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3/23/2015 12:52 pm  #31


Re: The salary you must earn to buy a home in 27 metros

Goose wrote:

BYOB, I do not know that it is true that most people could not get a 15 year loan, or would be forced to pay a huge downpayment in order to qualify for one. I think Tennyson is right on this.

Anybody out there with some expertise in this?

 
Before my current profession, I worked in the lending industry for almost 9 years.  During that time, I spent 6 months as a mortgage loan officer, that was at the beginning of the refinance craze in the early 2000's and saw how shady it was even then (bogus house apprasial's and no-income loans) and couldn't live with myself doing that so I quickly got out.

After that, I spent 6 years as a consumer loan officer (car loans, home equity loans, credit cards, personal loans) in 2 different credit unions.

Financial institutions will lend you money on a shorter term loan as long as you have the income to support those payments.  I have seen credit unions and banks give home equity lonas for 15 years up to 100% of the home value.

The vast majority of people were only interested in one thing when getting their loan, and that was how low will my payment be.  Very few people thought about the long-term implications of stretching out their loans (extra interest they are paying).  In the end, it all came down to how much car or home they could buy and still have the lowest possible monthly payment.

The smart people were the ones who changed their 30 year mortgages into 15 year mortgages.  They may have been paying more in the short-term, but now they probably have the mortgage paid off as long as they didn't refinance it again.

 

3/23/2015 12:57 pm  #32


Re: The salary you must earn to buy a home in 27 metros

Thanks for the info, Brady.

Never worked in the biz. But my experience with family, co-workers, and friends is exactly as you describe. they focus on the monthly payment, not the total amount of interest paid over the lifetime of the loan.


We live in a time in which decent and otherwise sensible people are surrendering too easily to the hectoring of morons or extremists. 
 

3/23/2015 1:10 pm  #33


Re: The salary you must earn to buy a home in 27 metros

Does equity help you if you aren't going to sell your house? Isn't the only way to access the equity by basically re-borrowing the money or sell your house?

 

3/23/2015 1:22 pm  #34


Re: The salary you must earn to buy a home in 27 metros

BYOB wrote:

Does equity help you if you aren't going to sell your house? Isn't the only way to access the equity by basically re-borrowing the money or sell your house?

Sure, until you sell your house, or take out a home equity loan, that equity is an illiquid asset.
In times of housing market turmoil, your equity can be an asset that has more risk associated with it than does cash.
So, I wouldn't recomend that you consider your house (or anything else for that matter) to be a risk free investment, or to put money in it that you will absolutely need on a short time frame. But, historically, home ownership has been a good long term investment.
 


We live in a time in which decent and otherwise sensible people are surrendering too easily to the hectoring of morons or extremists. 
 

3/23/2015 1:48 pm  #35


Re: The salary you must earn to buy a home in 27 metros

I know this may be hard to believe, but most banks and financial institutions make very little money off collecting the interest on loans.

Most mortgages are bundled and sold by banks shortly after they are bought as "mortgage-backed" securities, letting someone else take the risk for these loans.  It came to be a more stable way for the smaller and medium sized banks to guarantee a return on their money without risking default.

In fact, most banks would prefer not to deal with mortgages at all, as business customers are where they make their income.

Most car loans and home equity loans have their loan rates about 1.5% to 2% over treasury rates or the interest rates they offer at their financial institution.  Now if you have less than perfect credit, your interest rate will be higher due to the higher risk of default.

 

3/23/2015 2:02 pm  #36


Re: The salary you must earn to buy a home in 27 metros

Brady Bunch wrote:

I know this may be hard to believe, but most banks and financial institutions make very little money off collecting the interest on loans.

Most mortgages are bundled and sold by banks shortly after they are bought as "mortgage-backed" securities, letting someone else take the risk for these loans. It came to be a more stable way for the smaller and medium sized banks to guarantee a return on their money without risking default.

In fact, most banks would prefer not to deal with mortgages at all, as business customers are where they make their income.

Most car loans and home equity loans have their loan rates about 1.5% to 2% over treasury rates or the interest rates they offer at their financial institution. Now if you have less than perfect credit, your interest rate will be higher due to the higher risk of default.

