They bought in 1999 and owe more than they paid!

[Delicateflower]

Wow. The people we bought our house from paid $165 000 in 1999. The payoff for that mortgage on our settlement statement was $168 000. Plus $32 000 of a second mortgage. And there had been no improvements to the house except hardwood flooring.

The thought of being more in debt after paying a mortgage for ten years makes me

I guess the copy of the Tightwad Gazette in the bookshelf was just for show.

[newbymom05]

That's like my SIL, except they paid for over 15 yrs. They used their refi money for student loans (not so crazy IMO) and a maid and a window cleaning service. That's crazy IMO!!!!! She kept raving about her maid and how we needed to get one, I couldn't believe it. Oh, and now they're over 100K in debt. But "I'm not going to worry about it, something will happen." They don't even have the TG for show, lol.

[FillingMyQuiver]

*sigh* I think this may be the case w/ my parents. I know that they bought their house for $190,000 in 1999 and they were thinking of selling this past year and my mom said they really can't take less than about $275,000. I know they've taken out a home-equity loan and maybe even a 2nd mtg (not sure though).

There's no way they could get $275,000 for their home in this market. I keep telling her that and she just doesn't want to believe it. They're going to re-evaluate in the spring.

And it really chaps my hide b/c they know how to be frugal. I mean, jeez, before they bought that house, they were raising 4 kids around the poverty-level. We had days we only had .50 to our family's name, until my dad got a GREAT job and they took advantage of his VA benefits.

[mum4boys]

Maybe they did more then just break even...if you think about it if they had been paying rent they would have nothing to show for that money. In ten years they could easily paid over $100K in rent.

[cristeen]

My parents did this. They bought their house before I was born, so over 30 years ago. You would think by this point they'd have it paid off or at least close. Nope, my dad kept refinancing for cash out. Last I heard he had a mortgage for over $500K on a house that they bought for $22K.

[annethcz]

I think it's pretty common for people to have taken out HEL loans when property values were skyrocketing over the past 10 years.

[Mulvah]

I'm not trying to harp on you, at all, but I know a couple that was in the same situation. They used the money to pay for chemo treatments that were not covered by insurance.

I totally understand what you're saying, but who knows the reason, yanno?

[sweetjasmine]

My brother bought a brand new house around 1999 for about 225k, I think? He lives in Colorado. They were doing well until maybe 5 years ago when my sister-in-law got laid off from a well-paying job and couldn't find anything comparable. In a year's time while she was looking they plowed through all their savings, stocks and bonds. She's been working for the local school district since then but her salary is nothing like she had been earning prior. To help with their finances, also around that time, they refi'd with an ARM. Now they are upside down, the mortgage company will not work with them and they are meeting with a bankruptcy lawyer at the end of the month. The mortgage company told them they had too high a debt to income ratio but they've always paid their mortgage, bills and cc's on time for years. Apparently, that doesn't matter and the fact that a lower rate would actually help their debt to income gap and keep them out of foreclosure doesn't seem to be a positive.

[Delicateflower]

Originally Posted by Mulvah

I'm not trying to harp on you, at all, but I know a couple that was in the same situation. They used the money to pay for chemo treatments that were not covered by insurance.

I totally understand what you're saying, but who knows the reason, yanno?

Unfortunately I know it's not because of real financial need because they sold to upgrade, plus the wife doesn't work and their two children are school aged.

[sunflower.mama]

Originally Posted by annethcz

I think it's pretty common for people to have taken out HEL loans when property values were skyrocketing over the past 10 years.

Agreed...some people would rather cash in on appreciated equity than sit on it in their house...since the couple is upgrading it sounds as if they could afford to do so.

[Leta]

It is weird when you know it's not because of any specific reason.

I know a couple who bought their house in 2003, and they owe several thousand more than their initial loan amount, because they are perpetually behind on their house payments and those fees add up. The sad thing is, it was the first mortgage for both, they took it out when they were 40 and 38 years old. It's a 30 year note, and they are further in debt then they were six years ago. What's going to happen in 20 years when they are retirement age? I worry about them.

[FondestBianca]

maybe it wasn't all that bad of a decision in their case.

