Almost 40% of homeowners who took out second mortgages””extracting cash from their residences to cover everything from vacations to medical bills””are underwater on their loans, more than twice the rate of owners who didn’t take out such loans.
The finding, in a report to be released Tuesday by real-estate data firm CoreLogic Inc., illustrates the consequences of easy borrowing amid the housing boom’s inflated prices. The report says 38% of borrowers who took cash out of their residences using home-equity loans are underwater, or owe more than their home is worth. By contrast, 18% of borrowers who don’t have these loans were underwater.
This concept of mortgages under water somewhat irritated me. No one complains when mortgages are over water so that the total price paid is less than the property is worth. Likewise, in no other consumer venue is something “underwater” when the price paid is less than assessed value, as in cars. The minute you drive a new car off the lot, but the time you pull up in your drive way, the car has depreciated if you were to immediately attempt to resell it. No one says a car loan in thus underwater. Home loans, like anything else, is a roll of the dice in terms of investment.
[i]Home loans, like anything else, is a roll of the dice in terms of investment[/i]
Homes were never meant for investing, they were meant for living. And, they were not meant for everyone. Much of the pain in the housing market could have been avoided by remembering one simple rule: [b]if it sounds too good to be true, it probably is![/b]
That rule should be tatooed on people’s foreheads (backwards) so they could read it in the mirror every morning while either shaving or putting on make-up (assuming classical gender-specific roles here).
Then when the free-market tries to sell you somethat that is “too good to be true”, you could refer to the rule on your forehead and “just say no”. Like abstinence, it works every time it is tried.
I’m inclined to be just a bit more optimistic, just because my immediate neighborhood, middle-class, small town, has 5 new homes in progress within 1/2 mile. However, I recognize that in many parts of the country the industry is essentially down for the count. The real message of this article, though, is that over-leveraging can have catastrophic consequences, and living well within one’s means is a habit which can pay dividends and interest rate on [url=http://ameriloansearch.com/paycheck-loans/paycheck-advance-loans.html][b]paycheck advance loans[/b][/url] when times get tough. Unfortunately, that is something which is not taught widely enough in schools, and mortgage brokers who are paid to make loans are unlikely to point out the inherent risks in withdrawing “free money” from a home that has appreciated in value. Even worse than mortgage brokers are realtors and builders, who cannot be trusted one iota, and who engage in fraud on a regular basis. The children of the 60’s generation were deprived of knowledge in a lot of areas that were routinely covered by parents in earlier generations. Handling money was one.