Fed raises prime to 4.75. They are coming after you homes RWingers

[cantstandbush]

and all of us but you folks voted for this shit. How, by supporting an illegal war, tax cuts for the wealthy and corporate pigs, supporting de-regulation and all sorts of breaks for the oil companies, outsourcing jobs, all of which are draining our economy and pushing national debt to unimagineable heights. And this is only the beginning.

[lectrobyte]

1. Maybe I'm dense, but I don't see how raising the rates would cause

someone to lose a home?

[AllieB]

2. Interest-only mortgages

many people financed their homes with these.

[tcfrogs]

7. Not that financing it that way was is the smartest thing to do

Just sayin'.

[AllieB]

22. They were being pushed on homeowners by mortgage lenders

we bought our house two years ago, and had an agent try to sway us in that direction. Both my husband and I are pretty savvy financially, so we knew this was a huge risk. Many people these days don't understand these kind of loans, and they get screwed.

[tcfrogs]

3. If someone had an ARM

otherwise raising prime is beneficial in some ways.

[AnnInLa]

40. please give me some examples of benefical

benefits....I am trying to learn economics, Democrat-style.

[DBoon]

4. if they have an adjustable rate mortgage

and can't afford the higher payments.

Or more indirectly, if they lose their job in the ensuing economic downturn

[truebrit71]

5. Interest rate goes up. Adjustable mortgage rate goes up.

Mortagage payment goes up.

If you don't have enough money, you won't be able to afford your mortgage.

You lose your home.

Here endeth the lesson... ;-)

[Atman]

6. Lots of bullshit financing plans got people into homes who shouldn't be

This housing boom was really just a financing boom. Lots of creative financing blew up the bubble. Now, things are gonna get tough for a lot of people. A two point rise on a $250,000 mortgage is HUGH.

It's a good time NOT to own a home. A bloodbath is coming.

[madaboutharry]

10. If you have a traditional fixed mortgage,

you won't be effected by a change in the prime rate. It is people with adjustable mortgages who are in peril.

[shanti]

31. ITA

thank god for my 30 yr fixed $95,000 mortgage...and that was after refinancing last year, and i'm in norcal. most was shoveled right back into my home tho.

the insanity has to end somewhere.

[merbex]

15. You can only hope that whatever you owe on your preferably

"locked in rate" will still equal the value of the home if
the market tanks

True story:my brother-in-law bought a condo in Boston at the height of late 80's real estate boom in Boston;he paid $325,000 -when he finally sold it for under a $100,000 after it sat on the market for 3 years with no nibblehe ended up moving his wife and 2 kids into the family homestead with my mother-in-law. All because he bought in a community where he wouldn't send his kids to the public school system and he couldn't afford private tuition for two kids plus the mortgage

Ask him about real estate booms

[Atman]

20. We lucked out...

My wife and I looked at a condo in Connecticut for our first home, in the late eighties. Real estate prices were jumping a couple thousand bucks a WEEK. It was nuts. We had two grand deposit on a condo, but found that moving 15 minutes up the interstate, we could buy our own HOUSE for $20,000 less. So we asked the condo agent for our money back...which we got in a heartbeat, because the going rates were now up another few thousands dollars.

We bought in Mass instead of CT, and saved about $25,000. A few years later, the market tanked. You couldn't give away a condo. You young whipper-snappers reading this, hold on to your asses, stop buying those lattes, trade in the Lexus. Us "old" farts (I turn 47 next week!) have been through this, and we've seen 21% mortgage rates. Get ready for a world of hurt your lying-ass president didn't tell you about because he was to busy lying about his war.

[merbex]

24. I just turned 46 and my brother-in law is 50

The late 70's with the high interest rates were amazing :friends of ours were getting married early 80's and instead of a honeymoon and elaborate wedding decided to buy a house with something like 16% rate for the mortgage

My friend told us that when they walked into the bank and asked to apply for a mortgage the bank rep had to blow the dust off the folder containing mortgage applications

Then when rates started to come down prices took off and it was off to the races

A truly insane time around Boston;foreclosure pages went on and on in the newspapers

[shanti]

32. i'm sorry but

your BIL sounds like an idiot. :eyes:

[merbex]

35. He moved to California about 5 years ago

and I haven't seen him since

And yes, he is an idiot - my husband has 5 brothers and 1 sister - only 1 brother is even worth knowing- the rest are rightwing wackos

[newportdadde]

8. ARMs, Interest only loans you become upside down in a mortgage.

Arms - pretty obvious you have an interest rate that after a fixed time begins to rise. The amount you paid on the home was based on the low interest rate you did have. You can't afford the payments.

Interest only - Pay only interest float 100% principle. Principle was made on a overpriced home that rose due to low interest rates. Suddenly a house you paid 400k for is worth 375K because interest is way up so you can't sell it and get your principle back and you can't afford to refi with a traditional mortgage because you didn't have 20% or even 5% down the first time through anyways.

