On Tue, 18 Jan 2005, Doug Henwood wrote:
> I love this phrase I just read in a letter to Business Week: "negative
> amortization variable-interest mortages with low teaser rates." I'm guessing
> that this means that in the early stages, your monthly payment doesn't even
> cover the interest, so the difference gets tacked on to the principal - and,
> should market interest rates rise, so will your mortgage payment. What are
> people thinking when they sign up for these things?
I know a couple who did this so they could "afford" their dream house. I asked (politely, I hope) what their long-term strategy was. They plan on refinancing in four or five years when (they assume) the value of their house will be substantially more than it is now and mortgage rates will be reasonably low.
Frankly, I think this is nuts. If I want to gamble, I'll go to Vegas. But this is the common wisdom nowadays among (some of) the middle class: live beyond your means, then bail yourself out with a refinance loan.
Miles