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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: carranza2 who wrote (6036)	7/19/2001 11:22:43 AM
From: Cogito Ergo Sum	Read Replies (2) \| Respond to of 74559

*It's an economically rational thing to do. Interest rates on home equity loans are substantially lower than those on credit cards.* At some point though, interest rates notwithstanding, the debt service ratio could erode disposable income to nil. One cannot refinance forever. The only other option to increase disposable income then is wage increases and possible corresponding inflation or we could all win the lottery :o) I know people refinancing to maintain their standard of living. After paying 10 years on the mortgage they add back another 5 or whatever via refinancing. When they retire they have no home or at least are still stuck with a big mortgage debt. Note also that up here in Canada we cannot deduct mortgage interest which is further incentive to pay the thing off fast, then borrow against the home (within reason) for investment purposes, a loan whose interest is deductible. By the by, pleading ignorance, what are menudo and sangrita. Both my prep school Latin and Spanish dictionary are failing me here :o) regards Kastel

To: carranza2 who wrote (6036)	7/19/2001 11:49:09 AM
From: TobagoJack	Respond to of 74559

Hi carranza2, As a part of my NAV calculation, I value my home on purchase cost, have less than 10% mortgage outstanding for the credit relationship, serviceable at 5.25% per annum (yes, Maurice, I can get a Japanese Yen loan at 1.25% to actively manage my home equity debt), and I do not treat my home as an investment. I only hope that my current home value keep pace with the cost of my next home. This passive home equity management scheme obviously makes me a conservative. If the following is true (assuming the Levy Institute does not lie) ... <<Home refinancing ... credit card debt ... both grew ... Q1 2001 ... home refinancing was accompanied by cash withdraw from home equity ... even as credit card debt grew>> ... then I believe folks are not managing their home equity now, paying down their credit card debt, but spending it, or they are pouring it into some 'investment' 'certain' to go up with the recovery in the second half 2001 or first half 2002. Should the recovery not materialize, then what you now do not see but should anticipate, given the overwhelming bullishness of equity players juxtaposed against increasing signs of economic stress, will have happened, and it will be late to act in managing overall wealth, never mind the home equity wealth. <<If ... generalized loss of value ... homes ... consumers in the hole ... certainly not happening yet ... Given ... trend of increased valuations for family homes, it is unlikely to happen.>> I think folks used to say something similar about the equity market not so very long ago, and here we are, just getting started with the downward 'adjustment'. Chugs, Jay