I imagine that had plenty of equity built up since 1999 and the house is worth well over 168,000 now. Maybe a couple years ago they had some cc debt, car loan, student loans, or medical costs sitting in a high interest account somewhere threatening to eat up all their money. Sounds like a really good thing to do would be to roll it into an equity refi with cash out to pay the high interest debts and settle them into a much lower percentage fixed rate mortgage so long as the equity left was enough to counteract the current drop in market prices.

They may have even been able to take advantage of new lower mortgage interest rates as well. This means they may have actually lowered thier minimum payment amount. I know what you're thinking, lower payment equals longer to pay or more to pay out. Wrong! Lower payment means you have the ability to pay even more over your minimum each month which in a fixed rate mortgage goes directly to principle.... which means you can easily shorten the term of your mortgage very easily thus cutting the amount you'd pay in interest over time as well. Doesn't sound so silly to me. While unsecured credit may be better if you plan on claiming bankrupt I don't think secured is a bad trade off if you plan to stay current on your debts. If you keep your half of the deal on a home loan they leave your terms alone. If you keep your half of the deal on an unsecured cc.... they generally don't care and do what they want with your terms on a whim.

Sure, maybe the cash out went to things they didn't need or to cc which paid for things they didn't need but, maybe they had business loss, medical problems, or lost money in some investments. Or maybe they just wanted a nice boat to cruise the lake with the kids on the weekends... tisk, tisk... come on, people are allowed to shove around some funds and do something drastic for the sake of fun and enjoyment every now and then. You don't have to... but, why can't someone else. Sounds like they can afford the terms of the debt if they are able to get approved for an upgrade in this difficult financing climate.

It ay be a sad scenerio but, not all that uncommon and perhaps it was a good financial decision for them at the time they did it. Some could argue financing a house in the first place is a bad idea and others may not think doing a refi 10 years down the road to combine debts into one low fixed rate with some home equity still intact isn't such a terrible thing depending on the scenerio.

there sure seems to be a lot of elitists wandering around poking fun and judgement at other financial situations. Not agreeing with somones choices doesn't have to equate to that.

[A&A]

Some people (like my MIL) nickel-and-dime themselves on credit cards and then take out a second mortgage to pay off credit cards (which she ran up again anyway, of course.) It's always a bad idea to trade unsecured debt for secured debt, regardless of the tax break.

[amyamanda]

Originally Posted by Delicateflower

I guess the copy of the Tightwad Gazette in the bookshelf was just for show.

Originally Posted by Delicateflower

Unfortunately I know it's not because of real financial need because they sold to upgrade, plus the wife doesn't work and their two children are school aged.

Wow. I have to say that I'm feeling chapped by these judgmental assumptions. I would be really hurt and offended if someone assumed similar things about me. I hope no one out there does.

You can't presume to know their situation. My mortgage numbers are remarkably similar to theirs. I have school-aged kids. Although I now have a part-time job that came my way through sheer luck and the grace of friends, but I didn't work for 10 years - and if it was best for my family, I wouldn't now, either. I have a copy of the Tightwad Gazette on my shelf, and it is most certainly not "for show."

And just to throw this in, because it comes up when people are judging others, I drive an SUV. We live on a big hill that is impossible to get up in the winter without four-wheel-drive, we can't fit the whole family in just two bench seats, we need a vehicle that can tow our trailer so we can, for example, take advantage of free deals on big stuff, or take existing big things to be repaired instead of replacing them, and I shop - and fill the car - for one month at a time instead of more frequently, to minimize trips to town. My kids wear really nice clothes - because we have some very generous sources of free brand-name hand-me-downs. We eat organic, because I scrimp and cook from scratch and buy in bulk and grow my own veggies and know farmers who give us deals. We have nice "luxury" things like a swingset and a trampoline and good bikes and a pool table because we have cultivated a good network for free and super-cheap stuff. And I could go on.

