any real understanding
of the subject or
acknowledge your
misunderstanding, so
it's pretty clear you
are the idiot here. You
are a textbook case for
why standardized
testing is USELESS.
BTW, the answer to your
question about the
length of the loan is
in the URL I provided.
\_ You don't know what the
word "vary" means in the
English language. You
think it only means to
vary the interest rate,
but it can also mean to
vary the payment amount.
Perhaps your mortgage
training taught you this
jargon, but that is not
how it is used by regular
English speakers.
\_ No one talks about
"variable payments"
w.r.t mortgages
and you are the
one who used the
term "ARM" which
means Adjustable
Rate. You are out of
your depth here.
Admit that you
didn't know what
you were talking
about, thank me
for educating you,
and move on.
\_ Go to your own
website:
http://tinyurl.com/2npzy8
"At Quicken Loans, we offer
a variety of interest-only
loan options, including [...]
adjustable-rate mortages..."
Then you claim that I was
"WRONG" for calling them
ARMs. Is an adjustable-rate
mortgage an ARM?
\_ You're a fucknut. Of
course an adjustable rate
mortgage is an ARM. The
point here is that you
are talking about RATE
not PAYMENT when *YOU*
used the term ARM. You are so
fucking inconsistent
and a revisionist to boot.
\_ I am merely quoting your
own comments directly
from earlier in the thread
I never called the
Smart30 an ARM, you just
made the wild assumption
that I did. All I said
is that it wasn't fixed
and it clearly is not,
since the payment varies
after 10 years. You made
the assumption that I was
referring to the interest
rate, but I was not. You
are a textbook example of
why a little knowledge
is a dangerous thing.
Furthermore you said:
"Those are 5 or 7 year
fixed rate loans only, they
vary after that, so they are
really ARMs" which is
WRONG". What do you call the
SmartChoice loan, from your\
own URL? It is a 3,5, or 7
year Interest-Only ARM, just
like I said. Go ahead and
admit you were wrong here.
A little confession is good
for the soul.
\_ I'm done with you. You
are all over the map
in trying to defend
your losing position,
you are stubborn, and
you are a waste of my
time. Thank me for
educating you, which
I did, and give it up. |
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| tinyurl.com/2npzy8 -> www.quickenloans.com/mortgage/articles/interest-only-loans_pur.html?qls=MLP_trusfeed.0000000206 print ARTICLE OVERVIEW: Interest-Only Home Loans Interest-only loans give you the flexibility of paying interest-only or interest and principal each month. Interest-only home loans can have a fixed or adjustable mortgage rate. The monthly payment flexibility of an interest-only loan can help you deal with unexpected expenses, finance home improvements, or pay down high-interest debt. An interest-only loan is one that gives you the option of paying just the interest or the interest and as much principal as you want in any given month during an initial period of time after your closing. Our interest-only home loan programs are offered as interest-only loans for periods of either five or seven years. For many, the most appealing feature of an interest-only loan is that you control your payment amount and your cash flow in any given month during the interest-only period, and your monthly mortgage payment will be lower than it would be with an interest plus principal payment. Your interest rate may or may not be lower than a traditional mortgage, depending on your specific situation, but you will have the option of flexible payments. There are a number of good reasons to consider an interest only loan. fixed-rate mortgage, roughly 70% of the payment goes toward interest during the first six or seven years of the loan. If your interest rate is low, then you've borrowed money at a good rate. SmartChoice Interest-Only Home Loan Instead of paying down that low rate loan, you could take the extra money you'd have each month from making interest-only payments, and invest it in something that would bring you a higher rate of return. Depending on your loan amount, you could have access to thousands of dollars over the course of several years to invest or reduce high interest debt, including credit card debt. An interest-only home loan may also be a good option for people who expect to be in their homes for less than ten years. The average homeowner stays in their home between five and seven years. As mentioned before, home mortgage payments are mostly interest for the first years of the loan. Common Misconceptions About Interest-Only Loans While an interest-only loan may be an appealing option to many, there are a number of common misconceptions that you should be aware of prior to making any final decisions. One common myth is that if you're not paying down your loan's principal, you're not building equity in your home. Homes in the US have been appreciating between 5 and 6% a year. Chances are that even if you're not paying down your principal, you're building equity in your home through appreciation. You should also know that with any Quicken Loans interest-only home loan, there are never any prepayment penalties. Equal Housing Lender Build 7786 2007-12-10 21:40:05 Interest The fee a lender charges for permitting the borrower to use their money for a specific length of time. Principal The loans balance still owed to the lender or the loan amount borrowed from the lender, excluding interest. |
