Understanding debt

November 17, 2008 at 8:53 am (General nonesense)

The ‘Better explained’ blog has a great article on ‘understanding debt’:
http://betterexplained.com/articles/understanding-debt-risk-and-leverage/

Some highlights from the article:

Getting a mortgage: As we saw, borrowing money to buy a house is a form of leverage. With 5% down (a 20x gearing ratio), your house only needs to drop by 5% to lose money. With 0% down, your house has to drop… wait for it… any amount for you to lose! And after your house is worth less than your mortgage, there’s little incentive to pay it off (better to go bankrupt, depending on the debt).

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: