2005 June 16 | Wheatworks Blog: Financial Matters

Archive for 16th June 2005

You’ll Pay for Free Cracks!

6/16/2005, 8:58 pm

Remember TANSTAAFL from your college economics class? It’s an acronymn for “There ain’t no such thing as a free lunch” from Robert Heinlein’s 1966 novel, The Moon is a Harsh Mistress (which was also the title of an excellent Glen Campbell song). The acronym was also used by economist Milton Friedman and it means you can’t get something for nothing.

What does it mean in terms of software cracks? It means this: while the cracked software may be free, you’ll pay for it.

Surely you wonder why someone would crack software, pay for a web site to host it and then give it away. It doesn’t make sense. It takes time to crack an application. It costs money to distribute a cracked program. TANSTAAFL!

You’ll pay for the crack. It may be in the form of a trojan installed by the cracked software. Trojans are small pieces of code that let all the folks who distribute the cracked software access your computer without your knowledge. They may steal your financial data (think “identity theft”) and use your personal information to pretend to be you.

You’ll pay for the crack. The crack may install spyware on your computer or infect it with a virus.

Remember, TANSTAAFL!

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“Creative Financing” May Hurt in the Future

6/16/2005, 10:57 am

At the same time mortgage interest rates for conventional loans are at historic lows, more than half of all mortgage loans are interest-only (IO) and/or adjustable rate mortgages (ARM). On the face of it, that doesn’t make a lot of sense.

Here’s what may be going on and if it is, it doesn’t bode well for the future.

An interest-only loan is one that allows a borrower to pay only the interest portion of the amortized loan for a period of time. However, IO loans are “interest only” for only an initial period of time. After that, the full monthly payment is due.

Interest-only loans encourage people to buy more house than they can afford with the hope that their income will increase before the fully payment of principal and interest is due. Others use IO loans to purchase a home with the intention of selling it before the full payment is due.

If one’s income increases to cover the full payment or one sells the home before the full payment is due, there’s probably little cause for concern. However, Interest-Only and adjustable rate mortgages still seem like risky gambles … especially when conventional rates are so low.

Another problem waiting in the future for those with interest-only mortgages is that many have an adjustable interest rate when the full payment begins. If interest rates rise during the next 3-5 years (as many believe will happen), those with IO loans will face a double-whammy: Full payments of principal and interest AND a rising interest rate. That will hurt!

While a conventional 30 year mortgage may not be as fun to brag about around the watercooler and doesn’t sound nearly as exciting as being able say, “I’m using some creative financing,” there’s a lot of wisdom in not buying more home than one can afford now AND in the future.

Takeaway Point: Don’t let an aggressive lender sweet talk you into creatively financing your home.

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