| tinyurl.com/2lcyub -> www.quickenloans.com/loan_programs/home_purchase/index.html?lid=382 Contact a Home Loan Expert Home Loan Options You've got options! We have more than 150 home loan options for you to choose from. Find out why we're America's largest online mortgage lender. Info Quicken Loans offers a large and unique collection of home loan programs to choose from, including one that fits your budget and financial situation. Use our home loan calculators to estimate your potential monthly payments. You can also check today's home loan rate on our calculators and estimate how market fluctuations will affect your monthly payments. Quicken Loans is renowned for its innovative products, simple process and quality service. To start the process, choose an option above and fill out our short application and let a Quicken Loans home loan expert guide you the rest of the way. If you have questions and would like to speak with a Quicken Loans mortgage banker today, call 800-251-9080. "I was approved for my loan immediately and began my search. Once I found my home, closing was held in 3 weeks time with no delays!" |
| www.csua.org/u/k7p -> www.mtgprofessor.com/Tutorials2/interest_only.htm Interest-Only Mortgage Tutorial Here is what you will learn in this tutorial: 1 What is an interest-only mortgage? A mortgage is "interest only" if the scheduled monthly mortgage payment - the payment the borrower is required to make --consists of interest only. The option to pay interest only lasts for a specified period, usually 5 to 10 years. Borrowers have the right to pay more than interest if they want to. If the borrower exercises the interest-only option every month during the interest-only period, the payment will not include any repayment of principal. The result is that the loan balance will remain unchanged. This is the "fully amortizing payment" - the payment that would pay off the loan over the term if the rate stayed the same. For What Types Of Borrowers Are Interest-Only Mortgages Suitable? Interest-only mortgages are for borrowers who have a valid use for a lower initial required payment, and are prepared to deal with the consequences. Pay Principal When Convenient: Borrowers with fluctuating incomes may value the flexibility the IO mortgage gives them. When their finances are tight, they can make the IO payment, and when they are flush they can make a substantial payment to principal. Ask yourself whether you are disciplined enough to make the payment to principal when you aren't obliged to. Buy More House: It is common for families to begin with a "starter house", then move into a more expensive house as their incomes rise. This process of "trading up" carries high transaction and moving costs. You can avoid these costs by skipping to the second house now. In the short term, this will cause a cash flow strain, but the IO mortgage may make it manageable. Ask yourself whether you are comfortable with the risk that the expected higher income won't materialize. Invest the Cash Flow: For most homeowners, paying down mortgage debt is the most effective way to build wealth. Nonetheless, some may build wealth more rapidly by investing excess cash flow rather than paying down their mortgage. For this to succeed, their return on investment must exceed the mortgage interest rate, since that rate is what they earn when they repay their mortgage. A valid example is the young borrower with a long time horizon who invests in a diversified portfolio of common stock. This should generate a yield of 9% or more over a long period. Another are business owners who might earn a high return investing in their own businesses. Ask yourself whether you really will invest the excess cash flow, as opposed to spending it; and whether you have a firm basis for believing that your investments will yield a return higher than the mortgage rate. I don't recommend it as a wealth-building strategy for most borrowers. Quick Capital Gain: An interest-only (IO) is the instrument of choice in a quick turnover situation if you are trying to maximize the amount of house you can buy, and are limited by your income. The IO option lowers the required initial payment, which allows you to qualify for a larger loan amount. This is why buyers in markets undergoing strong price appreciation, who are looking for quick capital gains, gravitate to IOs - or to their big brother, the flexible payment (option ARM), which has even lower payments in the first year than an IO. Questions About Option (Flexible Payment) ARMs The more expensive the house they can buy, the larger the expected capital gain. However, if you don't need an IO to qualify for the house you want to buy, it is not the best choice in a quick turnover situation. Allocate Cash Flow to Second Mortgage: John Doe finances his home purchase with an 80% fixed-rate mortgage (FRM) at 55%, and a 20% HELOC at 775%. The FRM is IO, and Joe uses all his available cash flow to pay down the balance on the HELOC. This makes sense because of the higher rate on the HELOC, and the possibility of future rate increases. Payment Responsive to Principal Reduction: On most IO loans, whether fixed or adjustable rate, the monthly mortgage payment will decline in the month following an extra payment. This is the only type of mortgage that has this feature. On a conventional FRM, the payment never changes while on ARMs, the payment doesn't change until the next rate adjustment. For example, a home purchaser who must close before his existing house is sold may want to use the proceeds of the sale, when it occurs, to reduce the payment on the new mortgage. On many but not all IOs, a large extra payment reduces the payment in the following month On some IOs, however, the payment doesn't change until the anniversary month, and on others it does not change until the end of the IO period. If you are contemplating an interest-only loan and find immediate payment adjustments in response to extra payments a highly desirable feature, ask about it. The major hazard is being deceived into accepting an interest-only