Ok, I'm no economics expert but....

mbga9pgf

StevieJ wrote: »

Neither am I but,

And the homeowners who are holding option ARMs when the wave of resets hits won't face as big a shock because interest rates have fallen, adds Fratantoni. "Interest rates have come down to the point where the resets that are going to occur are going to be a bit of a non-event," he says. "Very few borrowers will experience the recast.

says Mike Fratantoni, senior economist with the Mortgage Bankers Association of America.

Apart from the 80% of Option ARM holders that are due to default and a significant proportion of the Alt-A world as well....

Steve, why are you in denial? :rolleyes:

StevieJ

mbga9pgf wrote: »

Apart from the 80% of Option ARM holders that are due to default and a significant proportion of the Alt-A world as well....

Steve, why are you in denial? :rolleyes:

Not you again I thought you would have had a slur story on Mr Fratantoni by now :rolleyes:
Anyway off to the races, any tips anyone, apart from keepng my cash tucked firmly in my pockets went to the dentist before, it was less harrowing than arguing with Devon

ad9898_3

Heyman wrote: »

Nahhh, by then House Prices will have dropped but interest rates will have 'shot up' so the bears will be waiting until they come back down again, by which time house prices will have gone up again so they'll be waiting again etc etc etc ad nauseum :rolleyes:

Well I can't speak for everyone on here, but I think most will be cash buyers, quite a while before then, or if not their mortgages will be tiny, in which case IR's will have little or no effect, unlike if you bought with a high LTV in the last few years, then IR's are obviously a big issue.

Thrugelmir

Dug this up for anybody that's interested in the US mortgage market.

Interest Rates, Mortgage Loans and a Red-Hot Housing Market
The initial housing boom began in early 2002 - 2003. Interest rates were falling to all-time lows. A surge of homebuyers eager to take advantage of the low interest rates on mortgages began pushing home prices up. As home prices climbed, buyers began turning from fixed-rate mortgages (where the interest rate charged on the loan does not change) to adjustable-rate mortgages or ARMs (where the interest rate does fluctuate over the life of the loan, within certain limits, in response to market conditions).
Many buyers liked that ARMs usually offer a lower initial interest rate than fixed-rate mortgages and reasoned that the low interest rates would continue for the foreseeable future. With a lower interest rate many buyers felt comfortable taking on a larger mortgage loan, meaning buyers may have borrowed more money – whether that was just to afford a home whose value was rising more quickly than they had planned, or to buy a bigger, newer or simply more expensive home.
Home prices continued to rise, beyond what many homebuyers could afford. Buyers who could not qualify for a home loan increasingly turned to “subprime lenders.” These lenders make loans to borrowers with low credit scores. However subprime loans also come with higher interest rates, fees and prepayment penalties. Many subprime lenders offered “low doc” or “no doc” loans – meaning that buyers had to provide minimal if any paperwork at all to qualify for the loan. Many buyers used the opportunity to overstate their income in order to qualify for a larger loan.
As the demand for homes continued, home prices escalated beyond what many buyers felt they could afford. Lenders in both the subprime and the non-subprime, or conforming, mortgage markets began offering ARMs that allowed homebuyers to pay only the interest owed on the loan each month for the first couple of years of the life of the loan. These were called “interest-only” or IO ARMs. Another ARM - the option ARM - offered initial interest rates as low as 1% and the ability to choose your monthly mortgage payment amount.
In addition to new homebuyers, many existing homeowners opted to take advantage of the low interest rates and refinance their mortgages to take some cash out of the equity they had built up in their home – called a “cash-out refi.” Others chose to lower their monthly mortgage payments by refinancing from a fixed-rate mortgage to an interest-only mortgage or option ARM with lower initial interest rates.
The housing market eventually began cooling off in most places as interest rates began to slowly rise. As interest rates crept up the interest rate on ARMs began adjusting upward, meaning people holding ARMs were now facing increasing monthly mortgage payments. Let’s take a closer look at what happens to homeowners holding IO or option ARMs when interest rates rise:

