JessieC Posted June 5, 2011 Share Posted June 5, 2011 I could use some advice from all you budget-wise and debt-free experts. We are feeling really stuck right now. Six years ago, we bought a nice little house. It was our first house and we were advised to avoid PMI or something we should go with an 80/20 mortgage, the 20% being the higher interest rate of 8.5% with a balloon payment at the end of 15 years. Of course back then we believed that a house was a great investment, and when we questioned the interest we would be paying, we were assured that we would refinance in a few years and not to worry about the 20% mortgage too much. (When I think back to signing those papers, I picture the mortgage lenders wringing their hands and cackling.) Well, that was 2005. We were both working ft jobs then too. Now six years later and two children later, we are still plugging away at that mortgage, but to make the payments, it takes almost all of dh's salary. I work from home to pay for food and other bills.We have not made a dent in the principal, and our house value has gone down considerably. We feel trapped. We would happily sell it and rent but I doubt we could sell in this market for what we owe. Refinancing is not an option because we have no equity. The best thing to do would be to pay down that 20% higher-interest rate, so I would like to try to earn more money and put the extra toward the principal on that, but part of me feels like the mortgage is a bottomless pit and we will never save a thing if I keep throwing money down that pit. So can any financial experts give us some advice? What would you do in this situation? TIA. Quote Link to comment Share on other sites More sharing options...
melissel Posted June 5, 2011 Share Posted June 5, 2011 I could use some advice from all you budget-wise and debt-free experts. We are feeling really stuck right now. Six years ago, we bought a nice little house. It was our first house and we were advised to avoid PMI or something we should go with an 80/20 mortgage, the 20% being the higher interest rate of 8.5% with a balloon payment at the end of 15 years. Of course back then we believed that a house was a great investment, and when we questioned the interest we would be paying, we were assured that we would refinance in a few years and not to worry about the 20% mortgage too much. (When I think back to signing those papers, I picture the mortgage lenders wringing their hands and cackling.) Well, that was 2005. We were both working ft jobs then too. Now six years later and two children later, we are still plugging away at that mortgage, but to make the payments, it takes almost all of dh's salary. I work from home to pay for food and other bills.We have not made a dent in the principal, and our house value has gone down considerably. We feel trapped. We would happily sell it and rent but I doubt we could sell in this market for what we owe. Refinancing is not an option because we have no equity. The best thing to do would be to pay down that 20% higher-interest rate, so I would like to try to earn more money and put the extra toward the principal on that, but part of me feels like the mortgage is a bottomless pit and we will never save a thing if I keep throwing money down that pit. So can any financial experts give us some advice? What would you do in this situation? TIA. I have no advice, only :grouphug::grouphug::grouphug: We narrowly missed being the victims of several of these newfangled lending practices when we bought our condo and then our house, and this was through a mortgage broker who was supposed to be a friend. Quote Link to comment Share on other sites More sharing options...
Night Elf Posted June 5, 2011 Share Posted June 5, 2011 It was our first house and we were advised to avoid PMI or something we should go with an 80/20 mortgage, the 20% being the higher interest rate of 8.5% with a balloon payment at the end of 15 years. Okay, hopefully someone knowledgeable will address all your concerns, but I wanted to comment on the 80/20. If that is the same thing we did, that means you put down 20%, right? We had to do that to avoid paying PMI which actually gave us a lower monthly payment than if our down payment had been less than 20%, so that is a good thing. Do you know if you put 20% down? Quote Link to comment Share on other sites More sharing options...
gardening momma Posted June 5, 2011 Share Posted June 5, 2011 I was thinking that she meant that they financed the whole thing, with 20% at a higher interest rate. But then they wouldn't have avoided PMI. Quote Link to comment Share on other sites More sharing options...
JessieC Posted June 5, 2011 Author Share Posted June 5, 2011 Okay, hopefully someone knowledgeable will address all your concerns, but I wanted to comment on the 80/20. If that is the same thing we did, that means you put down 20%, right? We had to do that to avoid paying PMI which actually gave us a lower monthly payment than if our down payment had been less than 20%, so that is a good thing. Do you know if you put 20% down? No, we didn't put any $ down. We had a down payment saved up, too, but they convinced us this was the way to go (and then took most of the down payment for various fees anyway). The 80/20 just means we have two mortgages at two different interest rates. I really feel had. We were young and stupid, I guess. Quote Link to comment Share on other sites More sharing options...
