Post-Katrina Mortgage Calculations

You can see how easy it is for people to get in trouble. And while it may be the perfect time to set your family up for life, look at the whole picture. Take it from someone who did it. Granted, you'll own your big dream house, but don't forget that everything is bigger now. It's a bigger house to heat this winter, a key consideration given the current exorbitant oil and natural gas prices. It's a bigger lawn to mow, bigger rooms to decorate, and a bigger space to clean. All your costs will increase exponentially, not just your home's purchase value.

Many people moved into big homes thinking they'd just give it a shot. If it doesn't work out, they'll just sell the house, take their profit and run. But what if other people on your block are thinking the same thing? The housing market is showing some signs of a slowdown, with last week's disappointing earnings and guidance from Hovnanian the latest.

So how are you going to sell your home? Between Katrina, rocketing oil prices and the looming risk of inflation, the economy may have some bumpy roads ahead which will clearly affect the housing market. While there may be a slew of people willing to buy that $500,000 house today, six months from now you may actually have to lower your price to even get a bite.

"People who overextend themselves are going to get hosed. It's very difficult to win and very easy to lose," warns Keith Gumbinger, vice president of HSH Associates of Pompton Plains, N.J., which tracks a variety of loan products.

Approach the Sale With Smarts

Sit down and run the numbers. And not just on your mortgage payment. Go through your potential monthly bills too. And if it still seems plausible, then go for it because the rates are cheap now and seemingly have nowhere to go but up.

If you're already in an ARM or other any other variable mortgage product, consider refinancing into a fixed-rate loan. The rates between the short-term and long-term products are so slight these days that you may be able to switch into a fixed-rate mortgage for the same price, says Gumbinger.

So don't let all the hype force you into a bad decision. Remember, just because something is on sale doesn't mean you should buy it.

Take it from me. I have to return my shoes.