Interesting. 
Is the bundling and selling of mortgages a recent development for smaller banks, or has it been that way for some time?


We live in a time in which decent and otherwise sensible people are surrendering too easily to the hectoring of morons or extremists. 
 

3/23/2015 2:14 pm  #37


Re: The salary you must earn to buy a home in 27 metros

I'd say at least 20 years, if not slightly longer.

My first job in the business over 15 years ago was to review loan files after the "closing" of the loan to make sure everything was in order and if not, to fix what was wrong, so the loan could be bundled and sold to either a gigantic bank or Fannie/Freddie.

Obviously if you can pool tens of thousands of mortgages into one financial instrument it should theoretically be more secure and financially stable then a small or medium sized bank risking a local collapse of some sort.

It just makes more sense for smaller institutions to sell the loans and guarantee themselves some income rather than risk default of a high percentage of mortgages when they are working on small margins.

 

3/23/2015 2:42 pm  #38


Re: The salary you must earn to buy a home in 27 metros

BYOB wrote:

Ah, forget it.

If people are happy taking half their life paying double or triple to pay off a basic necessity while banks don't even need their own capital to lend you, or even better yet, using your own money from the government to loan back to you at a higher rate, then so be it. No wonder anti-depressants are so popular.

The fact that the bank doesn't actually have the capital to lend was overlooked in this whole conversation. Banks borrow from the Fed (private bank) at 0% and sometimes negative %, then lend to you at 4% for 30 years, it's a hell of a deal for them. Don't look behind the curtain BYOB, it's not there (money).

Take my house for example: 100+ years old, I'm probably the 5th owner, let's say each owner was financed, and the interest is paid upfront like normal. 
Owner #1 pays: 20,000 interest
Owner #2 pays: 40,000 interest
Owner #3 pays: 60,000 interest
Owner #4 pays: 80,000 interest 
Me #5     pays: 120,000 interest
House is only worth 130,000.00
Nice deal for the banks. (But I heard financial inst. don't make much money collecting interest, someone else, who really knows, makes that money) 

 

3/23/2015 2:48 pm  #39


Re: The salary you must earn to buy a home in 27 metros

Brady Bunch wrote:

I'd say at least 20 years, if not slightly longer.

My first job in the business over 15 years ago was to review loan files after the "closing" of the loan to make sure everything was in order and if not, to fix what was wrong, so the loan could be bundled and sold to either a gigantic bank or Fannie/Freddie.

Obviously if you can pool tens of thousands of mortgages into one financial instrument it should theoretically be more secure and financially stable then a small or medium sized bank risking a local collapse of some sort.

It just makes more sense for smaller institutions to sell the loans and guarantee themselves some income rather than risk default of a high percentage of mortgages when they are working on small margins.

Another question (Sorry). Do the banks tell the home owner when the loan is sold?
I got my mortgage from a small local bank in Western Massachusetts. I still send the payments to the same address, so I figured that the local bank still owned the loan. Am I safe in that assumption, or do they keep this the same to make me feel good? And, should I as a homeowner care if the loan is sold? Does it change anything from my end?


We live in a time in which decent and otherwise sensible people are surrendering too easily to the hectoring of morons or extremists. 
 

3/23/2015 3:48 pm  #40


Re: The salary you must earn to buy a home in 27 metros

Brady Bunch wrote:

I know this may be hard to believe, but most banks and financial institutions make very little money off collecting the interest on loans.

Most mortgages are bundled and sold by banks shortly after they are bought as "mortgage-backed" securities, letting someone else take the risk for these loans. It came to be a more stable way for the smaller and medium sized banks to guarantee a return on their money without risking default.

In fact, most banks would prefer not to deal with mortgages at all, as business customers are where they make their income.

Most car loans and home equity loans have their loan rates about 1.5% to 2% over treasury rates or the interest rates they offer at their financial institution. Now if you have less than perfect credit, your interest rate will be higher due to the higher risk of default.

Depends on what you consider "little money". But I know what you're talking about. It's called 'the spread', and they make a killing. In a way, they are an unnecessary middleman that could be deleted if we just borrowed from the government in the first place.
 

 

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