JessieC Posted June 5, 2011 Author Share Posted June 5, 2011 I was thinking that she meant that they financed the whole thing, with 20% at a higher interest rate. But then they wouldn't have avoided PMI. Yes, this is right--but doing it this way did avoid PMI. Quote Link to comment Share on other sites More sharing options...
JessieC Posted June 5, 2011 Author Share Posted June 5, 2011 I have no advice, only :grouphug::grouphug::grouphug: We narrowly missed being the victims of several of these newfangled lending practices when we bought our condo and then our house, and this was through a mortgage broker who was supposed to be a friend. Thanks. We calculated last night that we have paid $70k in interest in the past six years. That just makes me want to cry. And we just have to go on paying interest forever, it feels like. Quote Link to comment Share on other sites More sharing options...
gardening momma Posted June 5, 2011 Share Posted June 5, 2011 Have you talked to a lender to see if they will refinance? (a different lender than the one you have) Quote Link to comment Share on other sites More sharing options...
Night Elf Posted June 5, 2011 Share Posted June 5, 2011 I was thinking that she meant that they financed the whole thing, with 20% at a higher interest rate. But then they wouldn't have avoided PMI. No, we didn't put any $ down. We had a down payment saved up, too, but they convinced us this was the way to go (and then took most of the down payment for various fees anyway). The 80/20 just means we have two mortgages at two different interest rates. I really feel had. We were young and stupid, I guess. See, I've never heard of avoiding PMI unless a cash deposit is made. I thought the purpose is the benefit of not paying since PMI is extra insurance thta lenders require to protect themselves if the buyers don't pay their mortgages. Here is the information on it: private mortgage insurance I wish my DH was home. He understands all of that stuff. I just sign where he tells me to. :tongue_smilie: Quote Link to comment Share on other sites More sharing options...
JessieC Posted June 5, 2011 Author Share Posted June 5, 2011 See, I've never heard of avoiding PMI unless a cash deposit is made. I thought the purpose is the benefit of not paying since PMI is extra insurance thta lenders require to protect themselves if the buyers don't pay their mortgages. Here is the information on it: private mortgage insurance I wish my DH was home. He understands all of that stuff. I just sign where he tells me to. :tongue_smilie: I don't know--our lender just did it this way then, I guess. Quote Link to comment Share on other sites More sharing options...
Jane in NC Posted June 5, 2011 Share Posted June 5, 2011 Are you members of a credit union? I would have a conversation with a loan advisor at a CU to see if he or she has any suggestions. I'm terribly sorry that you were hoodwinked into one of these odd mortgage products. Quote Link to comment Share on other sites More sharing options...
Trish Posted June 5, 2011 Share Posted June 5, 2011 Thanks. We calculated last night that we have paid $70k in interest in the past six years. That just makes me want to cry. And we just have to go on paying interest forever, it feels like. I guess it would be similar to renting a house. Is walking away not an option? What is the reason for hanging onto this house? Quote Link to comment Share on other sites More sharing options...
Night Elf Posted June 5, 2011 Share Posted June 5, 2011 I don't know--our lender just did it this way then, I guess. I just googled for balloon mortgages and I can see what the lenders did. http://www.lendingtree.com/smartborrower/glossary/b/balloon-mortgage/ I think it might be worth looking into refinancing, if you haven't already done so. The Lending Tree website looks interesting. It has a mortgage refinance calculator and then gives you estimates on what refinancing would look like. Take a look at this page: Lending Tree Mortgage Checkup Does that help at all? Quote Link to comment Share on other sites More sharing options...
gingersmom Posted June 5, 2011 Share Posted June 5, 2011 I guess it would be similar to renting a house. Is walking away not an option? What is the reason for hanging onto this house? Please tell me you did not just advise that. :confused: I would meet with a mortgage professional and see what all your options are. Quote Link to comment Share on other sites More sharing options...