mortgage that does not meet any of the suitability tests described above. The deceptions are about alleged desirable features of IOs that don't in fact exist. Borrowers can immunize themselves against most deceptions by remembering one critical fact. If two mortgages are identical except that only one has an interest-only option, lenders view that one as riskier. The reason is that, after any period has elapsed, the loan with the IO option will have a larger balance. Deception 1: An interest-only loan carries a lower interest rate. Lenders usually charge a higher rate for an identical loan with an interest-only option, for reasons indicated above. I have never seen a price sheet in which a lender quotes a lower rate on an identical loan with an IO option, though I am told it happens; The deception arises from comparisons of apples and oranges. Most interest-only loans are adjustable rate mortgages (ARMs), and ARMs have lower rates than fixed-rate mortgages (FRMs) ARMs with the IO option have lower rates than FRMs because they are ARMs, not because they are IO. Deception 2: An interest-only loan allows the borrower to avoid paying for mortgage insurance. Since loans with an IO option are riskier to the lender, the option cannot cause the disappearance of mortgage insurance. Any IO loans with down payments less than 20% that don't carry mortgage insurance from a mortgage insurance company are being insured by the lender. The borrower is paying the premium in the interest rate rather than as an insurance premium. Deception 3 On an ARM with an interest-only option, the quoted interest rate is fixed for the interest-only period. The interest-only period is the period during which you are allowed to pay interest only, usually 5 or 10 years. The period for which the initial rate holds can be as long as 10 years or as short as one month. Where the initial rate period is 3, 5, 7 or 10 years, the interest-only period is likely to be the same. Where the initial rate period is a month, 6 months or a year, the interest-only period will probably be longer. These are the cases where deception is most likely to arise. Deception 4 It is less costly to amortize an interest-only loan. This is patently ridiculous, but some variant of it keeps popping up in my mail. There is no magic connected to amortizing an interest-only loan. A borrower who takes an interest-only option but decides to make the fully amortizing payment instead will amortize in exactly the same way as the borrower who takes the same mortgage without the option. How Much More Does an IO Cost Than the Same Mortgage Without IO? Among two loans that are identical except that one has an IO option, that one will be priced higher. I recently compared the wholesale prices of 30-year FRMs with and without IO options in a variety of market niches. All prices assume the borrower has good credit and puts 20% down. And on the same loan covering an investment property, the rate difference exceeded 1%. ARMs have the advantage of carrying a lower interest rate, and lower monthly payment, in the early years than fixed-rate mortgages (FRMs) But because the ARM rate is adjustable, it may rise in later years, and the payment will rise with it. Intelligent decisions about ARMs, therefore, require that ac... |
| www.csua.org/u/k7q -> www.efficientfrontier.com/ef/903/sample.htm Government and the Birth of Market Capitalism Manifestly, market capitalism requires capital. The engine of the modern Western economy requires fueling by a torrent of other peoples money. before 1800, the incessant economic growth we have come to expect was in fact unknown in the world. The history of the rise of world prosperity is in large part the history of these capital markets. Even today, governments are among the most voracious consumers of capital, typically for military adventure; in the premodern era, they were virtually the only ones capable of raising large amounts of funds. The origins of the modern capital markets rested in the military needs of the sixteenth century Dutch Union. Amazingly, Holland was not yet fully independent from the Habsburg Spaniards, against whom they were fighting a brutal war of independence. The special genius of Dutch finance was getting everybody into the act; anyone with a few extra guilders was as liable to purchase government securities as someone today would be to plow savings into a money market or stock mutual fund. The Dutch provinces and cities ("Holland" existed as a loose confederation of these entities, without a strong central government) issued three kinds of securities. These were "bearer bonds" that their owners could readily sell for cash at any time to a bank or broker. Losrenten were perpetual annuities, very similar to Venetian prestiti. instead, the holder of the debt recorded his name in a public ledger and received regular interest. They could be sold in the secondary market, and upon the death of the holder passed to his heirs. Last were lijfrenten, similar to losrenten, except that payments ended with the death of the holder. In the 1570s, the decade before the provinces declared their independence, losrenten yielded 833% in perpetuity. The Dutch do not take the word perpetuity lightly: In 1624 a woman by the name of Elsken Jorisdochter invested 1,200 florins in a bond used to finance dike repair paying 625%. It was free of all taxes, similar to a modern municipal bond. Handed down to her descendants, about a century later the rate was negotiated down to 25%. In 1938, it came into the hands of the New York Stock Exchange, and as late as 1957 it was still being presented for payment of interest at Utrecht. The difference between these two rates speaks volumes for European life expectancies at the time. Although