Mortgage Extension

Only if there's a buy out for all my old 8-tracks I have boxed up in the basement...

OMG! How I got swept up too by the 8 track!

This is actually one of the provisions set forth in the GSE reform bill passed over the summer. It applies to FHA loans and is part of the overall plan to refinance some problem loans in order to help stabilize the housing market.

I will not put it past the government, as stupid as that is.

Hey lets all stop paying our mortgages so we can get better rates. Give me a big hunk of gubberment cheese too! And, since their buying, a round for all my friends as well. Last person still foolish enough to work gets the bill.  Personal responsibilities are for suckers.

Who you calling a sucker Willis?

I have been saying this since the sub-prime market started to meltdown a year ago.  Although I would say extend the terms of the loan to whatever it takes to make the monthly payments affordable for the home owner even if that means terms of 80 to 100 years.

The problem is it would not really help.  I know.  I switched from a 30 year mortgage to a 15 year mortgage.  You know how much my payment went up (the balance was about the same)?  $100.  That's all!  Going from 30 to 40 would not reduce payments that much either.

But going from 30 to 80 or 100 years might, and is at least worth looking into for the banks, especially the ones that are having a hard time raising capital to remain solvent.  Something coming in from the mortgages is better than nothing.

a little sarcasm on my part Charles, but it seems to be heading that way.

Then when they kick it, the survivors have to pay for or foreclose and sell the property again, interesting. I've said it before, IMO the banks should  drop a quarter percent after the first five years, then maybe every 10 years after if payments are on time. Give the person that is responsible the break. That or go back to simple interest, paying 300% of the cost of the loan is ridiculous. If it's so fair why don't they give the same terms to us on our savings accounts, after all we are loaning them our money.

Side note: I wonder how many people in this predicament spent their stimulus check on their mortgage? It seem like, for a couple, $1500 could have eased the burden by 100 bucks a month for a year, enough time to work hard and get a raise or find a new job. But my theory is 60% or more of the people in this situation probably went out and bought a big screen TV or new xBox and all the trimmings with the cash. No proof just a hunch.

Did I forget the smiley again. Darn.

If I thought you were serious, I would add that I think you get into the law of diminishing returns.  If you look at what you are paying on principal on a 30 during the first few years, you will see it is virtually nothing.  I dont think going out farther is really going to help.

But yea, why not!  We are living longer!

Actually, I did deposit mine.  But then increased my payments by $100 too.  So I guess I am using mine that way.

But somehow Doc, I get the feeling that your mortgage was not in danger of foreclosure... and yet you still managed to use your cash wisely. I know there are responsible people out there, I just worry about the ones without sensible priorities, as they are the ones increasingly digging deeper into my pockets, and everyone else that pays taxes.

I have to wait until next year for my stimulus package. Now I've been drooling over a big screen TV, but you can rest assured if I had even the remote feeling that I would lose my home, that is where the money would go.

No, I did not use mine wisely.  If I had and I was being foreclosed, the government would have bailed me out!

On $100, 000.00 assuming a 5.750% interest rate (everyone knows that the more years the higher the rate but we'll keep it the same for this example).

30 years payment is:$583.57 a month while a 40 year payment (again at the same interest rate) is $ 532.89 a month.  You save about 50 bucks (and if you realistically raise the interest percentage by .25 for the 40 year loan then the savings is only 33.26 a month). Hardly a dramatic savings.

The total cost of the 30 yr loan is $210,085.20 and the 40 yr loan costs $255,787.20.

Richard are you giving economic advice to Obama?

Yes you do save a ton in interest, but your monthly payments do not change much.  And that is the problem, not how much interest they pay, but how much they pay each month.  The car load is not valid.  You are going from 36 months to 60, a 67% change and most of the payments are principal, not interest. A 30-40 year change is only half that, and most of the payments are interest, so you are not reducing your interest paments until year 18 or so (on the 30).

There are calculators on the internet.  Check it out: 30yr, 6.5%, 250,000 - payments $1580

40yr, 6.5% (it would be higher because of the longer term, but let's keep it the same), 250,000 = 1463.

Simple math.

That's where I got my figures from.

Yea, Sorry about that.  I pulled up this article to comment, got distracted and then finished it.  And after it posted, saw you had already done the math.  Did not mean to duplicate you.

Well seeing as banks are so unwilling to lend now, while there is also an oversupply of homes, basically meaning house prices are sent crashing (increase supply, decrease demand = lower prices), renting might be a possibility - that is, instead of just forcing someone out of their home and flogging it for next to nothing, just take over the home+charge them the market rent. If they can't afford it, they'll have to go and rent from somewhere else. Fewer homes get sold, you bypass the problem of people not being able to get another house due to loans, and hopefully you might be able to spread out some of the damage so it's less severe (but for a slightly longer period of time). The problem of course is that banks (or the government if they've taken over the bank in question) aren't in the rental business, so might not be able to do it as well. On the other hand, if 'buy-to-let'ers can't obtain the finance to purchase super-cheap homes to then rent out because of the financial crisis, the government/banks might be the only option for it. In time prices would then recover, and the houses could be sold gradually rather than flooding the market all at once.

As to extending the mortgages, not a good idea. Not only because of the diminishing effect on repayment reductions as already pointed out, but also because of peoples working age - if you have an 80 year mortgage, you're going to reach retirement age and still have a massive amount outstanding. If you couldn't pay it off when in the 'prime of your life' at 30 (and hence needed the extension), how can you hope to meet the repayments when you're retired (or unable to work as much due to old age)? That's before even factoring in the problem that banks might need you to take out life insurance to cover them in the event you croak it after 50 years and leave much of the loan oustanding.

And that is before the house is bought.

No, and it does not have to be 0% down.  Except in the mind of some.