JessieC Posted June 5, 2011 Author Share Posted June 5, 2011 Thanks--yes, I guess we could keep investigating refinance options. DH is against this because it costs money that would be tacked onto the mortgage, and he is really set on moving within the next few years. Our house is getting small for our growing family, and the location is not great. We have considered walking away or applying for a short sale, but this would ruin our credit, and we'd still have to find a place to live. We are members of a credit union--good idea to talk to a consultant there. Thanks, everyone! Quote Link to comment Share on other sites More sharing options...
lilbean05 Posted June 5, 2011 Share Posted June 5, 2011 I can totally sympathize! We did this too in 2004 when we bought our first house. We had an 80/15/5 which means we had a normal mortgage for 80%, a second higher interest rate mortgage for 15% and we put down 5%. PMI is only charged on the first mortgage if it is higher than 80% of the value of the home at the time of the sale. The second loan is not considered a "mortgage" in legal terms--it is a home equity loan used to pay part of the mortgage. That is how the OP was able to avoid paying PMI. Anyway, in the end, we ended up putting every spare penny into the higher interest rate loan to try and pay that sucker off, and we did make a sizeable dent. We were able to sell the house before the market crashed to badly, but if it makes you feel any better, we bought a second house and are now very very stuck with a net loss of over 200k (thanks Vegas housing market!). To rub it in more, we had to move due to employment relocation, can't refinance to a lower rate because we don't have equity, and have to try and find renters. We were able to get renters for this past year, but we were just told that they won't be renewing. So, we chug along and are going to look for more renters. We won't stop making payments or let the house go into foreclosure because it is against our personal values to walk away from a responsibility we agreed to. So, my best advice is to keep chugging along, get that higher loan slowly and surely paid off, and know that this too will end. The housing market WILL turn around (absolutely everything in an economy goes through ebbs and flows. It might not get to as high as when you bought the house, but it will turn around. People will buy again. Things will look up.) and before you know it you will have that second mortgage paid off and the value of the home will be such that you can refinance or even sell. I know it stinks and all the what ifs and if we could change it ideas keep popping in your head, but we are right there with you. It is what it is and we will make the absolute best of it. In the end, it will work itself out. :) Hang in there! Quote Link to comment Share on other sites More sharing options...
Robin's Song Posted June 5, 2011 Share Posted June 5, 2011 You may still be able to refinance. Do you still have any savings at all (above your emergency savings)? If you are not too far underwater it could work. Could you rent it out for enough to cover the mortgage and a few expenses? If you could get renters to cover the mortgage/upkeep then you could rent something that fits your current budget better. Otherwise, the only thing to do is throw every extra dime at that second mortgage. By the way, those 80/20 mortgages were very common in 2000-2005. It doesn't hold a candle to some of the exotic mortgages I have seen... Quote Link to comment Share on other sites More sharing options...
Brenda in FL Posted June 5, 2011 Share Posted June 5, 2011 No principal payments have been made against the actual mortgage, right? In 9 years that balance will be due the bank unless you are able to refinance. When you refinance your payment will probably be huge compared to your payment now. You definitely need to talk to a very trustworthy advisor. I have not kept up with any govt. Programs that may help people like you that were taken advantage of, but you might want to check into that. Can you rent your home for significantly more than your mortgage pYmt? This may be an option above defaulting on your mortgage. You could also try a short sale and just be content with renting until your credit recovers. But I would not wait until 2020 to act. I'm sorry that you were talked into such an unwise set up. You may be stuck so to speak but I hope that you can find other things about your life to minimize the dark cloud that your mortgage causes. Quote Link to comment Share on other sites More sharing options...
Trish Posted June 5, 2011 Share Posted June 5, 2011 Please tell me you did not just advise that. :confused: I would meet with a mortgage professional and see what all your options are. You must have missed the part where they are not making a dent in the principal. :001_huh: Quote Link to comment Share on other sites More sharing options...
gingersmom Posted June 5, 2011 Share Posted June 5, 2011 You must have missed the part where they are not making a dent in the principal. :001_huh: I read that part. At the risk of offending everyone walking away from their house I will keep my thoughts to myself. :001_smile: Quote Link to comment Share on other sites More sharing options...