My advice to anyone and this will be the same I give to my kids. Tough it out and get yourself 20% if at all possible, you avoid PMI and get get a nice what use to be normal loan with a fixed rate. If you lucky you will buy in when interest rates are higher(8.5% in 2000 for me) then can catch a down draft(I refied in summer of 2003 for 15 years 4.75).

[sendero]

37. Americans...

... are not about "toughing it out", and that is why we are about to have a housing crash.

[skids]

13. ARMs and "upside-down" buyers.

Those with ARMs will have to refinance at current rates, unless they think rates are going to go back down, which would be folly to assume. This locks them in at a higher rate than they would have gotten on a fixed mortgage a few years ago when they bought -- depending on their mortgage terms there may also be one-time costs associated with that process. That can sometimes be embedded in the mortage rollover but in either case it represents a fee they have to pay, either in cash or by borrowing back into any equity they may (or more likely, may not) have accumulated, or by extending their time committment and overall cost of the entire mortgage. Those who were barely making payments as it is are playing it close to the wire -- any incidental expense could cause them to start missing payments.

Further, as the rates go up it's one more drag on the housing market in general. If (more like when) that market collapses and house prices fall, some people that bought at inflated prices will end up "upside down" (owing more on the house than what it is worth.) That means that if they have a financial emergency, they do not have the option of taking money back out of the house through a HELOC or such. Without that safety cushion they could easily go bankrupt.

Combine that with lack of stability in the job market and it's a recipe for foreclosures.

[BlueStateBlue]

17. Think adjustable rate mortgages

Higher interest rates will likely cause home prices to decline, since many homebuyers look no further than what their (initial) monthly payment will be. People figure they'll make more money in the future, and of course, housing only goes up, so they'll just refinance in a few months when the house has appreciated by 30%...

In a rising rate environment, with home prices declining, an adjustable rate mortgage holder who has little or no equity because they bought with no money down cannot refinance into a fixed rate loan without having a higher monthly payment. The cycle of refinancing into lower monthly payments is over.

And, they can't sell if prices are declining because they have no equity. They would have to come to the closing table with a check to get out of the mortgage and walk away with nothing.

As ugly as it sounds, we will soon be hearing about people who just leave the keys in the mailbox and walk away from their homes and their credit ratings.

The new bankruptcy law will add to the pain.

The downward momentum of the housing bubble is only in its beginning stages.

[lectrobyte]

26. Thanks everyone. I hadn't considered all that. Basically, I've

always tried to live as debt free as possible, so there are some things that I just don't even consider, such as ARMs, or leasing a car. Interest-only mortgages make my head explode.

[shanti]

33. thanks for the advice

when i refinanced last year, the mortgage broker told me that my payments would be lower, but i did not find that to be the case. i paid off several large bills and did some remodeling, but my monthly payment was HIGHER than it was before. however, i'm doing better now than last year, so it must've balanced out in the end.

[swag]

9. Hi. The Fed doesn't set the prime rate, though prime rates set by banks

typically hover about three percentage points above the Federal Funds Rate.

[Rainscents]

11. Yup... more layoff and offloading is going to happen!

[SoCalDem]

12. The young freeps would be amazed to see prime rates that I have seen

20-point-something comes to mind... try buying a house with those kinds of rates.. We got caught in the capital gains squeeze just as rates skyrocketed..

We had to sell our house due to a move and moved to a higher priced market, after making very little money on our previous house,. and there was an 18 month time limit on buying the next house to avoid a capital gains on the money we did gain, and that was the exact moment (I think) that the prime went throuigh the roof.. I think our interest rate for our house was 16.4% or something like that..

the kicker...my husband's company moved us again..after 8 months .. We had taken cash out of insurance policies to fix the house up, and spent the entire time working on it..

By the time that happened, the market had completely crashed and we lost about $6k on the house (PLUS the money from our insurance policies)....

here's a link to all the rate increases since 1947..

the most volatility has coincided with MY adult life :(

http://mortgage-x.com/general/indexes/prime.asp

[AllegroRondo]

14. I am so glad I went with the fixed rate mortgage

and they said I was crazy!

[TahitiNut]

18. I have no idea why people went to ARMs when rates were low.

ARMs first got popular when mortgage rates were through the roof. I took out an ARM in '83. Best thing I ever did. When interest rates went down, I went fixed. Yes, I realize that folks get seduced by the low down-payment and the slightly lower interest rate. Hell, that's why the lenders do that. Any 'student' of the mortgage market over the years knows damned well that interest rates have been at long-time lows. That's not the time to go with an ARM - that's the time to go with fixed. D'oh!

