Mortgage question

[AZRedhawk44]

Let's say I have a 30 year fixed mortgage at 5.25%.

Is there ANY way for a bank to force my interest rate to increase, if inflation surpasses the mortgage interest rate?  If the bank goes under, then there's this leaking "toxic asset" that is my mortgage.

Can the company that comes in and purchases my mortgage (the bail-out agency) obtain the ability to re-write my mortgage contract without my consent?

Or, is my original loan of (for example) $150,000 at 30 years at 5.25% only worth $25,000 as a bailed asset since the interest rate of return over 30 years (about $300,000 total over 30 years) doesn't keep parity with inflated value of the current loan?

I see some significant inflation coming down the pike if Obama's budget gets passed, and it seems like suicide for any renter to continue renting in the face of that.  Rent is re-negotiated every year in most rental contracts, while mortgages are set in stone so far as I can tell.

[Angel Eyes]

Not my line of work, but my understanding is that if the documents specify a fixed rate at X percent APR, then it remains at that rate unless both parties agree to modify the loan.  So, assuming you don't refinance, you'll have that 5.25% rate until the loan is paid off.

[41magsnub]

I'm not Brad, but unless you have a variable rate then no.  You have a Mortgage at a certain rate, if fixed, and that is it.  It can only change if you refinance.

[AZRedhawk44]

Being a component of contractual law rather than civil law, the government has no authority to compel me to refinance at a new principal value or increased interest rate?

What if the currency under which the loan was created (dollars) is retired by the backing agency (FedGov) in favor of a new currency (blue dollars, ameros, whatever)...

Am I compelled to accept the terms of the re-written loan as interpreted by the bank, or do I have significant (50%) say in the terms of the loan?  Or is control over the terms a function of control of principal of the original amount in the old currency?  If the house is $150k total and I've paid off $100k of it, do I have 66% control over the terms of the loan, or does the bank still dictate and have me by the short-hairs?

[Nick1911]

What if the currency under which the loan was created (dollars) is retired by the backing agency (FedGov) in favor of a new currency (blue dollars, ameros, whatever)...

I don't think there's any thing in the law that states you have to renegotiate.  But, especially under radical changes you've proposed, who knows?  Laws can, and do, change all the time.

[Balog]

If the dollar collapses so bad they stop using it, your mortgage terms will be the least of your worries.

[makattak]

So long as the rule of law persists in the country, they cannot raise your interest rate.

It is a legal contract. No provisions for inflation (at least under any mortgage contracts I am aware of) are included.

So, if your contract gets broken, it will be by the government saying banks can raise your interest rate.

At that point, your mortgage is the least of your concerns.

[HankB]

If the dollar collapses so bad they stop using it, your mortgage terms will be the least of your worries.

I agree - this would mean a collapse of the government and a breakdown of law and order; contracts would be the least of your worries indeed.

But if you want a little perspective, just think back a few decades to the Jimmy Carter years . . . bank CD's and short term Treasure Bills were paying yields of as much as 15% or 16% . . . fixed rate mortgages were a few points higher. The banks tried to have the folks with "old" 30-year loans pay off early, but most of the people who had money at less than 5% realized that earning 3x that rate at the same bank in a CD or savings account was a better deal than using the money to pay off their low-rate mortgage.

Some banks tried to browbeat (i.e., bluff) people into "doing the right thing" and paying off their loan early or (idiotically) renegotiating better terms for the bank, but most held tough, realizing that they, NOT THE BANKS, had the power.

For that brief moment of history, for a couple of years, the pendulum swung in favor of the little guy.

As long as you kept meeting the terms of your original fixed-rate loan, banks could not FORCE you into different terms.

[Gowen]

In 2003 we refied at 4.5% from 8.5%(in 91, 8.5 was a good rate.)  The mortgage has been sold 4 times ending up with BofA.  There is little money being made by the bank at this time.  We were with Countryfried prior to BofA, there was never problem with the bank wanting to change our interest rate, not that they have not offered to give us money at a higher rate.

