Comments on: Despite Warnings, Consumers Opt for Riskier Loans http://crosslandteam.com/blog/2006/10/24/despite-warnings-consumers-opt-for-riskier-loans/ Austin Real Estate Blog Sat, 31 Jul 2010 01:04:35 +0000 hourly 1 http://wordpress.org/?v=3.0 By: leo http://crosslandteam.com/blog/2006/10/24/despite-warnings-consumers-opt-for-riskier-loans/comment-page-1/#comment-371 leo Wed, 25 Oct 2006 18:49:49 +0000 http://ben.crosslandteam.com/blog/2006/10/24/despite-warnings-consumers-opt-for-riskier-loans/#comment-371 i wonder if the new bankrupcy laws will have an impact... since chapter 7 is so hard to do any more... maybe more mortgage companies will start getting deficiency judgements since ch 7 is unlikely... of course so many buyers are just plain stupid (not that there's anything wrong with that... and i'm not picking on cavemen either) they will always choose the lower payment.. regardless of consequence .... i wonder if the new bankrupcy laws will have an impact… since chapter 7 is so hard to do any more… maybe more mortgage companies will start getting deficiency judgements since ch 7 is unlikely…

of course so many buyers are just plain stupid (not that there’s anything wrong with that… and i’m not picking on cavemen either) they will always choose the lower payment.. regardless of consequence ….

]]> By: Steve Crossland http://crosslandteam.com/blog/2006/10/24/despite-warnings-consumers-opt-for-riskier-loans/comment-page-1/#comment-370 Steve Crossland Wed, 25 Oct 2006 15:09:48 +0000 http://ben.crosslandteam.com/blog/2006/10/24/despite-warnings-consumers-opt-for-riskier-loans/#comment-370 Hi Yam, Thanks for your comments. I think for the "risky" loans are fine for financially secure people who choose them for strategic reasons. People who choose them out of financial necessity are the ones who will have problems - buyers who just want a bigger/nicer home than their budget allows. You also achieve a slower equity build-up with interest only loans, so buyers making a small downpayment and then experiencing a flat or falling market could get into trouble if they don't have the cash reserves to bail out if needed. Steve Hi Yam,

Thanks for your comments.

I think for the “risky” loans are fine for financially secure people who choose them for strategic reasons. People who choose them out of financial necessity are the ones who will have problems – buyers who just want a bigger/nicer home than their budget allows. You also achieve a slower equity build-up with interest only loans, so buyers making a small downpayment and then experiencing a flat or falling market could get into trouble if they don’t have the cash reserves to bail out if needed.

Steve

]]> By: Yam http://crosslandteam.com/blog/2006/10/24/despite-warnings-consumers-opt-for-riskier-loans/comment-page-1/#comment-369 Yam Wed, 25 Oct 2006 14:44:14 +0000 http://ben.crosslandteam.com/blog/2006/10/24/despite-warnings-consumers-opt-for-riskier-loans/#comment-369 Interest-only loans can serve a very useful purpose. Since the after-tax cost of mortgage debt is cheaper than just about any other debt we're likely to incur, paying down the principal on the mortgage should logically be the lowest priority of any debt payments. For instance, my wife has some private student loans with an interest rate of more than twice our mortgage rate. Paying down principal on the mortgage is financially unwise until this student loan is fully repaid. Our other debts (car loan, etc) are also at various rates higher than our home mortgage, and also lack its tax advantages. Interest-only loans can serve a very useful purpose. Since the after-tax cost of mortgage debt is cheaper than just about any other debt we’re likely to incur, paying down the principal on the mortgage should logically be the lowest priority of any debt payments. For instance, my wife has some private student loans with an interest rate of more than twice our mortgage rate. Paying down principal on the mortgage is financially unwise until this student loan is fully repaid. Our other debts (car loan, etc) are also at various rates higher than our home mortgage, and also lack its tax advantages.

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