JessieC Posted June 5, 2011 Author Share Posted June 5, 2011 Thanks for your thoughts, everyone. We couldn't rent it out for what we pay for the mortgage, unfortunately--and even if we could, we'd be stuck with that darn balloon payment at the end. Just to clarify, I didn't mean we have paid NO principal--just very little compared to our payments. In six years, we have paid down maybe $12,000 of the $196,000 mortgage. It is still worth far less than what we owe since housing prices fell. I think I'll speak to a financial adviser and start looking for more work to pay down that 20%. Like I don't work enough. Sigh. Quote Link to comment Share on other sites More sharing options...
Mama2Many4 Posted June 5, 2011 Share Posted June 5, 2011 I can totally sympathize! We did this too in 2004 when we bought our first house. We had an 80/15/5 which means we had a normal mortgage for 80%, a second higher interest rate mortgage for 15% and we put down 5%. PMI is only charged on the first mortgage if it is higher than 80% of the value of the home at the time of the sale. The second loan is not considered a "mortgage" in legal terms--it is a home equity loan used to pay part of the mortgage. That is how the OP was able to avoid paying PMI. Anyway, in the end, we ended up putting every spare penny into the higher interest rate loan to try and pay that sucker off, and we did make a sizeable dent. We were able to sell the house before the market crashed to badly, but if it makes you feel any better, we bought a second house and are now very very stuck with a net loss of over 200k (thanks Vegas housing market!). To rub it in more, we had to move due to employment relocation, can't refinance to a lower rate because we don't have equity, and have to try and find renters. We were able to get renters for this past year, but we were just told that they won't be renewing. So, we chug along and are going to look for more renters. We won't stop making payments or let the house go into foreclosure because it is against our personal values to walk away from a responsibility we agreed to. So, my best advice is to keep chugging along, get that higher loan slowly and surely paid off, and know that this too will end. The housing market WILL turn around (absolutely everything in an economy goes through ebbs and flows. It might not get to as high as when you bought the house, but it will turn around. People will buy again. Things will look up.) and before you know it you will have that second mortgage paid off and the value of the home will be such that you can refinance or even sell. I know it stinks and all the what ifs and if we could change it ideas keep popping in your head, but we are right there with you. It is what it is and we will make the absolute best of it. In the end, it will work itself out. :) Hang in there! How much are you renting it out for? Quote Link to comment Share on other sites More sharing options...
sassenach Posted June 5, 2011 Share Posted June 5, 2011 We had a 80/20 mortgage way back when. A few thoughts in no particular order. * On your main mortgage, it is totally typical to not pay down much of your principle at the beginning of your mortgage. It's just the way amortization works. * On your second mortgage, what is the payment plan? I think the approach at the time was that by the time you got to that 15 year mark, you would refi and fold the balance into the main mortgage. Thereby avoiding PMI and the balloon payment. The penance for avoiding PMI is paying interest for 15 years. On one hand the interest adds up to a lot more than the PMI (probably?), on the other hand it's tax deductible. * Your main problem (like everyone else's) is that the value of your home has dropped, making refinancing harder. Positives: * You have time. The balloon payment is not coming for another 9 years. * Your money is going somewhere- the interest is tax deductible and the principle on your main mortgage WILL continue moving down at an ever increasing rate. * Your credit is good (at least as far as paying for your house is concerned), because you are paying. *Unlike others that put themselves in huge holes by going interest only on the whole she-bang, you are only interest only on 20%. This is a hill you can climb. Options: * Refinancing may be a better option than you think. You should really investigate this. * You can continue to do what you are doing, and address the 20% loan in a few more years when your principle has gone further down on your first loan. Bad Ideas: * IMO, walking away or short-selling would put you in a MUCH worse financial spot than you currently are. There are a LOT of implications- you will get sued for what the bank loses, you will have to pay income tax on the difference between the balance and the sale, you will lose your interest tax deductions, you will decimate your credit, and you will end up renting (The principle most certainly does not go down when you are a renter!). Just to give you my background, we had to sell in the downward spiral. We just got out of our house (lost a few thousand) and are now renting. We seriously considered the implications of foreclosure and short sale during that time period and discovered that unless you are willing to go all the way to bankruptcy, it's really not a great idea. Quote Link to comment Share on other sites More sharing options...
