The Mortgage Trap

Felix Salmon is generally reasonable in his analysis, but he comes down hard on Tanta at Calculated Risk. Tanta did a successful effort of compilation of data, and Felix criticizes this as bullshit; saying that there is aggregation of Capital in the interim of 10 years as in the Example higher than could be achieved through Treasury Notes. He states that assuming the mortgage is still a good deal. I think this might be too simplistic.

People like to champion mortgage aggregation as a Means to derive Capital accumulation for Low-Income Earners. Is it such a good Deal? There are massive external Costs associated with the assumption of Property. Low-Income Housing requires an actual Mortgage financing of approximately 161% to pay the Taxes on the Property for a Ten-Year mortgage, over and above the Cost of the Dwelling (Local and State Property Tax rates are not nice to the majority of the Poor). A further item lies in the fact the Property is for Low-Income Housing in the first place, requiring about 1.7% of the Housing Cost per year as Upkeep, else Resale value will not be maintained consistent with market growth. Heating Costs of individual Homes vary drastically over geographic area, and in initial quality of Insulation, but it can be contemplated to cost about 21-23% greater Funding than Rental formats. What I am trying to say is that the Capital involvement and Threat here stands far higher than the face value of the Mortgage; levels which will definitely not provide as high a Return as equivalent devotion of funds to Treasuries.

Re-finance and Modified mortgages absorb far too much of the Tax Cost, and Re-Modeling Cost, of Low-Income Housing. Rising Heating Costs too often dictate Re-finance because mortgage payments cannot be deducted from Income under circumstances of rising Household Expenses. Repayment of re-financed mortgages almost certainly wipes out established Equity in Property over previous Payment periods. A nullification of mortgage payment equity can often generate a eventual Default with no Equity for the entire Period, where actual Payments had equaled anywhere from 115-150% of appropriate Rental payments for adequate Housing. Unethical Lenders offering Special deals which they know will not last, are not a Godsend to Low-Income Households. lgl