Housing "bubble" leaking?

[AtomSmasher]

Equity has nothing at all to do with your mortgage payment, though.

It does for me since I'm taking out a 100% loan, which means a 80% loan with normal interest and 20% with high interest.  Once I get enough equity (which should be there by the time the house is finished, but I'll have to wait 6 months to refinance because its a new house) I can refinance and get the whole loan with lower interest.  And what people don't seem to understand is that you can pay off your house with an interest only loan, you don't have to pay the minimum amount each month.  I plan on paying a few hundred more then the minimum amount each month, but if I have a hard month or find that expensive arcade cabinet that I must have, I can just pay the interest only amount.  Of course after the 6 months and I have 20% equity, I'll be getting rid of the interest only.

Also, everyone seems to think the housing market is skyrocketing everywhere.  When I went to an appraiser convention a few months ago I found out that this just isn't true.  In fact in several states the market is slowly dropping.

[jbox]

I can refinance and get the whole loan with lower interest.

You hope... 

And what people don't seem to understand is that you can pay off your house with an interest only loan, you don't have to pay the minimum amount each month.

Not if the loan is maximal you can't, which is sort of where the whole discussion began. By your own admission you clearly secured a repayment level which is several hundred below your actual maximum.


On the discussion of deliberately over-capitalised loans, to many that is a valid strategy since positive short term gains are taxable while negative short term losses are tax deductible (in most cases). The trick then becomes working out how to avoid getting hit by a huge chunk of capital gains tax at the end, but if you can manage that then you will end up better off in the long term. At least until I become supreme Comrade and make these kind of shenanigans capital offenses.

[shmokes]

 Just because the lender will give it to you doesn't mean you should take it.  It is up to the buyer to determine how much they can realistically pay, not the lender.

Just because the buyer will take it doesn't mean that you should lend it.  I really don't think you understand where I'm coming from here Chad.  I think that a person will and usually deserves to suffer for their stupid mistakes.  Irrelevant.  My point is that the lenders have been being really really stupid and they are going to pay the price for their own bad behavior.  They're not going to pay the price for hurting other people....they're going to pay the price for letting greed cloud their good judgement and let short term gains set them up for huge long term losses.

[geomartin]

You will not have to pay capital gains if the house is your primary residence and the gain is less than $500,000. 

[AtomSmasher]

By your own admission you clearly secured a repayment level which is several hundred below your actual maximum.

The difference of paying interest only and paying the payoff amount is about $200, I plan on paying at least that, if not more, each month.  I just like the fact that I don't have to the full amount if I don't want to.  Since the interest rates are the same and I know I'm going to refinance asap to get rid of the high interest on the 20% loan, theres no reason not to give myself some room.  Theres obviously is some risks: what if interest rates skyrocket? what if theres some disaster that causes housing prices to plummet?  I only have to wait 6 months after my house is built to refinance and get rid of the 20%, and I feel the benifits are great enough and the time is short enough to get the no interest.  And if something does happen where I can't refinance, well I'll still be paying the same as I would if I got the "safe" loan since I plan on paying the extra couple hundred each month anyways.  Also, I doubt I'll live there for more then 5 years, which means if interest rates skyrocket, I'll be out of there before my loan is up anyways.  And if prices plummet....well, then I'm screwed no matter what I do.  If both happen, then I pack up and run to mexico.  Actually, if housing prices start to drop, then I'll sell before it gets too bad, rent until the market stabilizes, then buy again.  Being an appraiser I always have a close watch on what the market is doing.

[Stingray]

This discussion is far too boring and/or serious for Everything Else. Mods, please send it to hell.

-S

[abrannan]

 Just because the lender will give it to you doesn't mean you should take it.  It is up to the buyer to determine how much they can realistically pay, not the lender.

Just because the buyer will take it doesn't mean that you should lend it.  I really don't think you understand where I'm coming from here Chad.  I think that a person will and usually deserves to suffer for their stupid mistakes.  Irrelevant.  My point is that the lenders have been being really really stupid and they are going to pay the price for their own bad behavior.  They're not going to pay the price for hurting other people....they're going to pay the price for letting greed cloud their good judgement and let short term gains set them up for huge long term losses.

Thing is, the originating lenders don't care.  They're just going to sell your mortgage to another lender within 6 months anyway.  The new lender is buying a block of loans, so they don't do a whole lot of research into each and every loan in the block.  The original lender can afford to be a little more liberal with their loan offerings, since they'll likely be offloading the risk of your mortgage when they sell it.  Besides, if they don't loan you the amount you want, you'll just go to another lender who will.  Now they've lost the money of the closing costs and suchlike, as well as the ability to sell that mortgage. 

We won't see the end of it until large numbers of people start defaulting on their mortgages.  Only then will the lenders start to become more frugal and prudent in who they offer mortgages to, and that will be what drives housing prices back down. 

[ChadTower]

Assuming that the lenders don't then make more profit off of the seized property.

[Kremmit]

You will not have to pay capital gains if the house is your primary residence and the gain is less than $500,000. 

As long as it has been your Primary Residence for two of the last 5 years.  And I think a single person only qualifies for a $250,000 exemption; a married couple gets $250,000 each, for a total of $500,000.  Married couples can actually split that between two houses, if they can claim that each of them lived in separate houses for two of the last five years.

[ChadTower]

Even here, where housing prices have gone insane the last few years, people aren't going to make $500,000 profit on their house.