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Mortgage Apocalypse

Catchy headline, no?

A few days ago I had an unusual telemarketing call. I get a lot of telemarketers eager to refinance my mortgage. The good ones go away peacefully when I tell them I have a 5% fixed-rate mortgage. The bad ones refuse to believe me when I explain I'd be a fool to refinance because mortgage rates are a full percentage point higher than that today. And then I got a remarkable call that prophesied the end of the world is near.

Okay, that wasn't exactly their message. But that's what I heard. You see, they had the temerity to suggest I consider cashing out some home equity to invest it in the stock market! Yeah, awesome! In fact I'll invest it all in a hot stock my dentist told me about… When you start getting unsolicited investment advice from strangers, hold on to your wallet. Someone should've warned me it's 1999 all over again.

This isn't the first time I've heard that home equity suggestion, and it's not my purpose to ridicule it. For some people, taking on additional secured debt at a moderate interest rate might be reasonable to do for the potential of earning higher returns through investing. To do it takes a large appetite for risk: If markets are efficient, a "safe" investment will return only about the same as the mortgage interest! It's not a risk I'm willing to take, especially not now — I think the market and macro environment look awfully toppy and all my new investing is very defensive.

What's worth ridicule is the fact that this suggestion was part of the telemarketer's script. They had a lot of reasons to make refinancing sound attractive, but this particular reason is highly inappropriate for most people and could get them in serious financial trouble.

It's also an indicator of the mortgage industry that they're resorting to using reasons like this to convince people to refinance. The party is over and I wish they would stop calling me.

Trend: The mortgage interest deduction is gradually reshaping the landscape of debt as people come to the realization that debt is fungible but one particular kind of debt is tax-advantaged. More and more debt is being secured against peoples' homes for no economic reason — just because of the taxes. As I've mentioned before, it's distortionary. This deduction ought to be phased out.

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