[AllegroRondo]

19. ARMs are usually 'fixed' for a short period

say the first 5 years, or sometimes less. If you plan on re-financing before the first 5 years are up, and dont expect rates to go up much, an ARM may be a good choice.

But - if it looks like rates are going to go up, take the fixed rate. If rates dont go up much, you can still refinance in the first 5 years if you need to, but you also have the flexibility to wait until rates go down again if you need to.

[BlueStateBlue]

21. Because they couldn't afford the house they thought they

were entitled to! Well, they're about to find out just what they can afford. I have no sympathy for greediness.

[ecstatic]

23. ditto!! nt

[lyonn]

16. Oh my, de ja vu (sp?)

The great 1980's. Called the Reagan Economics, trickle down, deficit outa sight so printed more money, ya. Repossessions abounded. Govt. forclosures and a gold mine for those who bought those repossessions with the $$$ they had horded. Silverado Saving & Loan and the Bush Baby sorta took a hit on that, no, we the tax payers took a hit on the failed S&L's.

[MadHound]

25. In addition to raising the mortage rates of those with ARMs,

This move is going to hurt us all, in that this puts greater upward pressure on inflation. Therefore, when gas rates hit the $4.00/gal this summer, inflation across the board is going to be hell, both due to gas and due to these rise in interest rates.

[AnnInLa]

41. So, if someone bought some sizable I bonds, that would be good?

[Neil Lisst]

27. It's broader than just people with ARM loans. All banks pay more

The discount rate affects the price at which all banks can loan money. As the Fed increases the rate, the cost of money goes up in every bank in the country simultaneously. So it affects virtually EVERY loan made thereafter, at least in some fashion, negatively.

Because it affects loan rates, the couple who could afford a house when the monthly payment was $750 find themselves pulling up short because the payment is $800, and they don't qualify for $800.

(that's not an accurate example, but done that way to simplify)

Bottom line is when the rate goes up, it should cool the housing market, both new and used. Because of the ARM loans that increase, it also makes foreclosures and abandoned homes more possible.

The longterm trend has to be increasing rates, so there will be more of this before the year ends. In fact, probably before Thanksgiving.

[catmother]

28. we bought our first house in phoenix in 1989 -- real estate here

had already fallen. we got a new semi-custom home with pool, spa, tons of upgrades on 1/2 acre lot for $164,000. our interest rate was 9-3/8 and we refinanced 2x down to lower rates. in 1996 we bought 2-1/2 acres of raw desert for $48,000. now an acre is going for $325 and up. we built the new house in 2002 before building went sky high. now we're told our house is worth a million. to me that's an inflated price and i'm sure it's gonna go down. we put a big down payment and have a very low mortgage.

the people that are gonna get screwed are those who have been buying at these inflated prices. what's gonna happen when they owe more on their mortgage than the house or land is worth? i wouldn't buy any real estate right now.

i never liked the idea of an ARM.

[Jamison]

29. Get ready for 16+% interest rates again.

This is clearly what the Feds want, like what we had in 1981-1982. This will bury consumers and hurt the economy badly. No one will be able to buy houses anymore b/c the interest rates will kill them. Same with cars. People's APR's on their credit cards will rise too. The ONLY good in this is if you can save enough for some CD's in a bank. If you can, lock them in for 5 years at the highest rate possible and you'll have great returns.

[catmother]

30. i remember those days. i had 19% interest on my car loan. of

course, people with money to save did quite well in the banks. :think:

[Jamison]

34. Yikes!

I'd never take out any kinda loan for that usurious interest rate! I would have drove a beater I could pay straight up cash for.

[catmother]

39. we were very stupid. didn't realize the interest rate till after the

papers were signed. and that car was a lemon -- the worst we ever had.

now we pay cash for our cars and try to buy them a year old. i am a car dealer's worst nightmare. i know all the tricks and will never get screwed again. haven't financed a car in 16 years. we also tend to keep our cars for a long time.:eyes:

[MiniMe]

36. This benefits the rich

When the interest rates go up, the money they make on their savings and investments goes up too. If Bush's "base" (the haves and the have-mores) have a mortgage at all, it is fixed rate.

[sendero]

38. Ok..

... I'd like to make a few points.

First of all, mortgage rates in the 5-6% range are HISTORICALLY LOW and nobody with two brain cells to rub together would think they were going to stay there. There is/was no effing way. There was NEVER A BETTER TIME TO GET A FIXED RATE MORTGAGE THAN THE LAST FEW YEARS.

That said, anyone who bought an ARM or an interest-only VR mortgage are MORONS. And they are now getting what was as guaranteed to happen as Iraq was guaranteed to degenerate into chaos.

I don't feel sorry for any of them because along with fucking up their own life their foreclosures will depress housing prices for YEARS for everybody. If you are too dumb or lazy to understand the RUDIMENTS of home ownership, do us a favor and keep renting.