Monday, June 04, 2007

Susan Wachter has a mortgage payment index

It is at It tries to show borrowers how much trouble they can get into if they use Adjustable Rate or Payment-Option mortgages. Simple but useful.


Morris Davis said...

Hi Richard,

I'm not sure what to make of the assumption that the HELOC jumps to 14 percent after 5 years. No one in their right mind would keep that mortgage - they would just refi to a different HELOC at the original 10 percent rate. (They would have no problem doing this given the assumption of 2.1% annual appreciation.)

I'll defer to yours and Susan's expertise on this, but I thought that for payment shocks to really matter, one of two things need to happen: (1) the house has to lose value, so refinancing is not an option, or, (2) short-term interest rates have to jump, such that even if a homeowner refis, the payment jumps.

Unfortunately, and not-so-coincidentally, (1) and (2) have occurred this past year, so we are going to see some foreclosures. It's possible to argue that we should have advised folks as early as 2004 to purchase homes with fixed-rate mortgages because of insurance against both (1) and (2). But this advice is now 3 years too late.

Sorry to keep spamming the blog. Keep up the nice work!

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