The Absurdity

As the housing crunch continues, people are struggling to make ends meet. In Mountain House, California many are having trouble even paying their mortgages. Declining housing values are setting in fast.

The Martinezes bought their house in early 2005 for $630,000. It is now worth about $420,000. They have an interest-only mortgage, a popular loan during the boom that allows owners to forgo principal payments for a time.[emphasis added]

But these loans eventually become unmanageable. In 2015, Mr. Martinez said, his monthly payments will be $12,000 a month. He laughed and shook his head at the absurdity of it. [emphasis added]

Umm....excuse me!? $12,000 A MONTH!? First of all, why did you take an interest-only mortgage? Second, what is this "absurdity" you're laughing at? Hindsight that taking an interest-only mortgage was a bad idea, or are you laughing because you think it's ridiculous that these things even exist. Martinez goes on to say,

But Mr. Martinez acknowledges that it has entered his mind to turn his house back over to the bank. “By next June, if things aren’t better, I’m walking,” Mr. Martinez said.

Ummm, I'm pretty sure it's not going to turn around that fast. Now, while I feel for these people, it's hard to validate buying a $600k home using an interest-only mortgage. Why are you trying to forgoe the principle payments?! They're still going to be there. Again, not a finance major, but I'm pretty sure interest is structured based on the principle amount of the loan.

All I can say is, I'm glad I left California. The American dream seems to be dying there.

source: NY Times