On 3/06/2015 10:58 PM, Ed Pawlowski wrote:
> On 6/3/2015 8:35 AM, William wrote:
>
>> You read a story like the following link will take you to, and you say
>> to yourself, how can people go through life and be so incredibly
>> stupid by the time they reach retirement age? Some of them act like
>> they are playing the lottery with their homes.
>>
>>
>> http://bigstory.ap.org/article/39c19...d-housing-debt
>>
>>
>>
>> Obviously, the Bankers act like pigs at the trough writing mortgages
>> to people who clearly are not qualified for the loans. If we put a few
>> thousand mortgage bankers in the Federal Penetentiary for 50 years
>> without possibility of parole, some of this idiotic monetary policy
>> will cease.
>>
>>
>> William
>>
>>
>
> Some is the fault of greedy bankers. Some is the fault of mortgage
> brokers that lied about the applicants income. Most of the fault is the
> homeowners that looked at their house as an ATM and kept taking cash
> out. It was so easy to get a home equity loan or line of credit.
>
> I'm not a financial wizard, but I did know that the house should be paid
> for before retirement age and to be essentially debt free. It is dumb to
> take equity money for a 2 week vacation and pay it back with interest
> over the nest 10 or 20 years, but people did thing like that.

People are still doing that! A couple we know borrowed $100,000 some 20
years back. They *still* owe $200,000 on the house now! As you
suggested, they used it as an ATM. The husband is now about 70 and still
has to work. His wife, who is about 55, is also working and it looks
like they will never be able to pay it off.

Two things here.. People need to learn how to set priorities. Then they
need to learn how to stick to their goals. When I borrowed money for a
housing loan in 1986, my critical priority was to get the housing loan
paid off. That was achieved in 13 years. By the way, we bought the bare
minimum that suited our needs - a small timber cottage. No McMansion for
us. Along the way we also invested in another house in a nearby street.
That one, whilst not a startling performer in the investment stakes,
took care of itself and, given recent rampant increases in house prices,
looks like it might turn out to be a capital gains win.

Bought an investment unit in 2000 which we sold in 2003 for a modest
gain. We have also sold our primary residence twice now, each time
getting a newer and larger house.

Sounds easy, doesn't it? Well, just after we bought our first home,
interest rates climbed through the roof during the 90s and, in order to
maintain our roof over our head, I took on part time jobs. When other
people were losing their homes, we managed to keep ours. Had I been
forced to sell, We would not be homeowners today.

One more thing people of today would be wise to do. That is, *buy what
you need*! Instead, too many people, the young especially, buy what they
want and, as always, what they want is way above their needs and their
affordability range.

We could have bought as our first home a nice new 4 bedroom brick home
in a new suburb as so many of our friends did. Instead we bought a run
down 2 bedroom timber cottage in need of renovation in a leafy
established urban area. We couldn't even afford to do any renovations
for 16 years until we had paid the mortgage off and divested ourselves
of the investment unit. We spent a mere $20,000 on renovating our home
over a two year span and sold it for 4.5 times more than we paid for it.
One of our friends who bought a nice new 4 bedroom home in a new suburb
didn't even make three times their original buy price when they sold
after a similar span of time and they spent a hell of a lot more on
extensions to their house - double garage, extra bedroom, etc.

Buy what you need and can afford, set priorities and stick to goals.
Simple? Obviously not given the number of people under mortgage stress
these days!

--

Xeno.