Filed under: Personal finance, Housing
So much for doing whatever it takes to keep the farm.
According to an Associated Press piece, “The proliferation of no-money-down home loans over the past few years, coupled with the current housing downturn, is giving rise to a new mentality: People will risk losing their homes while doing everything to keep their credit cards.”
This could be one of the reasons why credit card delinquencies have not soared the way that subprime loan delinquencies have: People are paying the credit cards first. Assuming that most people aren’t letting their mortgages lapse while they splurge on big screen TVs and iPhones, this is probably the right thing to do in a lot of cases.
People were sucked into the idea of buying homes with Adjustable rate mortgages in part because of the cliche that “home ownership is the most common path to wealth” and similar ideas. But in reality, owning a home you can’t afford is a path to disaster, and a lot of people would have been better off renting until they had saved enough to get a more conventional mortgage.
As painful as losing a home is, the flexibility provided by consumer credit is more important for many families: In the event of a medical emergency, or a simple need for food, a credit card is a lot more helpful than a house with a mortgage greater than its value.
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