Housing bubble. This is just depressing to read - Posted by Mike

SURE - Posted by Wayne-NC

Posted by Wayne-NC on May 02, 2006 at 19:19:47:

The new interest rate is applied to the outstanding balance at adjustment time. During the amortization of the older loans (as stated), the outstanding balance drops substancially as more principle than interest is paid. So, when the higher rate is applied (again, thanks to the adjustment caps) to this new outstanding balance at the end of the adjustment period, it is more than offset by the new rate and the remaining years to payoff. Surely a paradox of time. This may be better explained in person. Convention bound?

Re: One nit - Posted by DoubleJ

Posted by DoubleJ on May 02, 2006 at 12:45:06:

I’ve never seen an option ARM over 95%.

Re: Great but… - Posted by John Corey

Posted by John Corey on May 09, 2006 at 09:10:45:

JohnK,

You are very naive when it comes to RE investing and how the market behaves. I am not saying that you need or want be an expert. Just that your advice about run for the exit tells me you lack experience in the RE market cycles.

Speculators count on appreciation. Investors do not.

Test question. If you buy at a discount from true market (30% discount) and then hold with positive cash flow (assume 40% of gross income is used for all running costs and you still show a profit monthly) why do you care what the market is doing at any one point? Assume a long term hold and then tell me why appreciation can go up or down without it making much difference in the short term.

John Corey

Re: SURE - Posted by Joe

Posted by Joe on May 08, 2006 at 22:28:56:

I think I get what you are saying. At year 1, the payment is determined by interest + principal. As each successive payment is made, the payment stays the same, but the percentage applied toward principal and interest changes. Then when the adjustment occurs, only then does the total payment change, but as if you are starting a new loan. So it basically gets re-amortized to a new 30 year loan during the adjustment.

Year 1: payment = $500, $400 interest + $100 principal
Year 5: payment = $500, $250 interest + $250 principal

Adjustment

Year 5: payment = $450, $350 interest + $100 principal

This confused me (and I’m still not sure it’s correct) because I didn’t realize that ARMs re-amortized at adjustment. I figured they kept the same original amortization term.

So while someone’s payment actually might go down, their interest payments jumps up and their principal goes down. Not exactly a good thing :\ unless you turn a blind eye to it.

Re: One nit - Posted by Mark (SDCA)

Posted by Mark (SDCA) on May 02, 2006 at 13:29:35:

I don’t know that the option arm itself was 100%. There may have been a 2nd placed on the properties as well.

No Joe - Posted by Wayne-NC

Posted by Wayne-NC on May 08, 2006 at 23:00:37:

Arms do not re-amortize at adjustment time. I don’t know one that does as it would be close to a never ending loan. Maybe a good idea though to brokers praying on the unwary. And no again, this will NOT occur at year 1 or 5. As stated before, again, only in older loans where you have substantial balance reduction in between adjustment periods. I know that you understand a lot about mortgages and REI in general. In this case, you are being “dumb like a fox.” Please don’t take that to be a derogatory statement. It’s fun and I do that sometimes myself. Never in a deceitful manner. Remember the TV show Columbo? “Wait a minute here, something doesn’t seem to be right.” Scratching his head and appearing to be confused, mean while knowing all the facts. Few arms even live long enough to experience this phenominon so it may be pointless to discuss. I just brought it up as there may still be some that have that experience.