Written back in the whiz-bang days of historically low mortgage rates. As interest rates rise, the term House Poor may return to the vocabulary.
Nobody Calls it House Poor? That is an expression that you don’t hear much these days. Why it seems to have evaporated as a term when purchasing a house, is unknown. You rarely hear Realtors using this expression to dissuade potential buyers from binding themselves up in too much long-term debt (if anything, the opposite is true). The code phrase to other realtors would be for buying too much House now, might be “buying a house they can grow into.”
With the current rate of interest for mortgages, it seems like a great idea to take on as much House as you can, especially if you are young because you have so many things ahead of you:
- You will need more space because you are going to have kids
- You will make more money soon because your career is only starting
Yes, a real estate agent told me that, in 1990 when we were looking at our first house, but I didn’t fall for it, and back then, our first mortgage rate was 12.9%, so we locked in for five years (that was a great deal back then!). We didn’t overbuy at the time because with interest rates so high, adding more to the principal meant a higher monthly payment.
These days you can get a mortgage at 2.95% (at best). Thus adding more principal wouldn’t change much. You might even be tempted to borrow more money to:
- Get some new appliances for your house
- Consolidate your credit card debt
- Add in your moving expenses, land transfer taxes and maybe a nice vacation
- Add in your Student Loans
At that rate of interest why not?
Allow me to be clear in my answer, “What are you NUTS ?!?“. We live with historically low-interest rates, which will eventually go up. What do you do when that happens? Assuming the rates can’t go up because the fragile economy will catch a bunch of folks off guard is my guess.
Anybody else ever heard the expression House Poor lately?