Thursday, April 7, 2005

"Sharp learning curve"

When Milady and I first bought our house, we were happy that we were getting an 8.375% loan. We both remembered double-digit interest rates, so we thought that was wonderful. We weren't sure how we could eat and pay for the house too, but no one else seemed that worried about that problem.

Then we had to put in a heat pump and paint the house, and interest rates dropped to the unheard-of 7% range. We paid most of our debts, and then consolidated the heat pump and the credit card into a new home loan. Our payment only went up a bit, and we were all happy.

We pushed the roof and siding until they couldn't go any further, so we decided to refinance one last time, and do both fixes and new windows all at the same time. We had a really good mortgage agent who convinced us how we really could save some money with two mortgages (yes, I know there is risk involved in a second mortgage, but I went into it with eyes wide open). We locked in at very good interest rates for less time than was remaining on the previous mortgage, and only spent around $100 per month more. Considering it was that or sell the house, I consider myself lucky.

I do count as one of my few strengths in life an understanding that adjustable rate mortgages are almost always bad, and are never desirable. This is a lesson that others are intent to learn the hard way, according to this AP story. To quote Anthony Hsieh, president of,

"The younger generation has only known the low interest rates â€" in the single digits â€" since the mid-1990s. ... There could be a sharp learning curve here."
This is like saying that the Titanic's captain had a sharp learning curve about dodging iceburgs....

Interest rates are the lowest they've been in 40 years, and people are getting adjustable rate mortgages? This is a level of i nsanity that is only beat by the debt bubbles of the 1920s. We would have sold our house and started renting if Lexington didn't have such an inverted housing market that it's cheaper to buy than rent even without considering the mortgage deduction. Our current house payment is low enough that we can't afford to rent, but we kept enough equity in the house that we can afford a 10-20% drop in the housing market without going underwater on our home loan. I'm just not sure if my neighbors are as lucky.

The doomsayer in me has an incredible urge to bury gold coins in the backyard.

No comments: