Thursday, August 24, 2006

House Loans

I've been amazed for the last few years at all the expensive houses they have been building near my home and wondering who can possibly afford them. Since I know I wouldn't be able to.

A popular topic in the business section lately has been how most new loans are ARM loans and interest-only loans have also been increasing. So I found a post "Is a Housing Crisis Approaching" on The Big Picture today pretty interesting as it laid out all kinds of the numbers related to loan originations, home equity, and negative amortization.

I think I'd be a little concerned if I was a bank.


Bill Roehl said...

That page is very difficult to read. I had to highlight it to even see the text. Bleh.

Anyway, I'm more amazed by people with three kids (all in daycare), two cars, a large house, and a 50" plasma.

I got my first car loan this year -- ever (the dealer was a bit shocked) and I can't even comprehend how people who probably pay twice my mortgage ($780/mo which is up from $725/mo due to taxes) have all that and don't work three jobs each.

Obviously I'm in the wrong profession.

Shawn said...

Ya... it was difficult to read. But my problem is, I'm too economy stupid to understand what it was saying.

Does it mean that ultimately I am doomed to watch my house value drop 25% over the next few years?

I've lived my life with ZERO debt. I hate debt. Buying a house was such a hard thing for me, because it is not a debt I can "pay off". We make extra principal payments all the time, but it just seems pointless. I try to convince myself "the principal payments are building EQUITY"... and that they are an INVESTMENT.

Is that not true? Will all my money be just worthless if the value of my house goes away? My house is the only debt I have, and some days it still feels like more then I want. :-)

Steve Eck said...

Bill, that is exactly the question I have too.

Shawn, You've been in your house for a few years, so you probably have some appreciation that would cushion the impact of a price drop.

If you are really concerned about getting the house paid off sooner you should consider a 15 or 20 year mortgage, they make a huge difference in how much equity you build up. Especially in the early years of the loan.