> Current rates are approaching 6%. So lets look at buying a house with an arm at 6%, and then what happens in 3 years if they rise to 12%. >>
You sell the mortgage to a mortgage company with a cheaper rate. It is a self-regulating system. > Lets assume 20% down, and the buyer maxes out the % of income lenders > wil usually allow for a mortgage, 30%. So a bloke making 96k a year, > could afford a 500,000 house, if he ponied up 100k down. Monthly > payments would be just short of $2400/month. 28,800 annually. Thats > 30% of his pre-tax income. > > Now if his ARM goes to 12%, his payments become 4,114 a month and > 49,373. per year. Thats now 51% of his income. A pretty big chunk. If > taxes after deductions average about 24%, and he puts 10% in a 401k, > then he has about 15% of his income 1 in 6 dollars to buy food, car, > clothes, vacations, additional health, entertainment, etc. A bit of a > pinch. >>> Maybe he should have bought a $350,000 house instead of being so greedy. > > If the ARMS lifetime cap were 9% -- more real world I believe than 6%,>>> No, mine is a 6% rise cap over the lifetime of the mortgage. > But the news gets much worse . When he bought his house, people in his income range could afford a 500k house, with 20% down. If interest > rates rose by 6% points, the same range buyers could only afford a > 290k house -- a 42% drop. And the same happens to all ranged of buyers. >>> So , he owns a high value commodity....sounds good. >>> Suddenly, buyers can only afford and qualify for 58% of the cost of a house they could three years before. Thus, they bid at their max.>>> No, because banks have to make money and believe , THEY WILL. They will do so by adjusting to lower rates. The best rates with the best plan will get the clients and this will self-regulate the trend. It will not be as big a deal as you are claiming. > Sellers begin to lower prices to match demand and in time, >>> No they won't, they will just hold on to them, fix them up, rent them out, whatever, until the market stabalises. It is a market correction, not a meltdown. <<<If he > sells, he loses his down payment, plus owes the lender $110k extra. > Well, he could walk away you say. Sure. And ruin his credit. And he > would still lose his 100 k down. And the lender would forgive the > remaining loan of 110k after it forclosed. But the IRS counts that as income and the guy would pay taxes on that 110k.>>> So he was doing it for a business? Not to live in it and stop paying 10,000 to 30,000 in rent money down the drain every year. That is 100,000 to 300,000 in money gone to waste...burned, every 10 years. Your arguments are a joke compared to this. He is much better off owning a house than renting, but it is his tough luck if he didn't need a 500,000 house and was doing it as a business. He is still going to be better off than most businesses. > And long term rates that new buyers face are not capped. So if they > rose 9 % points over todays rate,>>> Nonsense, if all US mortgage companies are demanding 15 or 20 % interest, or more , someone somewhere will offer a lower rate and a better deal. This will automatically self-regulate the system. Even if - and this will NEVER happen - ALL the US mortgage companies start to charge exhorbitant rates, some companies in other countries will find a way to take that business from them by offering lower rates and setting up an office in US. Take Canada for example, whose economy is booming and there is no end in sight. A Canadian company will end up offering a better rate and the US companies will be forced to compete and the whole thing will swing back to normalcy. It won't even get to that point though, as it is self-regulating and mortgage companies have to pander to the demand or go out of business. It doesn't have to be Canada either. It could be GB, China, or even Russia. > But since the economy has been fueled by spending from home equity > loans based on recent appreciation, and construction spending, this > would halt suddenly if housing prices drop. The economy could go into > a sharp recession. Employment rates would fall. >> That won't happen. You are thinking parochially. We live in a global economy. Think big, your fears are based on small limits and localised imaginary constraints. OffWorld ------------------------ Yahoo! Groups Sponsor --------------------~--> Get fast access to your favorite Yahoo! Groups. Make Yahoo! your home page http://us.click.yahoo.com/dpRU5A/wUILAA/yQLSAA/JjtolB/TM --------------------------------------------------------------------~-> To subscribe, send a message to: [EMAIL PROTECTED] Or go to: http://groups.yahoo.com/group/FairfieldLife/ and click 'Join This Group!' Yahoo! Groups Links <*> To visit your group on the web, go to: http://groups.yahoo.com/group/FairfieldLife/ <*> To unsubscribe from this group, send an email to: [EMAIL PROTECTED] <*> Your use of Yahoo! Groups is subject to: http://docs.yahoo.com/info/terms/
