Quote:
Originally Posted by Rick Lee
I was shootin' it with a neighbor last week who told me how crushed he was on one of his investment properties. He's not a flipper. I think he bought each house, lived in it a while and then rented it out. He has at least three now, I think four. One of them was on a 3/1 ARM with HSBC. His payment went from $2600 to over $4000 on the first adjustment period, and I suspect that's even with a drop in prop. taxes. This was not some exotic teaser ARM, but rather I think a LIBOR. So now, despite his down payment, he's almost upside down on the house and can't raise the rent. So he's around $1600 a month negative. He tried to get HSBC to work with him, either freeze the rate or refi at 100% LTV. They said no dice. He's actually thinking of mailing in the keys. He already has other houses, so he has options for where he wants to live. And it's not even that he wants to stop paying because the value has dropped. He simply cannot refinance, despite perfect credit and there's no end in sight for his neg. monthly cash flow.
This got me thinking. My ARM adjusts in Nov. '09, my margin is 2.25% and tied to 1 yr. LIBOR, capped at 9.25% on the first adj. period. My rate is now 4.375%, so no way can I justify refinancing, even if I could find a loan at my current LTV due to drop in value. If LIBOR doesn't move too much before my adjustment period, the new payment won't be too bad, so I should be ok. But geeze, don't banks want to work with people who could just walk away or keep paying what they've been paying? Seems to me it'd be better to get 80% of something than 100% of nothing.
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The reason you refi now even though you have 4.375% as your rate now is because rates are low on fixed mortgages. You KNOW that your rate is going up for the long term.
If you refi now you might be able to get as low as 5.25% (unless you are a jumbo) which means you don't have to worry about that 9.25% cap ever again. Historically speaking 5.25% is a damn good rate, we got it on our fixed 4 years ago when we bought (they were pushing an ARM at us). We also put enough down to be able to handle the decline we're expecting. Granted in the short term we will probably see a negative flux. We saw our house appreciate to just shy of $1 million over the last 4 years. Which is about a 90% increase in what we originally paid.
Seriously - I've been to my house - it isn't worth $1 million.
Still, with the way we bought the house even if we had to sell it at a 20% loss we would still be able to walk away honestly.
But also since we bought the way we did we probably don't have to worry too much about that; While we do expect to loose some value in the short term - the long term we will see some gain. It'll be another 10 years before I really want to think about buying another house so we've got 10 years to recover.