• Interest-only ARMs. With IO ARMs, homebuyers were able to pay only the interest on their home loan each month for the first several years of their loan. Because their initial monthly payment was lower than with a fixed-rate mortgage (because they didn’t have to pay any of the principal due on the loan), homebuyers often bought a more expensive home than originally planned – either because they wanted a more expensive home or because the price on the home they wanted to buy had risen.
  Some homeowners chose an IO loan because they either already had a higher interest-rate home equity line of credit (HELOC) or needed a second mortgage to qualify for the home they wished to purchase. They could then use the money freed up from making lower monthly mortgage payments with an IO loan to pay down the second mortgage or HELOC.
  When interest rates rise the monthly mortgage amount rises. In many cases homeowners who chose an IO loan were only able to truly afford the home if they were repaying the initial low interest rate they got. As that rate rose they found it harder to make the payments. In addition many IO loans had prepayment and refinancing penalties so many homeowners who wanted to switch to a fixed-rate loan were unable to come up with the money necessary to do so. Even if they could find the money to pay the penalty in some cases as the housing market cooled and home values began dropping, or readjusting, they found their homes were not appraising for as much as they thought. In some cases the homes were actually valued for less than when they purchased it. The home’s appraised value is important because it’s what real estate professionals use to establish a sale price and it’s a key component of how lenders determine how much money they would be willing to loan someone if they were using the home’s equity as the collateral for the loan. For example if someone wanted to take out a home equity loan – to make renovations to the home, pay off credit card bills, pay for college tuition, etc. – the lender would check to see how much the home is valued for before deciding if and how much they would be willing to lend the homeowner. If your home’s value has not increased, and especially if it’s decreased to the point that you paid more for the home than it is now worth, the lender is not as likely to make you a loan.
• Option ARMs. Many homeowners that purchased their homes using these loans either were not made aware of, or did not understand, all the specific details of the loan before signing the papers.
  Many borrowers found the very low interest rates offered with an option ARM – some as low as 1% - very attractive. In addition borrowers could choose how large a monthly mortgage payment they wanted to make. However the interest rate on an option ARM adjusts monthly. So a loan with an initial interest rate of just 1% could jump several percentage points higher just 30 days after the loan papers were signed.
  Homeowners may not have even realized they were getting a rate hike because the monthly mortgage payment amount only adjusts annually. So one year after choosing an option ARM, borrowers who chose to make the minimum monthly payment (more than 80% of all option ARM borrowers, according to Fitch Ratings) discovered that a higher interest rate boosted their monthly mortgage payment. In some cases they discovered that what they had been paying did not even cover the interest charged on the loan. So although they were making payments each month the actual balance on the loan was increasing, not decreasing. Over time their home was costing them more money. As interest rates increase fewer people are interested in buying a home and taking on a mortgage (especially if they think there’s a chance the rates could decrease again) and so with less demand, housing prices began to stabilize. In many areas where housing prices rose quickly prices not only stabilized but began to decline. And so homeowners holding an option ARM in those markets were in some case paying money for a home that was losing value.
  In addition, with an option ARM every 5 or 10 years the monthly mortgage payment amount must be adjusted so that the loan can be fully paid off through the remaining monthly payments – that’s called a fully-amortizing loan. Lenders can raise the monthly mortgage payment amount by whatever amount is necessary (above the original 7.5% increase limit to make the loan fully-amortizing). And if the homeowner has not been paying enough to cover the interest on the loan and the loan balance rises to between 110% - 125% of the home’s value (meaning that the homeowner owes between 10 and 25% more on the loan than the home is worth) then lenders can immediately raise the monthly mortgage payment to make the loan fully-amortizing.

Heyman_2

ad9898 wrote: »

Well I can't speak for everyone on here, but I think most will be cash buyers, quite a while before then, or if not their mortgages will be tiny, in which case IR's will have little or no effect, unlike if you bought with a high LTV in the last few years, then IR's are obviously a big issue.

I agree with you actually - some of the bulls on here are going to be outright cash buyers, I remember a thread about it a month or two ago. Definitely the best position to be in if you can do it, not sure many people can though. :rolleyes:

lostinrates

ad9898 wrote: »

Well I can't speak for everyone on here, but I think most will be cash buyers, quite a while before then, or if not their mortgages will be tiny, in which case IR's will have little or no effect, unlike if you bought with a high LTV in the last few years, then IR's are obviously a big issue.

We won't be cash buyers.

If forced to we could buy something we could live in mortgage free but it would very much be a comprimise prosition that we don't feel forced to take, yet. Who knows what will happen though?

Wookster

ad9898 wrote: »

Well I can't speak for everyone on here, but I think most will be cash buyers, quite a while before then, or if not their mortgages will be tiny, in which case IR's will have little or no effect, unlike if you bought with a high LTV in the last few years, then IR's are obviously a big issue.

Agreed.

This whole episode has reinforced the bear's view that credit & stretching one's self are very very bad things. I'd suspect that most bears who go on to buy will take as small mortgages as possible.

davilown

Wookster wrote: »

Agreed.

This whole episode has reinforced the bear's view that credit & stretching one's self are very very bad things. I'd suspect that most bears who go on to buy will take as small mortgages as possible.

I agree as well as I feel that a lot of people I know are saving their money at the moment in order to have as big a deposit as possible so they know they are comfortable with their mortgage.
Nobody really knows what will happen in the next few years, although many of us have their own view which we try and shove down everyone else throats at every opportunity .
One thing I believe will remain though is the bigger the % deposit you have, the cheaper the rates you'll be able to get when it comes to buying.

PasturesNew

I think, in the main, for most people under 35, no matter how much cash they've got, if they're in a good job they'll still max out on a mortgage when the time comes... they won't be able to help themselves. Those eyes will get bigger and bigger as the shiny, larger houses come up for sale.

Me ... I want a decent-sized, correctly positioned 1-2 bed house that's energy efficient and virtually maintenance free. But most won't be wanting to live in little places. Although, depending how long it takes me to buy, I might just go straight into one of those over 50s gaffs.

davilown

I always assumed I wanted a large 4 bed detached house but I realised today that the kids are 18 in 7 and 9 yrs respectively so whats the point? A house I can live in for a long time would be nice