Financial Folly

Recent news reports indicate that an increasing number of home-owners, who are refinancing their mortgages, are seeking to not only reduce their interest rate, but access additional cash, either to pay down high interest rate credit-card debt or engage in additional spending.  Some lenders are currently advertising loan options that would allow certain borrowers to finance up to 100% of the value of their home.

If that isn’t scary enough, a recent article in The Wall Street Journal suggests that an increasing number of home mortgages appear to be based on inflated appraisals.

Isn’t this, in part, how so many people found themselves in a financial bind and ended up losing their homes over the last several years?

It is important to be aware of the risks.  Borrowers who fall behind on credit-card payments don’t risk losing an asset.  Falling behind on home loans risks foreclosure and the loss of your home.

If you have a credit-card problem, negotiate a workout, and reduce your spending.  Or, in the words of Will Rogers, “when you find yourself in a hole, stop digging”.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®