That's so 1960's. It's uncivil for folks today to live below their means.
Posted on 08/27/2005 11:08:50 PM PDT by Roberts
Homeowner Debt Increasingly Seen as Savvy Strategy # Mortgages used to be something people strove to pay off. Now they've become income tools -- but risky ones, some financial analysts say.
By David Streitfeld, Times Staff Writer
As they happily watch their houses swell in value, Americans are changing their attitudes toward mortgage debt. Increasingly, a home is no longer a nest egg whose equity should never be touched, but a seemingly magical ATM enabling the owner to live it up or just live.
Homeowners took $59 billion cash out of their houses in the second quarter, double the amount in the 2004 quarter and 16 times the average rate of the mid-1990s, according to data released this month by mortgage giant Freddie Mac.
People are cashing out so quickly that the term "homeowner" may soon be inaccurate. Fifty years ago, Americans owned, on average, three-quarters of their house and the lender owned the rest. These days, it's approaching an even split.
This spend-now-rather-than-save-for-later phenomenon has produced undeniable benefits. Experts attribute much of the nation's economic growth to cash-out refinancings, home equity loans and other methods of tapping rising home values. And additional real estate investments financed by home equity have contributed to the rising home prices that bring owners such pleasure.
But the spending spree has a price. With the savings rate at zero, consumers' eagerness to tap home equity is only worsening their retirement outlook, financial advisors say.
If mortgage rates rise sharply or home prices fall, many homeowners could be in financial turmoil. They may be unable to service their loans, or even could find that their homes are worth less than their mortgages.
(Excerpt) Read more at latimes.com ...
My house is paid for but I guess if I want to be in with the in crowd, I'd better get a mortgage.
If you thought being upside down on an auto loan was bad.
It amazes me the number of folks who view their home as a savings account. This is going to end very badly, IMO.
The root word of "bankruptcy" is "bank".
Yeah, and the dot.bombers thought they'd created "the new economy". Funny how everything old becomes new again. "2-paychecks-from-foreclosure" isn't nullified by "consumer confidence" and reckless credit card spending.
I knew a guy with probably 10's of millions of dollars of rental properties and his advice was do what you have to but in the end have at least one house that you live in that is paid for in full.
Intelligent use of leverage can be a good thing. The "intelligent" part of that equation seems to be lost on many people.
Debt is not all the same debt. If you can't pay for your credit card purchases, they can't take your home.
It is just capitol - any entreprenour moves money!
More disturbing is the interest only loans folks are taking. As the market cools and interest rates rise, living paycheck to paycheck is going to get tougher and tougher.
I like the advice of another poster - have one home you can fall back in if need be.
Better yet, live below your means.
Not directly, but if someone is in over his/her head with debt, their home will be at risk via a judgment recorded against their property. Furthermore, it is unbelievable that people can't see the wisdom of eliminating debt as an end unto itself.
True if it's certain an investment will go up. Foolish if it holds steady. Fatal if heads down.
(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)
Millions will be crushed.
Sheer idiocy.
That's so 1960's. It's uncivil for folks today to live below their means.
I would. Where else you gonna borrow tens or even hundreds of thousands of dollars at about 5.5%? That's real cheap money. Wait a few years until the economy takes its inevitable, cyclical dive, and invest the same money in high-yield bonds at, oh 8% or 10%. Heck, maybe those money-market accounts that paid 20% in 1980 will return.
Or, if you are a smart and savvy investor, you can take that 5.5% money and invest it in smart and savvy (if slightly riskier) ways NOW and earn more than 5.5% on it.
For example, lots of people have taken that cheap money and bought more real estate. The value appreciation of real estate over the past few years (in most areas) has equated to way, WAY more than the annual rate of 5.5% on the money that financed the purchase.
There's a whole lot of people out there who are getting very rich .
It would be a tough call, if you were out of work and had used up your savings - refinance your home and try to tide yourself over until you could pay the bills, or run up your credit cards.
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