Hold Your Breath

29 12 2012

Your Blogmeister’s Desk

Did you know?  Most loans for most things wind up being “underwater” at some point during the amortization schedule of the loan.  While a brand new car or brand new piece of furniture instantly depreciates once you sign all the paperwork, the reason why the loan isn’t underwater right away is because you have a down payment, which is de facto insurance for the lending institution.  However, depending on the kind of car you buy or what kind of furniture you buy, there will be times during the time you’re paying back the loan that it will be worth less on the used car or furniture market than the principal amount you owe on the car or furniture loan at that moment.

Those ever precious student loans that liberals love so much are always underwater, because there’s no collateral.  There’s no way of knowing for sure how much higher your income is with your debt equity-financed education is compared to what you would be making had you never gone to college, so there’s no way of making even a moral-economic judgment on whether it was worth it for you as an individual to take the student loans you did, or whether you should have if you never did.

So why do we freak about about houses and mortgages being underwater?  If you have the income, you keep paying the mortgage.  Eventually, you’ll be back above water if you keep it up.

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One response

29 12 2012
rjp

People freak out about their homes being underwater because it means they can’t afford to leave a turning neighborhood.

I kept my student loans to the minimum. These idiots borrowing $100k+ for undergrad are going to get a rude awakening when interest rates are unleashed.




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