Posted on 08/21/2007 8:18:53 AM PDT by Hydroshock
Two years ago, my wife and I sat at a long conference table in a mortgage-title office in Bethesda. Sitting next to us: our real estate agent, who drew up our bid on a townhouse in Germantown two days after showing it to us. We didn't get an inspection, and I don't recall going back for a second look. We had to act fast or someone else would get it.
Our bid won the house -- our very own first home -- and now we had to close the deal. The owners sat across the table. They seemed more nervous than we did, perhaps fearing we would have second thoughts -- about our risky interest-only mortgage, about seeing them walk away with a $120,000 profit, about buying a house just as "bubble" was entering the regional lexicon.
They signed. We signed. Price tag: $459,275.
And then, as the saying sort of goes, the stuff hit the fan. The sizzling home market almost immediately began to cool off, which my wife and I sort of ignored. Interest rates started to creep up, and we sort of blew that off, too. We have time. This too shall pass. No worries. Life is good! We bought a flat-panel television, took a nice vacation, bought a dog, hired him a daily dog-walker, and then we got pregnant. We have time. This too shall pass.
(Excerpt) Read more at washingtonpost.com ...
Very true.
Although, to be fair... 460k IS a “small starter home” nowadays in MontCo. When their parents bought, they probably paid $55,000 or less...on incomes of $20kish.
Actually, the rate doesn’t adjust for three more years.
We sure are assuming different things! I am assuming that they bought a good deal of their frills with their credit cards. I don't see that as truly "affording." I see that as rewarding one's self without putting any work into it.
This man has basically admitted to making a number of questionable purchases (and I strongly suspect the list is far more lengthy than a tv, a dog, a servant and a vacation). A fixed interest rate is not a cure for the underlying problem, which seems to be a pretty simple case of greed.
It is called taking care of your family.
I wonder what kind of cars they are leasing? I’m picturing a BMW and an Expedition (for the baby).
Katie... who?
I think the thought was that the actual property would continue to gain worth and they could sell in a few years and pay off the note and make a profit. Dumb, yes.
No, because the total interest you pay on a 30 is massive. The difference in monthly payments isn’t that large, but you only make them for half as long. Plus you build equity a LOT faster with a 15, giving you a big cushion from which to take a home equity loan or cash-out refinance later if you need the money or have a better investment opportunity for it. The debt you’re paying down each month (i.e. the portion of your payment that you’re actually paying to yourself) even in the early years of a 15 is way more than the small reduction in monthly payments you’d be getting with a 15.
My mom and dad got their home on a30 year fixed but paid teh payment of a 15 year. That way they had some wiggle room in the budget.
I think the old saying “dumb as a post” should be revised to “dumb enough to write for the Post.” This guy is the prototypical hypocritical,whiny, look-at-me, someone-else-is-to-blame, naive, over-educated liberal. He said he deserves a good house but I think he’s getting what he truly deserves.
http://www.irs.gov/pub/irs-pdf/p544.pdf
on page 4:
Cancellation of debt.
If the abandoned propety secures a debt for
which you are personally liable and the debt
is cancelled, you will realize ordinary income
equal to the canceled debt.
...(snip)... Report income from cancellation of a nonbusiness
debt as other income on Form 1040, line 21.
Hat Tip to VOA for providing this info on another thread, which I cut and pasted here.
See post #111
Thats true with a 30 year fixed as well.
There is a saying in the car business. Do you know why banks have drive up windows? So the cars can see their owners.
My wife and I are an almost carbon copy of this. Built a new home (1,860 sq ft) in 1999 for something like $136K and built a new 3,100 sq ft home last year, put 17% down with the equity (employee benefit here is no PMI, ever, so 20% wasn't needed) and still had a boat load of cash left over to purchase a new fridge, all new furniture (which was sorely needed), 2 new beds, and new furniture for the 3 year olds room. Along with the audio gear for a home theater.
Not bad
I sir have never made a mistake. I have however engaged in activities to later be used as learning experiences.
I have always heard this and have always disagreed with it on a variety of levels.
Leaving out tax deduction issues because everyones is wildly different, one particular reason is that if you pay off a 30 year fixed in 15 years or less, you will have ended up paying a lower effective interest rate than if you started with a 15. You will also have paid out less in actual hard money.
And because the future is unknown, the 30s term provides you with a saftey net of lower payments if the need arises to have to scale back your advanced principle payments because of unforseen financial obligations, loss of some income, etc...
With a straight 15 from the beginning, you have none of these benefits at your disposal.
I strongly suspect they hired a professional dog walker who charged them top dollar.
That is true today. But no true for the previous decade. ARM resets saw payments going DOWN.
On its face that is a false statement. What do you save? .5% to maybe .75%. Or a whopping 1% if you are real lucky.
Can you find a vehicle that will guarantee yourself a better than 1% return? Well then take the payment difference and invest it and then you are well ahead of the other option.
But even aside from that, taking a 30 and paying off in 14 or 15 gives you a lower effective rate and less actual cash out of pocket over the period.
It may sound crass, but we deserved a nice home. We did what we had to do to get one.
Lessons on liberal perspective #2:
The world is a tricky place, and nobody teaches you this in school.
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