just procrastinating

Tuesday, June 28, 2005

Housing Bubble
This post on the housing bubble and "exotic" mortgages over at Volokh sort of makes sense to me. We ended up doing one of those interest only loans, mostly because it seems like it made sense to pay down our higher interest student loans than pay money to principal that just sits there and doesn't really do anything. To me that makes good financial sense, but I've been wrong about math before, so anytime I find something that agrees with me, I'll take it. Excerpt:
Moreover, money paid in as principle on your house (such as a downpayment) is dead capital--and the only way to get it back out to invest is to take out a home equity loan, which usually has a higher interest rate than it would be if you were just paying interest in the get go and using the saved principle payments for other purposes. So because of the time value of money, you are getting poorer when you pay down principle on your loan that does nothing for you, because you aren't getting any interest on this money. And this doesn't even take into account the "home equity trap" that may mean that you can't get approved for a home equity loan when you most need it, such as when you become unemployed.

I'd be more inclined to take this as fact if the author, Todd Zywicki, wasn't a lawyer.

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