I took out a Subprime Mortgage and lived to tell about it

I know that most of you wonder what kind of idiot takes out a subprime loan????

Well.... I was one of those idiots and I will tell you why.

In the spring of 2004 I laid myself off from Sun. It was a tough decision, as I had the most super awesome team in the world working for me and I was working for one of the greatest bosses in the world. However, Sun management was doing some things I felt were very dumb and that they were going to lead the company further down the path of irrelevance. In addition, one of my super awesome employee's came to me a few weeks earlier and said; "We are just rearranging the deck chairs on the Titanic around here. I want off before there are no more life boats." That got me thinking that she were probably right and I wanted off in a life boat as well!

I got a fairly generous severance package but I wanted to plan for the worst, just in case I did not find a job for a year or more. This is how the notorious subprime loan came into play.

Using my very rusty financial skills acquired in getting an MBA, I calculated that if I reduced my current mortgage payment using an interest only option with a nice teaser interest rate, I could make my severance from Sun and unemployment last about TWO YEARS. So I looked around for the best loan option before I would not be able to have a loan company call Sun to verify my employment. (There is this very interesting time period in a layoff where you are still technically employed but not actually working for the company.) I found a loan and signed the papers the day before I was no longer officially at Sun. I now had a SUBPRIME MORTGAGE!

Luckily, I found a job in less than six months at Cisco and I then spent the majority of my severance package on a new BMW. I had made a deal with my greatest boss at Sun that I would buy a new car if he laid me off, he found my collection of elderly BMW's to be annoying...

So what horrible things happened to me because of the subprime loan? Actually....nothing. After about two years the interest rate did increase back to the original rate of the loan I had bought the house at. This reduced the number of shoes I could purchase at Neiman's every month; but I could still make the monthly payments on the house. HOWEVER, current loans were at a better interest rate so I looked into refinancing.

Guess What??? I had not read the loan documents as carefully as I should have. I had to pay a $20,000.00 penalty if I wanted to refinance before the end of three years. This meant I had a lousy loan at a higher interest rate for the next year. The only other way out of the loan was to sell the house.

LESSON LEARNED: read all the sections before signing any loan; I don't know how I missed the pre-penalty clause!

I had already started to think that I wanted to leave Palo Alto and move to the downtown Mountain View area. Palo Alto property had started to lose it's appeal once I no longer had a kid attending public school there. Getting out of this subprime loan was great motivator for starting to look for another house.

Guess What? I found a great property in Mountain View and I sold my house in Palo Alto.

I did have to call my mortgage company and tell them to read the contract... I did not owe them a pre-penalty payment if I sold the house!

The saga of the house exchange is something I will share in another posting.... It is full of drama and lessons learned.