Unless these people have personally given you details about their choices that you have not shared here, I can't see how you can make the assumption that their financial situation was better before their home equity loan. Ours wasn't. Maybe they consolidated debt to get a lower interest rate and get off the credit card merry-go-round (like we did). Maybe there was a period of unemployment and they made hard choices regarding credit and debt and things like groceries (like we did). Maybe they are generously supporting an older relative who is unable to work (like some friends of ours do). Maybe they are changing their ways, but doing it at a comfortable pace, one step at a time (like many of us do).

Also, what do you mean by "upgrade"? Maybe they valued a different location enough to pay more to live there - a different school, closer proximity to work for a shorter (cheaper) commute, whatever.

On this board, I would rather hear compassion than such judgment. I would be horrified if someone made similar assumptions about my family's situation.

Sorry, this (obviously) struck a nerve.

[amyamanda]

Originally Posted by A&A

It's always a bad idea to trade unsecured debt for secured debt, regardless of the tax break.

This gets repeated often, but I don't believe it is always true. If you already have a substantial mortgage on your house, and you can consolidate debt that represents only a fractional increase of that mortgage, the difference in the security of your home can be negligible, IMO. And you can be assured of a fixed, low interest rate for the life of the loan. And you get out from under the claws of the credit card companies, who charge way higher interest rates that can be jacked up at any moment without you being able to do anything about it.

We did this, and the difference in our mortgage payment is small enough that if we were unable to make a payment, that amount wouldn't make the difference between paying or not paying it. I think it depends on the situation.

We didn't do it for the tax break. It didn't even enter our minds.

[lisalulu]

Originally Posted by A&A

Some people (like my MIL) nickel-and-dime themselves on credit cards and then take out a second mortgage to pay off credit cards (which she ran up again anyway, of course.) It's always a bad idea to trade unsecured debt for secured debt, regardless of the tax break.

My parents did this, not once, but twice when they were in their 30's. It was all to pay down credit card debt and the company offering the second mortgage would pitch something like, "Oh take out a little extra and take the family on vacation". They totally bought into it.

They bought their house for something like 28K in the 70's. They are now retiring and looking at moving to a condo. They still owe 100K on the house. Thank goodness property values have increased so high here and they figured out their mistake before it was too disastrous.

[Amys1st]

Originally Posted by Delicateflower

Unfortunately I know it's not because of real financial need because they sold to upgrade, plus the wife doesn't work and their two children are school aged.

I guess I am not understanding? I the wife do not work (well for a w2) and have 2 school aged kids (well one preschool) and we have sold to upgrade.

Can you expand on this??

Or and I had TWG on my shelf for years. It was not for show and gave it away so others could benefit from it.

[phatchristy]

Originally Posted by Delicateflower

Unfortunately I know it's not because of real financial need because they sold to upgrade, plus the wife doesn't work and their two children are school aged.

Who knows, they may have used the money as a strategy to pay off other debt. Some people the tax deduction you get from a mortgage's interest to be very important in terms of itemization.

I say this because I have known a lot of people who have done that.

It's definitely not unusual in this economy to bring a lot of money to the table when closing.

I figure we're lucky here--we bought our home before the boom. Our home was 124,000--at the peak could have sold for $350,000. Now, I would say it would likely sell for maybe $207,000. We wanted our mortgage paid off, so we a 15 year. Of course, we have practically no interest this way, and therefore wind up taking the standard deduction! But, that's fine.

The majority of our neighbors would have to bring money to the table to sell their homes. Which is the reason why a lot of people are simply walking away from their homes. The majority of people in our neighborhood are underwater with their mortgages.

I look at our home as our homestead...not an investment. A place to live basically. I look forward to when we only have maintenance, insurance and taxes to pay on it.

[EmsMom]

Deleted -- just didn't like the way I wrote it!

[rhiandmoi]

Originally Posted by Delicateflower

Wow. The people we bought our house from paid $165 000 in 1999. The payoff for that mortgage on our settlement statement was $168 000. Plus $32 000 of a second mortgage. And there had been no improvements to the house except hardwood flooring.

The thought of being more in debt after paying a mortgage for ten years makes me

I guess the copy of the Tightwad Gazette in the bookshelf was just for show.

The use of that $35K may have been more valuable to them than a paid down mortgage. Having a paid down mortgage isn't everything, and it could mean missing out on other opportunities to create a secure future for their family.