The Mortgage Calculator: Watch out for this hidden danger
A May 25th NY Times article "Job Losses Push Safer Mortgages to Foreclosure" features a couple from Minnesota. The article's point: it's not just people who imprudently took on more mortgage than they could afford who may face foreclosure now.
This couple has a $172,000 30-year fixed mortgage. Their monthly payment is around $1,300. When they took the mortgage, their family income was $70,000. While the article isn't clear on this, it looks like they're paying somewhere between 7% - 8%.
According to the article, they took a "safe" mortgage. So far so good. Except for this: the problem this couple faces has nothing to do with the mortgage. And there's a cautionary tale for all of us in this story.
You can use any mortgage calculator off the internet, input your date and find your monthly payment. You can even find mortgage calculators that will tell you whether you can qualify for a given monthly payment, given your current income. You might even find one that "tells you" whether you can afford the payment, given your income.
So what went wrong with this couple? The guy is a truck driver and the trucking business collapsed with the economy. His wife is willing to help out, but can't find a job doing anything. It's tough out there.
Did these folks consider the possible loss of income when they bought their house. And if they did, did they save up reserves in anticipation of that possibility? I don't know the answer, but I suspect they didn't.
When you consider taking on a mortgage, you've got to do more than just use a mortgage calculator to figure out if you can afford the monthly payment. Even a reputable bank or mortgage company isn't going to help here. Their job is to sell mortgages. They're not going to tell you to keep a sufficient emergency reserve.
The article says that "safer" mortgages will be a problem now. We're going to see more a more defaults and more foreclosures. But the real problem isn't the mortgages, it's the people. If this couple didn't set aside a sufficient emergency reserve, they weren't being prudent. That's where the problem lies. No mortgage calculator can help you if you're not prudent.
This couple has a $172,000 30-year fixed mortgage. Their monthly payment is around $1,300. When they took the mortgage, their family income was $70,000. While the article isn't clear on this, it looks like they're paying somewhere between 7% - 8%.
According to the article, they took a "safe" mortgage. So far so good. Except for this: the problem this couple faces has nothing to do with the mortgage. And there's a cautionary tale for all of us in this story.
You can use any mortgage calculator off the internet, input your date and find your monthly payment. You can even find mortgage calculators that will tell you whether you can qualify for a given monthly payment, given your current income. You might even find one that "tells you" whether you can afford the payment, given your income.
So what went wrong with this couple? The guy is a truck driver and the trucking business collapsed with the economy. His wife is willing to help out, but can't find a job doing anything. It's tough out there.
Did these folks consider the possible loss of income when they bought their house. And if they did, did they save up reserves in anticipation of that possibility? I don't know the answer, but I suspect they didn't.
When you consider taking on a mortgage, you've got to do more than just use a mortgage calculator to figure out if you can afford the monthly payment. Even a reputable bank or mortgage company isn't going to help here. Their job is to sell mortgages. They're not going to tell you to keep a sufficient emergency reserve.
The article says that "safer" mortgages will be a problem now. We're going to see more a more defaults and more foreclosures. But the real problem isn't the mortgages, it's the people. If this couple didn't set aside a sufficient emergency reserve, they weren't being prudent. That's where the problem lies. No mortgage calculator can help you if you're not prudent.
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