House of Cards
The state of the home mortgage industry is one of the hottest news stories these days. And frankly, it's scaring me.
I'm worried that many folks are headed for financial trouble because they've taken on mortgages that are too large; and I'm scared that others have finally realized it wasn't a good idea to pull out all their home equity.
According to Synergistics Research, 24 percent of homeowners took out a line of home equity credit to buy a car or truck. And 8 percent purchased a vehicle with a second mortgage. In Sunday's column, "Loan Loser: Home-Financing A Car," I challenged people to stop and do the math before using the borrowed money from their home to purchase a depreciating asset. Too many people just assume that a home equity loan is cheaper than a traditional car loan.
Take a look at the loan differences for financing $30,000:
* A five-year car loan with an interest rate of 7.76 percent yields a monthly payment of $604.85. You will pay $6,291.11 in interest.
* A 10-year home equity loan at 7.88 percent gets you a monthly payment of $362.08. Without making any extra payments, you end up paying more than $13,000 in interest.
Play with the calculator I helped create at www.bankrate.com/compare to see if financing your car with your home equity makes financial sense.
More On Housing
If there is more fallout from the increasing rate of mortgage foreclosures, should the government step in to bail out lenders?
Washington Post columnist Steven Pearlstein doesn't think so. In his March 16 column, "Help for Homeowners, Not a Bailout for Mortgage Pushers," he writes: "It was predictable that once the outlines of the coming mortgage crisis came into view, housing activists would propose some sort of federal bailout...This is surely the wrong way to go. The message Washington should be sending is that there will be no government bailout of the mortgage bankers, brokers, syndicators and Wall Street investment houses -- the folks who got us into this mess in the first place."
I say "Amen" to that.
But is there hope for the people the lenders put in houses they can't afford? Some subprime lenders have shut down or cut back on these mortgages, leaving people with bad credit without options. Columnist Kenneth R. Harney thinks so. Read more in "FHA Comes to the Rescue Of the Credit-Challenged" (Mar. 17).
Financial Futures columnist Martha M. Hamilton also writes about mortgages this week when she reminds people about the pros and cons of a reverse home mortgage in "A Timely Turnaround With a Reverse Mortgage"(Mar. 18).
And if you have questions about tax preparation software, take a look at personal technology columnist Rob Pegoraro's report, "Bedeviling Prep Programs And the Tax Code From Hell" (Mar. 15), and his follow-ups with reader comments in his blog:
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