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lquadland10 (< 20)

Bac and a co worker.

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November 05, 2009 – Comments (10) | RELATED TICKERS: TOL

My friend works 2 jobs. She is 57 and got into trouble with the house when her husband died. Needless to say she did save her house through BAC. Terms of loan is a 19 year intress only adjustable rate. 3.4 for one year. 4.3 for 2 years after that and so on until at 7. something fix rate is met. for the next  19 years from now. Then it will be intress plus the house cost.

I am glad she saved the house. However it will be nice to know how many other loans Bac and others Banks are making that are like this. The rules just keep changing and like she says who knows what will happen in the 19 years.  Got to love transparency of the Banking System and of Government. 

10 Comments – Post Your Own

#1) On November 05, 2009 at 12:36 PM, brickcityman (31.39) wrote:

Wow, I want an "intress only" loan...  Since intress appears to be undefined then I can place whatever value I want on it!!  ... I can see the infomercials now...  Pay off your house with belly button lint!

 

... Then again soon we'll all be buying and selling goods using "funny money", so perhaps this is no laughing matter.

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#2) On November 05, 2009 at 12:43 PM, davejh23 (33.19) wrote:

At 57 years old, I would walk away from that deal...unless she plans on working until she's 80+ years old.  There's a good chance that the property value will continue to decline as mortgage rates rise.  I'm sure there's an emotional attachment, having lived in the home with her husband, and I don't know all the details of her situation, but this deal doesn't look like it's helping her.

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#3) On November 05, 2009 at 12:59 PM, russiangambit (99.18) wrote:

I think she should keep the house. At that age she doesn't have time to rebuild her credit history. Where is she going to live  if she walks away? The concern, however, is that she doesn't have any savings and she is nearing the retirement and how is she going to pay for that house 20 years down the road? Sadly, a lot of people are in this situation, with not enough saved for retirement and no pensions because companies switched to 401Ks.

I think the best thing for her is to try selling the house, and buying something smaller that she can afford , thus avoiding the bankruptcy.

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#4) On November 05, 2009 at 1:07 PM, leohaas (99.28) wrote:

The lesson here is: as long as you need to pay a mortgage (or have kids that are still in school), get life insurance (term life, not whole life). Obtain it when you are relatively young and are about to take on responsibilities that put your loved ones in financial problems if you were to die.

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#5) On November 05, 2009 at 2:59 PM, davejh23 (33.19) wrote:

"The lesson here is: as long as you need to pay a mortgage (or have kids that are still in school), get life insurance (term life, not whole life). Obtain it when you are relatively young and are about to take on responsibilities that put your loved ones in financial problems if you were to die."

Good point.  You can even get a decreasing term life policy that will roughly mirror your mortgage balance over 30 years...and the policy is often "free" (the multiple policy discount can be larger than the cost of the term life policy).  If you're young and don't have much saved, I'd have enough term life insurance to cover all debts, including your mortgage, plus 10 years income.

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#6) On November 05, 2009 at 4:31 PM, chk999 (100.00) wrote:

What leohass said.

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#7) On November 05, 2009 at 4:44 PM, outoffocus (23.72) wrote:

The concern, however, is that she doesn't have any savings and she is nearing the retirement and how is she going to pay for that house 20 years down the road?

The other concern is that shes that close to retirement and shes no where close to paying her house off.  Listen folks, you should not be carrying debt into retirement.  If you take out a 30 year mortgage too late in life or refinance and withdraw all your equity and extend your loan is only putting yourself at high risk of being in the poorhouse in retirement. Pay off your debts people!

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#8) On November 05, 2009 at 8:34 PM, lquadland10 (< 20) wrote:

That is true. She took out equity to pay for furneral. House was at the time almost paid for. She was resined on loosing the house. The point is the banks are giving intress only for 19 years loans. For 230 a month and 360 for insurance and taxes she keeps the house. 3 bedroom. Can you rent for less? Why are banks still making these kinds of loans? She works very hard that is her only debt.

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#9) On November 05, 2009 at 9:16 PM, rd80 (99.26) wrote:

If I were in your friends shoes, my biggest worry would be the rate adjustments.  It's hard to imagine rates falling, but lots of ways to see rates rising.  If she plans on staying in the house for more than a few years, a fixed rate loan would take the interest rate risk off the table.

Banks are making these loans because they can borrow money at near zero and loan to your friend at 3.4%.  Interest-only at 230 implies a loan value of about $81k - in most areas, that's less than a house is worth so the bank's risk on the loan is very low even if they hold the loan in their portfolio - they either get paid or they get the house.  When the rate goes to 4.3, the interest only payment goes to $291 a month.  When the loan hits the point where principle needs to start being repaid, I suspect the payments will jump quite a bit.

I'm not qualified or in a position to give advice, but I hope your friend understands that she's taking on an interest rate risk with the adjustable rate loan.  Her payment will depend on whatever rate the loan is indexed to.  I hope the things work out for her with the house.

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#10) On November 06, 2009 at 3:06 PM, lquadland10 (< 20) wrote:

Thank you the rate will not go above 7.3% in the life of the loan.The fact that the banks are even making the loans are beyond me.

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