Reference no: EM132072835

One example of an annuity is your mortgage; you make a regular payment for a fixed number of years at a fixed rate.   When it comes to mortgages, one of the reasons why so many people got in financial trouble when the housing market collapsed was because they had over-levered themselves. There were several reasons for that and rolling credit card and car debt into their mortgages was one of the most common missteps.

For example, most people mistakenly think that if they owe $10,000 on a credit card at 20% and roll that into a new 30 year mortgage at 4.5%, they are saving money because they are saving over 15% a year in interest.   That is only true if it takes 29 ½ years to pay off that credit card. Let’s say they pay the credit card over a period of 5 years at 20%, they will end up paying 158% of the original total ($15,896); however, if they add the balance to their mortgage at 4.5%, they will end up paying 182% of the original amount ($18,241).

Explore one of the many common misconceptions about how debt works either for an individual personally or in business and describe ways that it could be avoided. You can discuss any aspect of leverage including: how people use debt, the tax deductions for debt, the loan process, application of debt, 0 % financing, etc.