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Your debt gets inflated away gradually while your asset crashes today. If housing went down 30%, virtually all debt in housing sold in the last few years would
by throw123123123 5y ago
Your debt gets inflated away gradually while your asset crashes today. If housing went down 30%, virtually all debt in housing sold in the last few years would be underwater, which tends to increase delinquency ("they can take the house back"), which then makes the bank eat that loss and having toxic assets.
The core issue is that debt is always risky.
- toomuchtodo 5y agoIt doesn’t matter if it’s underwater as long as the debt can be serviced. That’s the difference between a margin loan and a mortgage; there is no margin call on a mortgage. It can lose 99% of its value and as long as you still make payments (or your tenants so), you continue to own/control the asset.
- throw123123123 5y agoWould you pay 1 mill dollars of debt on a 500k house?
- toomuchtodo 5y agoIn certain circumstances, absolutely (if rent payments would be higher than the mortgage payments over the holding period, or if the value of the property would accelerate past the mortgage balance during the holding period).
- throw123123123 5y agoYou are only locking yourself with a loss here, and the price is 500k. Just look at default rates of underwater properties to see how the masses react.
- deleted 5y ago[deleted]