Mike’s Real Estate Show

  Now that the extremely hot real estate market has cooled to Eskimo Sundae temperature, a flood of “new” regulations can be found glowing in the embers of this once bonfire of the equities! Just as our real estate market sparked new disclosures regarding making offers with no inspections and paying in excess of listed prices, we now have guidelines warning of “exotic” lending. This is know as the “Closing the barn door after the horse has gotten free” disclosure system. For all of those consumers who got the “exotic” option ARM loans you now are feeling the pain. On an “option” arm you have three payment plans and the loan is adjustable. Many opted to pay the “negative amortization” option which  means you are NOT even paying interest only hence the deferred interest gets added to your principal and up goes your loan amount!

So here’s a scenario to avoid. You over payed for your home 2 years ago. So you could afford to make the payments you got the option arm program. It had a low start interest rate and gave you the option of either paying the fully amortized amount, interest only or less than interest (commonly referred to as a “neg-am” loan). Being squeezed by the cost of the property, but eager to “get-into” this hot market, you told yourself you’d make the least expensive payment for just a few months. But the interest rates on your credit card got “re-cast” in January. So those once easy “minimum” payments shot through the roof. And you used them to get new appliances and furniture for your home so the balances are pretty high. So now you’re having to spend a ton of money on the credit cards PLUS your new steep house payment. But you’re happy because the first year prices went up around 10%. Yeah, you made some big bucks. But your friend now tells you house prices dropped 5% last year. So you’re thinking “Well, at least I made 5% on my money!” But have you? You’ve been deferring the interest and it has been adding up! And it turns out your “overbid” was really beyond the market value and you’re actually looking at almost a “wash” on that 5%. So you ponder your situation; I overpaid for my house, got a loan I can barely afford, being killed by credit card debt and now I want to sell but I have a 6 month prepayment penalty! I have choices but none are really good. Stay in my house and get stranged by mounting debt and be chained to my house, try to sell and have to bring thousands of dollars into escrow to close the deal and take a big loss, or throw my hands up and walk away leaving the house in foreclosure and ruining my credit for 7 years! What’s a guy to do?   Stay tuned for the answer or listen to the radio show Sunday!