gardening momma Posted June 5, 2011 Share Posted June 5, 2011 (edited) I read that part. At the risk of offending everyone walking away from their house I will keep my thoughts to myself. :001_smile: I used to think that way too. But consider that they've paid $70,000 so far, and they'd be giving the house back to the lender. So it's not that they are walking away and the lender has nothing. The lender has the money paid so far, plus the house. I will amend my post to say that I didn't know anything about this: IMO, walking away or short-selling would put you in a MUCH worse financial spot than you currently are. There are a LOT of implications- you will get sued for what the bank loses, you will have to pay income tax on the difference between the balance and the sale, you will lose your interest tax deductions, you will decimate your credit, and you will end up renting. Edited June 5, 2011 by gardening momma Quote Link to comment Share on other sites More sharing options...
lilbean05 Posted June 5, 2011 Share Posted June 5, 2011 We had a 80/20 mortgage way back when. A few thoughts in no particular order. * On your main mortgage, it is totally typical to not pay down much of your principle at the beginning of your mortgage. It's just the way amortization works. * On your second mortgage, what is the payment plan? I think the approach at the time was that by the time you got to that 15 year mark, you would refi and fold the balance into the main mortgage. Thereby avoiding PMI and the balloon payment. The penance for avoiding PMI is paying interest for 15 years. On one hand the interest adds up to a lot more than the PMI (probably?), on the other hand it's tax deductible. * Your main problem (like everyone else's) is that the value of your home has dropped, making refinancing harder. Positives: * You have time. The balloon payment is not coming for another 9 years. * Your money is going somewhere- the interest is tax deductible and the principle on your main mortgage WILL continue moving down at an ever increasing rate. * Your credit is good (at least as far as paying for your house is concerned), because you are paying. *Unlike others that put themselves in huge holes by going interest only on the whole she-bang, you are only interest only on 20%. This is a hill you can climb. Options: * Refinancing may be a better option than you think. You should really investigate this. * You can continue to do what you are doing, and address the 20% loan in a few more years when your principle has gone further down on your first loan. Bad Ideas: * IMO, walking away or short-selling would put you in a MUCH worse financial spot than you currently are. There are a LOT of implications- you will get sued for what the bank loses, you will have to pay income tax on the difference between the balance and the sale, you will lose your interest tax deductions, you will decimate your credit, and you will end up renting (The principle most certainly does not go down when you are a renter!). Just to give you my background, we had to sell in the downward spiral. We just got out of our house (lost a few thousand) and are now renting. We seriously considered the implications of foreclosure and short sale during that time period and discovered that unless you are willing to go all the way to bankruptcy, it's really not a great idea. Agreed on all accounts! We only paid a smidge of our principle down on our Vegas house, but that is the way it goes until slowly but surly, more and more goes to the principal while less and less go towards interest. Gotta love amortization. As for how much the rent our house in Vegas runs, this past year we rented it for the amount if the interest of our mortgage, while we are still forking out some each month but it goes towards the principle part of the mortgage. So all we are really doing is buying time, with someone paying for the cost of borrowing the money and we stash every penny into paying down that principle. This past year we were able to send in our tax return, which turned out to be about 1% of our remaining balance. Haha! It is going to be a long time, but I know that we will make it work in the end somehow. Quote Link to comment Share on other sites More sharing options...
CalicoKat Posted June 5, 2011 Share Posted June 5, 2011 I could use some advice from all you budget-wise and debt-free experts. We are feeling really stuck right now. Six years ago, we bought a nice little house. It was our first house and we were advised to avoid PMI or something we should go with an 80/20 mortgage, the 20% being the higher interest rate of 8.5% with a balloon payment at the end of 15 years. Of course back then we believed that a house was a great investment, and when we questioned the interest we would be paying, we were assured that we would refinance in a few years and not to worry about the 20% mortgage too much. (When I think back to signing those papers, I picture the mortgage lenders wringing their hands and cackling.) Well, that was 2005. We were both working ft jobs then too. Now six years later and two children later, we are still plugging away at that mortgage, but to make the payments, it takes almost all of dh's salary. I work from home to pay for food and other bills.We have not made a dent in the principal, and our house value has gone down considerably. We feel trapped. We would happily sell it and rent but I doubt we could sell in this market for what we owe. Refinancing is not an option because we have no equity. The best thing to do would be to pay down that 20% higher-interest rate, so I would like to try to earn more money and put the extra toward the principal on that, but part of me feels like the mortgage is a bottomless pit and we will never save a thing if I keep throwing money down that pit. So can any financial experts give us some advice? What would you do in this situation? TIA. we're discussing corporate renting as an option if we're unable to get a buyer. Quote Link to comment Share on other sites More sharing options...
