The Globe has a story out today about people facing higher home loan payments over the coming 18-months due to resetting adjustable-rate mortgage loans.

- click on image for full-sized photo

“I don’t know how I’m going to survive,” said Sana Masoud, a single mother facing a $600 a month increase in one of two mortgages she obtained to buy a two-family house in Brighton for $712,000 in 2004.

That mortgage will reset on Dec. 1 to 7 percent, from 6.125 percent, pushing up Masoud’s total monthly housing costs to $4,350. She rents the second unit for $2,400 and earns $63,000 a year as a computer programmer. But her income will not be enough to cover the mortgage and other expenses, such as property taxes, college tuition for her eldest daughter, and ongoing medical bills for her youngest daughter.

Well, there’s a little bit more to this story.

This owner had leveraged her investment property to the hilt, from the very beginning.

Let’s do the math. Ms Masoud purchased her three-family property (the Globe says “two-family” but the public record says three-family) in 2004 for $712,000. Her first mortgage loan was for $569,600 (information courtesy of the Suffolk Deeds Registry of Deeds).

I see that the owner took out a second loan at the same time; in 2004, she borrowed $100,000, and in 2006 she paid it back and took out another loan, taking out $103,200; it’s unclear what the monthly payments are on this loan.

Her original loan payments, based on the stated rate of 6.125% were approximately $3,462 per month. Her annual property taxes are around $7,200, or $600 per month (information courtesy of the City of Boston Assessor).

She probably pays another $600 a month toward the second loan.

Ms Masoud has been responsible for monthly mortgage loan payments of at least $4,350 or more each month (we’ll use Ms Blanton’s figures, here). She has been collecting $2,400 in rent.

So, Ms Masoud is paying $2,200 per month in housing costs - $3,400 is first loan, $600 is second loan, taxes of $600, minus $2,400 in rent.)

Her monthly gross income is $5,000, her net is probably around $3,800. Her housing costs are approximately 32% of her gross income, which is within the generally-accepted guidelines used by lenders.

Her monthly payments, starting in December when her loan resets to 7.0%, will be $3,790, a difference of $328. (Ms Blanton says the owner’s new “monthly housing costs” will be $4,350, but she doesn’t back up this number - is she included one or both loans, is she included taxes and hazard insurance, or what?)

Meaning her new housing costs of $4,350, minus the $2,400 in rent, will be $1,928, or 38% of her gross income, which will be high.

Worse, her monthly hiring costs are 57% of her take-home pay, even before her loan resets.

I understand her concerns. If I was facing that situation, I’d freak out.

Well, I would never have gotten into that situation, but whatever.

Her problem is exacerbated by the higher interest rate, but not caused by it, in my opinion. She already had a problem.

Ms Masoud, you need to sell your property. Now.

Source: Thousands brace for mortgage rate jump - By Kimberly Blanton, The Boston Globe (they’ve fixed the photo, now)

More posts about: mortgages finance and home economics
Sphere: Related Content