Quote:
Originally Posted by AMG_G
I know a lot of people who commit financial suicide. Case in point My sister just imprisoned herself in a 700k home with 20% down amortized over 30 years. Get this, she is 38 making 50ish, her husband 49, is a car salesmen 100% commission maybe making 80k on average, they have 3 young children (10, 8 and 1) with no RESP and no retirement savings plans and to top it off they have two BMW payments. To people who don't know it seems like a well to do family but underneath they have nothing but debt. If house prices drop 10% they will half their equity they put in. I have never seen such financial irresponsibility in my life. They will pay dearly for their house lust.
I asked him about retirement one time and he said that he will do a reverse mortgage on his house when he retires. I said what if your house is not worth what you predict it to be worth in 15 years? He had no answer. That 700k home will cost him nearly a million bucks once all said and done. Think of the returns if he invested that money.
How can banks lend someone over a half million dollars for 30 years when he is nearing 50 and making what he's making? Banks are just as guilty as the BIL.
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I disagree this is the most fiscally irresponsible thing you have ever seen. I bought my townhome in December 2008 for $520,000. My plan is to live in it for at least five years and likely more. The short term fluctuations in price don't affect my mindset at all because I plan on staying in my house. When I decide to sell if my property has gone up in value, likely all the other properties have as well. I will get more for my house, but will have to pay more as well.
For the family that bought the $700k house, just because it drops 10% in perceived value, doesn't mean they've lost money. They only lose if they sell. I say perceived value, because unless they actually put their house on the market and receive an offer, the value hasn't really changed. If their house doubled in perceived value tomorrow, they haven't earned anything yet, because they haven't sold.
Housing cycles go up and down, so if the family is paying off their mortgage as per the schedule, they'll have a balance of about $360k after 15 years. The odds that the house will be worth half the amount they paid for it in 15 years is unlikely. Once again, mortgages are good debt, especially if they are tied to your primary residence and you are holding it long term. It is part of a balanced retirement package, including savings, RSPs, monetary assets, insurance, etc. If they have credit card debt and are constantly dipping into their home equity, than yes that would not be responsible. By them putting down $140,000, they have obviously shown that they are able to save or make good housing decisions.