How could that happen? In 2003 I actually put out a true 5 year arm at 3.875%, which in that case was the interest rate and the payment rate. The one you took is the payment rate and the interest rate, you figured out later, was much higher (6.75% to 8%). What I don't understand is why you didn't multiply 3% times the loan amount $450,000 which would give you a monthly payment of $1125 (after you divided the answer by 12 months) and realize something was up when your payment was $600 or $700 a month. I do realize that some
people understood and figured the growth in real estate in their area would take care of the fact that the balance was going up. Good point, and I really am not talking to you!
Now for the new scam. Take a home equity line of credit and put all of your money each month into the Heloc, pay your bills and put the balance into your current loan and you will pay it off, in say 12 years, 14 years 17year and 3 months. You are told you need a good cash flow to make this work. I think they forgot to tell you that you also have to be able to make an elephant disappear on national TV., but again I digress. I got an email from a borrower who traded in their 4.875%, 3/1 arm (actual interest rate) on 80% of the value of their house and an equity line in the high 8% range for 20% of the value of their house.
They took a Heloc for 8.31% on $357,000 and I calculate they are losing 2.06% each month
based on a true 7 year arm at 6.25% on that amount which is $612.85 a month. They were told if they did it right they would pay off their house in 12 years! They can't get passed
interest only.
One question: How do you make money by taking a loan in the 8% range to help you pay off a loan in the 6% range, or even lower? I lied, I have a second question. If you have a really good cash flow why wouldn't you just pay additional on the mortgage and skip the
exercise with the Heloc?
Now to add insult to injury someone is selling the soft ware to help you time your Heloc
withdrawals to get maximum benefit. I believe the cost of the soft ware is $3000 or so.
Which gets me back to the beginning. Do you know anyone in the mortgage industry, banking industry or just wealthy and did you ever ask them about this? If they weren't
in on this wouldn't that have given you some second thoughts?
The option arm has been around for years, the Heloc gimmick is relatively new. There are many more schemes out there and I can assure you that there always will be enough of these around to wet your appetite, make you hopeful you will soon be wealthy and sink you faster than a leaky row boat. Take my advice, play the lottery. You will have a better chance.
Writers note: I have made light of these happenings but not because I think they are funny.
In reality I am disgusted at my industry, the heartless b***tards who take advantage of people and the messes I see on a daily basis that I am asked to help clean up. Unfortunately it isn't always that easy or even possible. But we will try and help as best as we can.