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Chuck Norris · 09-15-2009, 08:21 AM

^ Something that's interesting is the refinancing structure I've noticed some people taking.

I'm not a lender myself so this is only hearsay through clients and the prospects are kind of scary.

For example. A client buys a home today with a 30 year rate at 4.5% on 5 years and this is at their threshold. Let us say the mortgage is for $500,000 which is not uncommon.

In 5 years, lets assume that the expectation of the buyer (which would make sense) is that their home is worth at least what they paid for it, probably more. If we say the value is the same, and rates move from 4.5 to 6% what now? The increased payment would likely be $400 but if they refinance, the extra is only $200 which isn't too bad.

The problem is that there is a good chance that the house will be worth less than at purchase price but even if it's not, the mortgage obligation increases over time.

That in itself isn't too bad but there are clients in their 50's refinancing. They will be using their pension to pay off their mortgage, all the while the chances of increased payment and never actually owning the home they live in.

09-15-2009, 08:21 AM	#84
Chuck Norris Unauthourized Spammer Join Date: Jun 2005 Location: . Posts: 494 Thanked 64 Times in 20 Posts Failed 0 Times in 0 Posts	^ Something that's interesting is the refinancing structure I've noticed some people taking. I'm not a lender myself so this is only hearsay through clients and the prospects are kind of scary. For example. A client buys a home today with a 30 year rate at 4.5% on 5 years and this is at their threshold. Let us say the mortgage is for $500,000 which is not uncommon. In 5 years, lets assume that the expectation of the buyer (which would make sense) is that their home is worth at least what they paid for it, probably more. If we say the value is the same, and rates move from 4.5 to 6% what now? The increased payment would likely be $400 but if they refinance, the extra is only $200 which isn't too bad. The problem is that there is a good chance that the house will be worth less than at purchase price but even if it's not, the mortgage obligation increases over time. That in itself isn't too bad but there are clients in their 50's refinancing. They will be using their pension to pay off their mortgage, all the while the chances of increased payment and never actually owning the home they live in.