OK, I don’t have all the details. My mother and her husband have moved to a retirement home and I’m trying to help figure out finances. Well, it turns out the condo they bought about 30 years ago was refinanced 10 years ago and 5 years ago. The original was a 30 year mortgage. It doesn’t appear like they took out any money during the refinancings. And it looks like after 30 years of payments, then still owe $80+k on a $100k mortgage.
Their memory is not reliable in this case, and neither seem to understand finance at all. And it really does not appear that money was taken out nor a fraud perpetrated. (My bro is scanning in some of the paperwork and I’ll take a look when I get it)
Is this a plausible scenario? My guess is they refinanced to get a lower rate, closing costs/fees got rolled back into the principle, and did this twice. Timing sucks, maybe they got a better than market rate that reduced monthly payments but increased the principle. Net net, they end up after 30 years having retired about 15% of the principle without having taken money out???
Even after refinancing costs, this seems extraordinary. Is it possible that their mortgages were ‘interest only’/or adjustable where they had bad luck? Still, that amount of bad luck seems unlikely.
Any chance they consolidated the loan, maybe adding a new car purchase or a credit card balance to the original amount?
Something doesn’t add up. If they refinanced the entire $100k loan 5 years ago, the only way they’d have paid off $20k in principal in 5 years in on a 15 year loan. On a 30 year loan it would be closer to 6 or 7k.
But just out of curiosity, how are you arriving at the conclusion that nothing was added to the previous mortgages? Maybe they were HELOCs or something like that? Do you have the actual loan docs?
On a regular 30-year mortgage, the principal left after 20 years (at the time of the first refinance you are mentioning) should have been 50K. So the refinanced mortgage, if they didn’t take anything out, should have been for that 50K. Unless the terms for the refinanced mortgage(s) are completely outrageous I really don’t see how that 50K could turn into 80K+.
Actually, if this page is correct, fixed mortgage rates were around 13-14% (!) back in 1983, in which case a $100k mortage would still have around $75k in principal after 20 years.
OK, so running some numbers. I’m assuming the OP’s mother has imperfect credit, so I’m adding 1% to the average rates at the times she presumably took out the mortgages. I’m also assuming fixed rate mortgages, and she only made the minimum payment at all times, and refinanced exactly the remaining principal at each refi.
1983 - Average rate 13.5%, use 14.5%
20 years of payments, principal remaining = $77k
2003 - Average rate 6%, use 7%
5 years of payments, principal remaining = $72k
2008 - Average rate 6.5%, use 7.5%
5 years of payments, principal remaining = $68k
So $80k is higher than I’d expect, but not completely impossible, especially if she did something like rolling closing costs into the mortgages each time. If you add $3k to the principal at each refi, you wind up with a current principal balance of $74k.
So in other words, the real culprit may be that 30 year mortgage they took out in 1983 and held onto for 20 years. Check out this graph - mortgage rates peaked around 15% in 1982, and were still damn high for the next few years. And condo rates are usually higher than single home, aren’t they?
Hey, I just had a mortgage company offer to take advantage of me! They offered to save me over $1,100 per month by swapping my 15 year fixed mortgage at 3.5% APR with 12 years remaining for a fixed 4.25% APR 30 year mortgage. It would have cost an extra $122,000 over the life of the loan. Plus the fact that at my age buying a 30 year mortgage is like buying a coffin. I’d be in it forever.
They’re so generous aren’t they? It sort of makes you understand where the pimps of the world come from. ‘Hey baby, I’m going to get you hooked on junk, beat you bloody and make you suck dick for a living - doesn’t that sound wonderful?’