[Armageddon]

when peoples houses went up in value, and they " cashed out " as economists put it, how exactly did people take out money against their higher property value ? and did it raise their mortgage payment ? i dont get it . help please

[Snowrunner]

$this->bbcode_second_pass_quote('armegeddon', 'w')hen peoples houses went up in value, and they " cashed out " as economists put it, how exactly did people take out money against their higher property value ? and did it raise their mortgage payment ? i dont get it . help please

[DesertBear2]

Homeowners in the present boom have often found their house "value" going up while mortgage rates have been going down(thanks, Beijing).

So a homeowner has an original mortgage for $150,000 at 8% in 1995.

Now, in 2005, he finds that his house value has grown to $300,000 and mortgage rates have dropped to 5%. The local banks are putting on a massive marketing effort to generate refinancing fees for the banks.

He/she refinances the loan at the lower rate with cash back. At loan closing they will walk out with $150,000 cash. And they will have a new $300,000 fixed mortgage at 5.5% or a nice risky adjustable mortgage at 4.2%. Of course, this restarts the 30 year loan term from the beginning(unless they opt for a shorter 15 year mortgage).

And the monthly payment could be pretty much the same as the old loan, especially with the adjustable type.

Really sharp. Except that with a national savings rate of 0%, housing is the last significant repository of wealth for the US middle class. However, at some point, people will realize that Social Security, private pensions, or 401k plans are not enough to allow them to retire. And they may well regret that they had taken out all that home equity instead of paying off the house. Large mortgage payments at 85? There won't be enough openings for greeters at Walmart.

[budeone]

You both answered pretty good. The big problem I see is people cash out money. lets just say 50,000 and then pay off credit cards or buy a new car. They can wind up paying more than they are saving.

If you want to redo your loan ,.. NEVER go with an adjustible rate. Take the money and use to invest.

You can add on to your home and that will be a good investment most of the tme or buy property. There are great things to do with money.

To pay off credit cards and then run them back up in 6 months isnt one of them.

[linlithgowoil]

the problem now is that refinancing your house isnt going to be a great option in the years to come, because house prices have peaked (im talking UK here, but its happening worldwide too).

so, people no longer have that nice warm comfortable feeling that their house is charging up in value. thats a huge psychological difference. people stop spending, they start saving, and they stop taking on more credit. its happening already, and it'll be what causes the next worldwide major recession - together with high energy prices of course.

not sure when the recession will be in full swing, but we're right on the brink of it now, after a final push to try and get things restarted. the FTSE had a great run recently, but i feel its the last great run for quite a while.

thank god i dont own a house, i am soooo lucky!

[BorneoRagnarok]

Refinancing is one of the most stupid thing I can think off. Why pay more interest for your house ?? Unless you are going for lower interest rate. Actually how refinance work ?? Assume he has original mortgage of USD 200,000 at 12% fixed interest from 1992. Currently only USD 70,000 more to go for his mortgage. So the new mortgage is USD 70,000 or USD 200,000 ??

[Ghog]

$this->bbcode_second_pass_quote('BorneoRagnarok', 'R')efinancing is one of the most stupid thing I can think off. Why pay more interest for your house ?? Unless you are going for lower interest rate. Actually how refinance work ?? Assume he has original mortgage of USD 200,000 at 12% fixed interest from 1992. Currently only USD 70,000 more to go for his mortgage. So the new mortgage is USD 70,000 or USD 200,000 ??

[JoeW]

Another popolar thing to do these days is take out a HELOC (home equity line of credit).
This is a way of cashing out home equity to purchase absolutely anything that you want.
My wife and I have considered doing it to actually reduce our monthly expenses by paying off a small portion of our existing mortgage to eliminate our private mortgage insurance (PMI) payment of about $100/mo. The PMI is no longer needed when the original loan's principal drops under 80% of the appraised value at the time of the loan. Our current principal-to-value ratio on that loan is about .87.
It would also reduce the years left on our mortgage by about 6.

[drattom]

JoeW,

You don't seriously think about getting an home equity line of credit now? I did it last year but now, with the coming recession I get out of it as fast as I can. You risk to get burn when interest rates will rise.

