How not to lead your life!

From the LA Times, we have David Streitfeld writing a typical melodramatic tear-jerker: A loan that'll get ugly fast.

Every day, Will Hertzberg owns a little less of his three-bedroom house in Corona.

Like hundreds of thousands of other homeowners around the state, Hertzberg has a mortgage that lets him choose how much he pays each month.

Like many of them, he always chooses to pay as little as possible.

For the moment, this allows the 56-year-old Hertzberg to continue living in his tract home despite being only marginally employed. But his debt is swelling, and his mortgage company controls his fate.

Hertzberg could sell now, but his lender would charge him an $11,034 prepayment penalty — money he doesn't have. Yet if he stays, the housing market may tank, vaporizing what little equity he has left.

"I made choices, and they happened to be the wrong choices," said Hertzberg, a big guy who lives alone amid the clutter of decades of memorabilia.

One of his options is to pay $2,513 a month. That would cover the principal and interest as if it were a traditional 30-year loan.

A second possibility is to pay $2,279, which would cover only the interest.

But each month he always takes the cheapest option: paying $1,106 and promising to make up the shortfall later.

Hertzberg bought his house 11 years ago for $129,995, immediately after his second divorce. (He has no children.) Since then, Corona and the Inland Empire have boomed.

Comparable homes in his neighborhood fetch more than $400,000. With fresh paint and a few repairs, Hertzberg could probably sell his place for $275,000 more than he paid.

He would see little of that, however, because he's already seen so much. Over the years he has taken out $190,000 in cash through refinancings.

Hertzberg's home equity paid off his credit cards, financed trips around the world that allowed him to indulge his passion for photography, bought a $32,000 Toyota Avalon and enabled some lousy investments. He bought dot-com stocks and lost money. To recoup those losses, he bought commodities — and lost money faster.

"Free money always has the unfortunate effect of making people go overboard," said Hertzberg, whose living room is strewn with financial publications including American Cash Flow Journal and Donald Trump's "How to Get Rich." "You'd be surprised how fast $190,000 can go."

The money wasn't really free, of course. It just seemed that way, the result of a radical shift during the last decade in how people view their homes.

"Homeownership has become like auto leasing, where the price of the car doesn't matter," said Rick Soukoulis, chief executive of LoanCity, a San Jose lender that funded $7 billion in mortgages in 2005. "All that matters is the size of your monthly payment."

Lenders say these new loans are all about payment choice, but Hertzberg is far from the only borrower who invariably chooses the smallest payment option. Washington Mutual Inc., which has one of the nation's largest portfolios of pay option loans, said 47% of its borrowers in this category last December took the minimum option.

Few people intend to become deeper in debt every month. Hertzberg certainly didn't.

"I assumed my future and my retirement would be taken care of by the company I worked for," he said. "I trusted corporate America."

He used to make a six-figure income selling vacation packages to corporations that would use them as customer incentives and employee bonuses. After the 9/11 terrorist attacks, the business soured.

His current sources of income include selling comic books on EBay and freelance photos to golf and travel publications. "Once you're over 55, what employer wants to hire you?" he asked. "I'm a dinosaur."

Last fall, he went to a mortgage broker and refinanced again to make his payments easier to bear. He thought he would have a five-year window before the principal started coming due.

But the day of reckoning is arriving early. By paying the minimum, Hertzberg has increased the size of his loan in a little over a year from $320,000 to $332,616. His lender, Calabasas-based Countrywide Financial Corp., recently sent him a letter warning that when his loan hits 115% of its original size he'll run out of credit with the company.

That will happen in about two years if he continues to take the smallest payment option. Then his minimum payment will automatically go up 150%, to $2,848 a month.

"If I could afford that," he said, "I wouldn't have needed this loan in the first place."

"I am rather screwed," he said.

Yes, you are!

If Hertzberg is living on borrowed time, there's small comfort in the home finance industry's endless inventiveness. It's certainly trying to tempt him. Several times a week, he gets a refinancing offer in the mail.

The latest one suggested a certain unfamiliarity with basic English, proclaiming, "Economic forecast suggests you Interest Rate will increase 1.00% every six months." But its central message was clear: "We can solve your problem in 15 minutes over the phone."

Hertzberg always looks at these fliers, hopeful in spite of himself. "I'm waiting for a 100-year loan," he said. "My heirs can worry about paying it off."

Why would your heirs work hard to bail you out of your bad decisions?