Archive for August 19, 2007

What Were You Thinking When You Purchased Your Home?

In the Sunday Real Estate section of the Washington Post Michael Rosenwald wrote an article called Was the Mortgage a Mistake. The article discusses Michael’s own decision to purchase a townhouse in Germantown, with an interest-only mortgage, at the peak of the housing market. In essence, just after his purchase the housing market cooled and interest rates began their creep upwards.

So one might wonder, why Michael purchased a home he could not afford. His rationale, an interest-only loan helped us buy a house in an expensive county where we wanted to live and eventually send our children to school. With an interest-only mortgage we could buy a nicer, larger home. Michael admits that he could have lived farther from the District for less money… Could have continued to rent…, but instead he decided he deserved a nice home and reasons he did what we had to do to get one.

He rationalized the purchase saying that he fully intended to sell the home within five years. He assumed that the market would continue to rise and that he would earn a profit just like the previous owners of his home. This thought process makes absolutely no sense. From Michael’s prior statements it is clear that he had no intentions of downgrading to a smaller home at any point in the near future. Let’s assume the housing market continued to rise. Michael would have sold his current home for a profit, but he also would have purchased a larger home that would have cost even more money in the wake of a rising market. It seems to me that Michael would have perpetually dug himself into deeper holes with larger mortgages. Let’s face it, the decline of the housing market has not hurt Michael’s financial situation, Michael has hurt Michael’s financial situation. In fact, I believe the current market decline may have saved him from purchasing an even more expensive home, and getting into even deeper trouble.

What’s even more amazing is that Michael and his wife seem to make a decent living. He mentions that his wife is a physician and that he pays taxes in the highest bracket. Yet Michael hasn’t made any preparations for his loan’s conversion from an interest-only mortgage to a 30-year fixed. In fact, in his own words, he bought a flat-panel television, took a nice vacation, bought a dog, hired a dog-walker, and then we got pregnant. All this while knowing that his interest rate could jump as high as 10.125%.

After talking with a real estate agent and a financial planner Michael now believes he has three options. Save money for the ultimate conversion of his mortgage. Refinance now to a 30-year fixed mortgage, and then refinance again if mortgage rates drop, or sell his home and move to another state where his housing dollars can go a whole lot farther.

Michael’s case is an interesting one. It seems to me that with a little more saving and a little less fruitless spending he could afford his home. While a lot of people are facing foreclosure because they can no longer afford their homes, it seems that there are also quite a few people with high incomes that could afford their homes if they simply stopped spending elsewhere. Either way I think it’s a good lesson for all involved and all those who are watching. No matter how much you love a home, you shouldn’t buy one you cannot afford.

August 19, 2007 at 10:05 PM 6 comments

How Do You Split the Bill Among Friends?

Last night my husband and I celebrated a friend’s 30th at a great bar in DC. By the time we arrived 30 to 40 friends had already gathered. Most of them had ordered food and from what we could tell the waitress was adding everything to one bill. We looked around at all of the people and immediately decided we didn’t want anything to do with that bill. We couldn’t imagine 40 people trying to decipher the amount they owed after a long night of drinking.

So we left the table and headed over to the bar. At the bar we bumped into an old college friend who was also avoiding the tab at the table. Trying to get 30 to 40 people to pay their fair share and tip appropriately was the last thing any of us wanted to do, so for the rest of the night we ordered drinks from the bartender.

I’m continually perplexed by how complex it is to pay the bill when dining with friends. Some of our friends want to itemize the bill. They add up exactly how much their beverage cost, their meal cost, add in 15% tip and put down the amount they owe down to the penny. Other friends want to split the bill evenly regardless of how much they’ve eaten. A friend of mine from college was famous for drinking 10 beers in a night, while the rest of us drank 2, and then offering to split the bill evenly. Many of us resented hanging out with him. After all, we didn’t appreciate paying to watch him get intoxicated.

A week or so ago we went barhopping in Canton with coworkers. At each bar a different coworker picked up the tab. We know the tab was a little bit more at some bars and a little less at others but at each establishment someone picked up the bill and paid and no one complained about it.

Most of the time I suggest splitting the bill straight down the middle. You may order an extra beer, while your friend orders dessert, but at the end of the night the difference usually isn’t too large. Plus, over time the cost difference between friends seems to even out. Maybe you order dessert tonight but next week your friend orders a more expensive dinner. So I almost always suggest splitting the bill straight down the middle.

My dad had the best advice for sharing meals with friends and coworkers. He often traveled for business and quickly learned it’s best to be the last to order. He assumed that his coworkers would split the bill evenly and gauged his dinner selection on his coworkers orders. If they ordered steak and lobster he certainly didn’t order soup and salad. And if he only wanted soup and salad he made it known that he would not split the bill at the time that he ordered.

August 19, 2007 at 12:21 AM 7 comments


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