[cornholio]

I am refinancing my (smallish modest) home this week to get fixed interest rates, as I am guessing that rates will only rise from here on out. While I've only had my house 1 year it appraised 12k (10%) over what I "purchased" the house for with no money down. The benefit of this increased appraisal is that the increased "value" of the home counts as part of the 20% needed to avoid PMI payments or higher interest loans. In that way it is saving me money (im not cashing out that increased "value", just using it to get a better loan).

I believe I have a few years of relative stability in which to ....
1) pay off my home as quickly as possible (3-4 years is possible)
2) pay off student loans
3) keep credit cards paid off

While I think getting a fixed loan now is a good Idea I am torn between the idea of paying off these loans quickly (to eleminate even this low fixed interest payment) and building savings (some gold, some investments). As I have seen when visiting Brazil which had massive inflation a few years ago, in inflationary times housing payments fixed at lower monthly amounts (when the currancy was more valuable, before inflation) were huge bargains after inflation set in and the currency was devalued. If that happens it would be more important to build other real assets now...

[frankthetank]

Someone i know very well did this.

Refi his house, had roughly 50K cash. He had a sizeable chunk of his house paid oFF (i think he had roughly 3 years left on his mortgage).

Bought:

Used Suburban (20K)
Used Pickup (10K)
New Boat (8K)
2 ATVS-1new, 1used (9K)
Home improvements (~5K)
Cozumel trip (who knows!)

I'm guessing this isn't very far off from what others have done with this new found """Wealth"""

[Kooka]

$this->bbcode_second_pass_quote('DesertBear2', '.')..He/she refinances the loan at the lower rate with cash back. At loan closing they will walk out with $150,000 cash. And they will have a new $300,000 fixed mortgage at 5.5% or a nice risky adjustable mortgage at 4.2%. Of course, this restarts the 30 year loan term from the beginning(unless they opt for a shorter 15 year mortgage).

[Kooka]

$this->bbcode_second_pass_quote('budeone', 'I')f you want to redo your loan ,.. NEVER go with an adjustible rate. Take the money and use to invest.

[Kooka]

$this->bbcode_second_pass_quote('JoeW', 'A')nother popolar thing to do these days is take out a HELOC (home equity line of credit). This is a way of cashing out home equity to purchase absolutely anything that you want. My wife and I have considered doing it to actually reduce our monthly expenses by paying off a small portion of our existing mortgage to eliminate our private mortgage insurance (PMI) payment of about $100/mo. The PMI is no longer needed when the original loan's principal drops under 80% of the appraised value at the time of the loan. Our current principal-to-value ratio on that loan is about .87.
It would also reduce the years left on our mortgage by about 6.

[falser]

$this->bbcode_second_pass_quote('frankthetank', 'S')omeone i know very well did this.

Refi his house, had roughly 50K cash. He had a sizeable chunk of his house paid oFF (i think he had roughly 3 years left on his mortgage).

Bought:

Used Suburban (20K)
Used Pickup (10K)
New Boat (8K)
2 ATVS-1new, 1used (9K)
Home improvements (~5K)
Cozumel trip (who knows!)

I'm guessing this isn't very far off from what others have done with this new found """Wealth"""

[MonteQuest]

Here's how bad it has gotten:

THE UNITED STATES OF REAL ESTATE

$this->bbcode_second_pass_quote('', 'A')mos Bullock, a Portland, Oregon home owner who has recently retired from any form of productive activity, now lives entirely by refinancing his home on a monthly basis to extract equity. Bullock summarized the impact of the New Housing Economy on his own life: “Is this a great country, or what?”

[Kooka]

$this->bbcode_second_pass_quote('MonteQuest', 'H')ere's how bad it has gotten:

THE UNITED STATES OF REAL ESTATE

$this->bbcode_second_pass_quote('', 'A')mos Bullock, a Portland, Oregon home owner who has recently retired from any form of productive activity, now lives entirely by refinancing his home on a monthly basis to extract equity. Bullock summarized the impact of the New Housing Economy on his own life: “Is this a great country, or what?”