Free Money Finance Top 10 Most Hated Posts/Themes: #4 Evil House Loans

My #4 most hated theme here at Free Money Finance is evil house loans.

Ok, so what do I mean by evil house loans? Here are some examples:

• 50-Year Mortgages

• Interest-Only Mortgages

• No Money Down Mortgages

• Other risky loans

But no matter how much I show that these are dangerous (as well as not financially sound) ways to buy a house for the vast majority of people (even though a large percentage of people use them), people still give examples of how great these loans are for them, how they've made so much on their house using them (paper gains, not actual gains), how they couldn't have afforded a home without one of these (which is exactly my point, by the way, they can't afford that home), etc. Why is this? Are people just in denial? Or maybe I'm missing it somehow? I just don't see it.

Yet there is a light at the end of the tunnel for me on this issue. My guess is that with the current state of the real estate market, a lot fewer people will be hassling me about these posts. ;-)

Comments

[cory]

Have you noticed a trend with these "Most Hated" posts?

Maybe that they're all full of broad, sweeping generalizations? Maybe that they're all dividing "us" from "them"? Maybe that they're all condescending in tone? Mabye that, unlike the posts that don't generate a ton of hate mail, these ones are just a thinly veiled way of saying "This is how to live your life grow your net worth. I am right and you are wrong."

I've read this site for a while, and judging from the overall tone of the blog I'm pretty sure you didn't intend your tone in the posts to be negative. But a lot of people seem to feel they are. Maybe a lot of people are on to something.

Food for thought.

[Rich Slick]

I agree somewhat with Cory. There are many instances when interest only loans are perfect for people. What if you only plan on living there for 2 or 3 years? How is a 30 year fixed mortgage the better than an I/O loan for that time window?

There are simply too many variables to cast such a wide net and say "all these loans are evil"

I think ultimately the issue isn't that particular loans are "evil" but that consumers aren't educated enough to make sound financial decisions. The true "evil" is the state of our education system in this country.

[Lord]

Perhaps it would be better to say not the loans are evil but the borrowers are fools. If you are only going to be in a property 2 or 3 years you probably shouldn't be buying, certainly not now. These loans cater to the crowd that act only for tax reasons and are more interested in ways of increasing their spending than in building their wealth. Then again, it takes all types and the world would be a duller place without them. Circumstances do vary and under the right conditions most anything can make sense, rare though they may be.

[Mike]

Help me out here. I'm having a hard time understanding why the 0% down loans are evil.

Yes, I realize that if the house depreciates, the borrower could be upside down on the loan. It seems like this is "evil" for the lender.

If I put down 20%, then the market falls and I have to sell, I lose my downpayment. That's bad for me.

In the same situation except that I put nothing down, I'd probably just drop the keys off at the bank and let them have it. That's bad for the bank.

Sure its bad for me too, because my credit would be shot. Is that what makes the 0% down "evil"? Because if you ask me, borrowing money isn't all that great a deal, so I'm not seeing a ruined credit rating as all that big of a downside.

[FMF]

Mike -- I think you said it yourself:

"borrowing money isn't all that great a deal"

And the more you borrow, the worse it gets.

[Mike]

So borrow less?

Why does someone with a 0% down loan have to borrow more? Can't they just buy a less expensive house?

Instead of buying a $100,000 house with $20,000 down, just buy an $80,000 house.

The total amount borrowed is equal. How is this evil?

[FMF]

If you really want my thoughts on the subject, read the articles I've linked to above.

[Cat]

I have become very surprised at the number of people who just don't understand the concept of living below their means.