As some of you know from some other threads, I went through a long period of unemployment and got behind on my mortgage payments. Now my lender has made me an offer to modify the terms of my mortgage so I can keep my home. The terms are a fixed 4.65% mortgage rate for a 40 year term. I’ve never even heard of a 40 year term before, and they know my age (55), and you’d think they could figure out that I’m really unlikely to live long enough to pay off the mortgage.
This is a “take it or leave it” offer. Two of my friends have said this is perfect for me – unmarried, no kids or dependents to worry about providing for – by dying in debt I’ll be achieving part of the American Dream.
But I’m just wondering if there is some catch none of us are seeing
Sounds like quite a win for them…you pay them to live in the house for 10 or more years (don’t know how your health is), then you snuff it and they get the house to sell to somebody else.
What is your home actually worth? What will the mortgage amount be? How much would it cost to rent something that suitably replaces your home?
Personally I would not worry about dying in debt as long as I was shelling out too much more monthly over what I could expect to rent for. Also, just because you have a 40-year mortgage doesn’t mean you have to stay in the home until 40 years or exit.
Check to see if the bank wants you to get mortgage insurance. You die, the mortgage gets paid off in full. If so, how much are they charging you for it?
The monthly payment will be about $750, which is significantly less than the mortgage payments I had been making before I got behind. The old mortgage was 30 years, and I had paid it for 8 of those years until getting behind. So even with that one it was probably 50/50 that I would live long enough to pay it off, but now it’s like 99-1 against.
I’d have to review the numbers, but IIRC I bought the place, a small 2 bedroom condo, for about $135K, and I put $25K cash down. I still owe just over $99K according to the bank.
I think the expectation that any mortgage over 15 years will be paid off in term is very low. It’s all about the lender getting a reasonable long-term return on their investment.
Will you have the financial means to continue to pay $750 or more a month at 90? To me a big part of the reason you buy a house is to have a paid off place to live (or something to sell for cash so you can pay rent on a place to live) in your old age.
I have no idea whether I will have the money at age 90 to keep paying. On the other hand, since its a fixed rate mortgage, inflation will have eaten into its value.
Also, I expect at some point after I’ve rebuilt my credit, I will be able to refinance if I can find more advantageous terms.
I’m not seeing a down side, assuming you are fond of the house and want to keep living there. Hell, if your cash flow improves you could pay the mortgage off early. The rate doesn’t look too bad, given your situation.
A $100K, 40 year, 4.65% mortgage is $459/month. I assume the $650 posted is with taxes and Interest (escrow)?
If so, $650 plus condo fees is not a bad payment for a two-bedroom place. I doubt you could rent for much better and you are locking in most of your housing expenses now. Yes, refi down the road if terms improve and your credit allows (three years?).
I can’t make any sense of this statement. For one thing, 4.65% fixed is well below long-term averages for mortgages; you can’t look at the bizarre variations of the last ten years as any guide. No, I guess you didn’t lock in a 2.99% fixed… but by most standards, you got a hell of a good deal, especially with shredded credit.
The idea that ARMs in any form will pace inflation or save money is pretty much nonsense - one of those shucks that looks great on paper and almost never works out in the buyer’s favor. They are a toy/tool for short-term owners betting on getting out before the first increase.
I wouldn’t concern yourself with the long-term. You have a fixed-rate mortgage at a pretty good rate, and thus a fixed basic housing cost, for pretty much the rest of your life. I don’t think any move or any effort can better this situation in the short to mid term. Set the whole matter aside for ten years and work on other things.
(IMHO, you are trying to think this out in terms of the nonsense of the early Oughts, which was aberrational in every way.)
Yes, the monthly payment includes escrow for property taxes, which were just over $3100 last year. It also includes “insurance”, the nature of which is unspecified. I suppose that ultimately will be mortgage insurance to protect them. I have maintained homeowners insurance on my own to cover liability and property loss, and it’s not clear whether this will become redundant or not.
I know a man who, in 2005, bought a piece of property with a million dollar balloon payment due in 2011 knowing that his wife would have to find a way to pay for it (and, yes, she was a co-signator (signature?) on the note and fully aware of the consequences.) At the time of purchase, he was beginning to suffer from the disease that would eventually take his life in 2007.
Put simply, that’s one of the last details I’d worry about in this, and an example of what I meant by Oughts-think. It’s your house. It’s not an investment.
But there’s a long time to find alternative solutions, on the other hand - refi was the first thing that popped to mind, or sell when the market improves and buy a cheaper place.
My bad…didn’t mean to imply it was a major downside that one could not overcome. Just meant that if anything sucked about the situation, it is that things will be different when you retire. You’ll either have to find a way to keep paying the mortgage or find a way to get a cheaper mortgage/pay rent.
Usually the goal is to have NO mortgage or rent after you retire.
Generally speaking, because states and situations differ, but when you die your house becomes part of your estate. Your heirs will sell the house, pay off the bank and pocket the equity or one or more of them may choose to buy the house from the estate. The bank doesn’t get the house unless the estate fails to pay the monthly payments. Even then, the foreclosure process would apply.