[Brad Johnson]

Short answer, no.  If it started fixed it will stay fixed.  Sold to another lender?  No prob.  They buy the note, they also buy the original terms along with it.

HOWEVER....

The "fixed" part is principal and interest.  Taxes and insurance can, and most definitely will, change.  Count on it.

Brad

[Hutch]

A really ripe topic for discussion...

I nugget I got from the '70's was, it's best to be mortgaged up to the hilt on your house (which, back then meant ~ 90%, little did we know...), or free and clear.  Consider the scenario:

Two borrowers are in default on their mortgages on their (previously 200k) houses.  Borrower 1 has industriously paid his mortgage down to $50k, and Borrower 2 has still got $150k on his mortgage.  A financial period ensues in which real-estate prices tumble, both are out of work, and both borrowers are out of work, with little prospect of repaying.  Which borrower loses his house first?

The industrious one who has generated the most equity.  The cost to foreclose, evict and dispossess is the same in either case, but the thrifty borrower has made his house much more attractive to the bank.  The bank can make money on that action.  If they go to the expense of foreclosing on the guy who still owes 180k, then they have to take a hit on the difference between what he owes and what the bank can dump the house for.

Now being of the Dave Ramsey school, I'd still rather pay off ASAFP, betting that the financial apocolypse will arrave AFTER the mortgage is retired.

All that being said, if we're going to absolutely debase the currency to the point that debtors win and lenders get screwed, guess who the biggest debtor is?  (Hint:  It's the same one who has the greatest influence on the value of the currency.)

In the spirit of full disclosure, I have (obviously incorrectly) thought this time was at hand on severl occasions.  One day, tho', the wolf WILL come, and nobody will believe the little boy.

[Northwoods]

Two borrowers are in default on their mortgages on their (previously 200k) houses.  Borrower 1 has industriously paid his mortgage down to $50k, and Borrower 2 has still got $150k on his mortgage.  A financial period ensues in which real-estate prices tumble, both are out of work, and both borrowers are out of work, with little prospect of repaying.  Which borrower loses his house first?

The industrious one who has generated the most equity.  The cost to foreclose, evict and dispossess is the same in either case, but the thrifty borrower has made his house much more attractive to the bank.  The bank can make money on that action.  If they go to the expense of foreclosing on the guy who still owes 180k, then they have to take a hit on the difference between what he owes and what the bank can dump the house for.

Not totally correct.  In the case of the homeowner with tons of equity, if he's dumb enough to let it go to foreclosure rather than fire sale pricing his home, the bank can only keep enough from the foreclosure sale to pay off the loan balance plus a "reasonable" fee for their trouble.  If, say, they sell the house for $100k, and the guy only owed $50k, the remaining $50k, less a reasonable fee, somewhere around the neighborhood of 10-20% of the sale price, would have to returned to the (former) homeowner.  The bank cannot profit from that equity as it is not their equity.  Many banks, from what I've heard, have gotten their pee-pee's smaked hard for charging excessive fees for the foreclosure as a way to either capture that equity or to try and gouge the homeowner later during collections activities over the deficits.  So in that case the former owner would likely be entitled to get $30-40k back from the bank.

If that homeowner had a lick of sense they'd sell that house before foreclosure.  Saves them the harm in their credit worthiness for the future, and if the "market value" of the home is $150k, they can price it at $125k and sell it fast, and get all of those proceedes into their pocket (less realor commissions and whatnot) rather than hoping the bank meets it's legal obligation to pay them whatever extra is left after they sell it.  In this case, rather than (maybe) $30-40k being returned post-foreclosure they can put $60-70k in their pocket right away.

You are correct in the sense that the bank will do better financially though by taking the house that's still above water.  The upside-down house will likely not sell for even enough to cover the balance on the mortgage, and as often as not, the homeowner will pop a BK and the bank gets nothing else.  Even if they don't go for a BK, they still will often negotiate a settlement that still leaves the bank short.