the Dutch financial markets were advanced, they were not sophisticated enough to vary the interest of lijfrenten according to the age of the purchaser! The cessation of hostilities with Spain in 1647, and the Spanish recognition of Dutch independence the following year had an electric effect on interest rates: not only was the survival of the Republic assured, but its demand for capital was greatly diminished. By 1655, the government could borrow at 4%, a rate of interest not seen since the apogee of the Roman Empire. Finally, in 1671, Johan de Witt, Hollands Grand Pensionary, was one of the first to apply to finance Pascals new theories of probability, and arrived at a working formula that varied the interest paid on lijfrenten to purchasers of different ages. The Dutch appetite for foreign investing was truly remarkable, even to the modern observer. Dutch foreign investment in 1800 stood at approximately 15 billion guilders, or twice its annual GDP. By comparison, US investment abroad is less than half of annual GDP. This highlights the international character of flows of capital from nations with mature economies and excess wealth to those nations requiring it for development. In the seventeenth century, the major axis of flow was from Amsterdam to London, as the English transformed themselves from a backwater into a world power. In the nineteenth century, the by then highly developed English economy became the major source of capital for the developing United States, which in its turn became the major source of capital for the twentieth centurys developing nations. The experience of Dutch finance after 1770 was not at all agreeable. By the end of the Napoleonic War, the worlds first mutual fundsaggregations of Dutch loans abroadtraded for about one quarter of their original prices; this is a good indicator of the devastation suffered by Dutch bondholders. The Dutch were once again in the vanguard of another trend in modern finance: the shearing of small investors by the great investment banks. The bonds of foreign nations, many of which would not survive the global conflict no matter which side won, were priced to yield just slightly more than the secure 4% domestic issuesa rotten deal for credulous small investors, but profitable to the underwriters just the same. The recent touting of hyped-up dot-com stocks to a gullible public by mendacious investment bankers would not have surprised the average Dutch investor of 1800. The reasons for the decline of Dutch financial dominance after 1750 are complex. For starters, Amsterdam never developed the kinds of vigorous central bank and regulatory bodies charged with protecting the investing public that later developed in Britain and the US At the end of the day, the Dutch found themselves overwhelmed by the financial and military colossus slowly rising on the other side of the North Sea, which they themselves had helped build with their capital. For the first half of the century, Parliament and the courts skirmished with the StuartsJames I and Charles Iculminating in the defeat of the Royalist army by the parliamentary forces at Naseby in 1645 and Charles beheading in 1649, ending a brutal civil war. Even before this conflict broke out, state finances were shaky. Incredible as it seems to the modern reader, the English crown, like almost every other European monarchy, possessed no reliable source of funding. A prime source of revenue was the sale of monopolies, as well as the sale and renting of state lands, import and export tariffs, and the like, most of which served to stifle enterprise and trade. English monarchs, like royalty everywhere, were forced to borrow to finance their expensive military adventures. They frequently defaulted, and since it is very difficult to dun a sovereign, interest rates remained relatively high. After the restoration of the Stuart monarchy, this debt grew so large that it became increasingly difficult to service, resulting in the most infamous loan default in all English history: the "Stop of the Exchequer" in 1672, in which Charles II bankrupted much of the banking community that had extended him credit. The Glorious Revolution of 1688 brought an end to nearly a century of civil strife, and the English "invited" the Dutch stadholder (a most peculiar institutionan appointed, and at times hereditary, ruler) Willem III to assume the British throne as William of Orange. Hollands financial elite, sensing that Amsterdams days as the worlds financial capital were numbered, followed him across the North Sea. The Portuguese Jews of Amsterdam, having been driven by the Inquisition from Spain to Lisbon to Holland, arrived in London en masse, as did the legendary Barings and Hope families. Abraham Ricardo, father of the economist David Ricardo, was perhaps the best-known of the Portuguese Jewish immigrants. the English enthusiastically copied "Dutch finance," and within a few short decades following the devastating civil strife of the seventeenth century, their capital markets eclipsed those of the Dutch. Grumbled Daniel Defoe: We blame the King that he relies too much On Strangers, Germans, Huguenots, and Dutch And seldom does his just affairs of State To English Councillors communicate Things rapidly improved under the new regime. First, the old royal reliance on short-term loans was replaced with Dutch-style long-term government debt whose interest and principal payments were backed by excise taxes. Next, the English Treasury began cooperating with the banking community, experimenting to see which kinds of debt were best received by the investing public (that is, attracted the lowest interest rates). the fact that commercial interests were well represented in the House of Commons reduced ... |