Heidi Posted June 5, 2011 Share Posted June 5, 2011 I used to think that way too. But consider that they've paid $70,000 so far, and they'd be giving the house back to the lender. So it's not that they are walking away and the lender has nothing. The lender has the money paid so far, plus the house. I have always been about paying your debt and definitly not walking away from what you owe, but just this week I have been reading a lot about real estate and how it all works. I wish I were an expert, but I'm not. However, there are somethings I have learned and a huge perspective change has taken place. I agree with the above statement now. $70,000 plus the house is quite a bit of $; I doubt the house has depreciated by $70,000 yet. Already the lender has come out on top if they were to take the house back now. (not saying this is the best road to take, but it's not as morally wrong as I originally thought). Also, if it did come to this, there are other ways of getting loans than through a bank, and usually with much better terms, and you don't have to have good credit. You'll have to do some research on it b/c I don't know how that works yet, but have heard of it. Good luck! :grouphug: Quote Link to comment Share on other sites More sharing options...
sassenach Posted June 5, 2011 Share Posted June 5, 2011 I have always been about paying your debt and definitly not walking away from what you owe, but just this week I have been reading a lot about real estate and how it all works. I wish I were an expert, but I'm not. However, there are somethings I have learned and a huge perspective change has taken place. I agree with the above statement now. $70,000 plus the house is quite a bit of $; I doubt the house has depreciated by $70,000 yet. Already the lender has come out on top if they were to take the house back now. (not saying this is the best road to take, but it's not as morally wrong as I originally thought). Also, if it did come to this, there are other ways of getting loans than through a bank, and usually with much better terms, and you don't have to have good credit. You'll have to do some research on it b/c I don't know how that works yet, but have heard of it. Good luck! :grouphug: Oh, gosh. I wish I could let this go, but I just can't. We (the US) got into this mess because we were offered something that looked like a no-lose situation. No/bad credit? No problem. No down payment? No problem. A house you cannot afford? No problem. Now, just to paraphrase above- if you wreck your credit and can't qualify through a bank? No problem. There is no such thing as a magic bank alternative that is going to loan you hundreds of thousands of dollars with bad credit. If you find something like that- RUN. Predators offer up what is too good to be true. The banks were the first predators, now we have secondary predators. There will be consequences if you walk away. Full stop. For some people, there is just no other option. I get that. But the thought that your 70K in interest is somehow enough, and now the bank should just eat the losses is false reasoning. <OP, the following rant is not for you. It's just a general rant. I don't want you to feel beat up.> When you are given an amortization schedule (when you sign your loan documents), it tells you just how much in interest you are going to be paying. It's A LOT. Paying interest is what you do when you take out a mortgage. It is the only reason the bank gave you the money to begin with. There is no such thing as a mortgage that doesn't end with you paying much more that you borrowed!! You can't reason out that just because the bank is making money on interest, that somehow absolves you from paying off the loan. If that is your belief, than you should NEVER take out a mortgage to begin with. Quote Link to comment Share on other sites More sharing options...
Paige Posted June 5, 2011 Share Posted June 5, 2011 My neighbor just had their bank rework their loan amount. Our city's property values have declined so much due to too much supply. The bank allowed them to pay a fee that enabled them to write off about 30-40,000 of their principal. The fee was hefty but they'll make it back with lower house payments within a year. Quote Link to comment Share on other sites More sharing options...
Anita in NC Posted June 5, 2011 Share Posted June 5, 2011 Can you make extra principle payments? After a while they just snowball, paying more and more towards the principle. This is what we did, paying off a 15 year mortgage in 10 years. Quote Link to comment Share on other sites More sharing options...
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