LAT: Equity Is Altering Spending Habits and View of Debt

[question everything]

Equity Is Altering Spending Habits and View of Debt

Mortgages used to be something people strove to pay off. Now they've become income tools, but risky ones, some financial analysts say.
By David Streitfeld
Times Staff Writer

August 28, 2005

As they happily watch their houses swell in value, Americans are changing their attitudes toward mortgage debt. Increasingly, a home is no longer a nest egg whose equity should never be touched, but a seemingly magical ATM enabling the owner to live it up or just live.

(snip)

This spend-now-rather-than-save-for-later phenomenon has produced undeniable benefits. Experts attribute much of the nation's economic growth to cash-out refinancings, home equity loans and other methods of tapping rising home values. And additional real estate investments financed by home equity have contributed to the rising home prices that bring owners such pleasure. But the spending spree has a price. With the savings rate at zero, consumers' eagerness to tap home equity is only worsening their retirement outlook, financial advisors say.

(snip)

"If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years," said David Lereah, chief economist of the National Association of Realtors and author of "Are You Missing the Real Estate Boom?" "It's as if you had 500,000 dollar bills stuffed in your mattress." He called it "very unsophisticated."

Anthony Hsieh, chief executive of LendingTree Loans, an Internet-based mortgage company, used a more disparaging term. "If you own your own home free and clear, people will often refer to you as a fool. All that money sitting there, doing nothing." The financial services industry is doing all it can to avoid letting consumers be foolish. Ditech.com touts home loans as a way to pay off credit cards, and Morgan Stanley says they're a good way to fund education expenses. Wells Fargo suggests taking a chunk out of your house to finance "a dream wedding."

(snip)

If their incomes expand as they age, these new homeowners may pay down their mortgage debt. On the other hand, they might devote their additional spending power to toys, trips and other fun things, carrying their indebtedness forever.

(snip)

"There is no longer an incentive to paying off your mortgage," said Levy. "The only way I'll ever pay mine off is if I win the lottery." That's probably the only way he'll ever be able to stop working, too. "I'm never going to be able to retire, because I'll never have enough money in the bank."

(snip)

http://www.latimes.com/news/printedition/la-fi-homedebt28aug28,1,2000890.story?coll=la-class-employ-jobnews&track=mostemailedlink

[question everything]

1. Oh, so it did make it. Got an error message

anyway, I cannot believe that some financial institutions would encourage homeowners to think that "sitting" on a - $200K, $300K, $500K - completely paid house is "foolish." When people take a loan on the house they have to PAY for it.

The whole idea of retiring with the house paid is that one does not have to pay that $700 or $2000 for a mortgage or for a rent.

And if the burrowers cannot work forever because they get old, or sick, or disable - who is going to carry them, then?

[Lex]

3. EXACTLY! Generally speaking, people heading into retirement w/ a mortgage

payment are in a bad way.

One of the reasons that people who make it on Social Security, those who can anyway, is that they DON'T have a house mortgage to continue to have to pay.

The idea that people should just keep cashing out their equity in their house is not good.

[faithnotgreed]

2. from what youve posted this is completely vile

paying off your mortgage is very unsophisticated and foolish
uggh

i cant even read the whole article its so awful