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Obviously. Which is why 20:1 leverage (5% down) is kind of foolish, since you can quickly become underwater on a house purchase if the value shifts. At 5:1 leve
by Kirby64 2y ago
Obviously. Which is why 20:1 leverage (5% down) is kind of foolish, since you can quickly become underwater on a house purchase if the value shifts. At 5:1 leverage though, you still maintain enough equity to weather any valuation swings if you have a need to leave and sell the house.
- throwaway2037 2y agoThis post is somewhat misleading. If you put 0% down (yes, it is possible in many places), effectively you have infinite leverage. But let's use your 5% example. If you house price falls by 50%, nothing happens to you -- even with huge negative equity. You keep making monthly payments. There is no "weathering" to be done. Sure, at the end, you might have a giant paper loss, but you still have a roof over your head -- that you own.
- Kirby64 2y agoI agree mortgages cannot be called in, unlike margin trading on stocks, but if you’re wildly upside down on a house then it literally traps you in the house unless you take those losses. If housing prices fall 50% it is also likely that economic conditions may mean you cannot afford the same house anymore. In a situation of missed payment, they can certainly foreclose on your house.