I've been wanting to use this picture for a while.
I've been thinking of the exuberance with which people have been taking out their rapidly increasing (but illusionary) home equity (particlarly in the US) to buy frivolities like Hummers, plasma TV's, hideous granite counter tops and Cancun holidays, etc. How could they? It blows my mind. Like any debt, the bank can call it at any time - though they tend not to as long as you make your payments. But what if they did?
What if you are sitting in front of your plasma TV, on your new Italian leather couch, looking out the window at your shiny Hummer, and you get a call from Human Resources telling you that you will be laid off in 2 weeks? Then a piece comes on the news saying the party is over, and housing prices are crashing. That $200K HELOC is going to look pretty scary - especially since your Hummer depreciated 30% as soon as you drove it off the lot.
Someone wrote a while ago (I think at VHB) about how in their parents' day it was shameful to take out a second mortgage on one's home. Are not HELOC's less secure than 2nd mortgages? Or is it just another way of expressing it?
Will all of those upside down on their mortgages look to the gov't to bail them out? Or will they just have to "suck it up"? After all, no one put a gun to their heads...
I won't shed any tears for them,or gloat, but I will put in a low-ball offer on their house.
9 comments:
Guilty, I fell for that trap. I bought a new car with it and quickly started regretting it. All I could think of was how I was paying interest on money that was mine. All this on a depreciating asset that I really coudn't afford on a standard loan.
If it was for an emergency then I could justify it.
I sleep much better at night not worrying about the increasing interest rate on my variable HELOC.
The HELOC in my case was a second mortgage.
Oh yeah, I forgot to say I Sold the new car and bought a used one. Yes, I did take a hit. But was able to pay off the Loan which made it worth while.
Lesson learned.
Keeping oneself from abusing credit (or emptying savings) is a daily struggle for all of us in these times
Not for this guy. Haven't carried a credit card balance for over 20 years.
Can't people understand that borrowing money for consumption makes you worse off? You can actually buy more things if you pay cash. It's about something called interest.
"It sort of reminds me of watching dogs eat."
Yep. Squirrels they ain't. Dogs I mean.
"The HELOC in my case was a second mortgage"
A HELOC is by definition related to the equity in the house and thus is a 2nd mortgage as it imposes a lien against the property. Mortgage def: a conveyance of an interest in property as security for the repayment of money borrowed.
A HELOC is a mortgage with a catchy name and some interesting payment options that makes it sound and look like something different than a 'mortgage.'
Most people do not understand these basic facts despite being told about them by their financial institution. They are in too much of a hurry to have access to the money. The level of ignorance with which most people treat their finances is astonshing.
Whatever happened to the common phrase "I'm saving up for that..."?
Does anybody save for anything these days?
Does anyone save up for anything these days?
http://tinyurl.com/ycma9u
Thanks for your comments all, and thanks for the link mohican. Steve Martin is a funny guy, too bad SNL isn't around with the old crew - Gilda Radner, Belushi, etc.
Post a Comment