How do you feel about debt?

[PandaBear]

Anyway, the banking cartel and bank lobby would never allow Washington to require the proper education, lets say, replace the last two years of gym class with actual knowledge of finance.
SO ends todays rant *LOL* I really am not some horrible person my posts may sound like, I just care about people and boy, corporations have got the human brain figured out for maximum profit.

Welcome to Democracy!

When the whole community is math illiterate and financial illiterate, they look at jobs, country of origin, payment per month, "someone has a new smart phone so he must be stupid with money", "debts are evil", etc then you can bet any way to educate finance and leverage are "ideology push down our throat" and "they are pollution to our children's mind".

IMO it is even worse when the school system try to shove arts and creativity to our children instead of focusing math and science on their curriculum. (my whole families are art teachers, artists, went to art school, etc except me, none of them make a above middle class income doing art, they all self taught investment or work some 9to5 jobs with self taught skills instead).

I have a lot more beef with the medical and biological side of this too but that'll likely lock up on the banned subject, so I'll skip that.

 

[alarmguy]

Your location matters. Some area has a lot of land, and cheap construction cost (near border so lots of migrant construction workers, legal or not), with lax building code so the homes are likely build for 30 years of lifespan before needing major improvement but much cheaper. Then there're places where the home cost is high because the area is transforming from low income jobs to high income, lots of people moving in but not many ways to build, etc. So you can try all you want to save up to 20% and a 15 year fix before you decide to buy a home, and either rent before you get there or you can decide not to take a job and move a family before that.

So the equation becomes:

1) low cost low income area: it's your choice, your home likely won't appreciate much as it age, there'll be lots of land to build new community on and you can sell your home when it is used up to recoup the cost, likely break even with some appreciation.

2) med cost med income area: same as above, you may want to retire in it because the area is nice but you will wait for some time before you can buy a place you live in, you are placing bets on whether your savings will catch up faster than your desired homes' appreciation. Are you feeling lucky locking in a higher mortgage cost (borrow more) or locking in an earlier price? Are you feeling lucky?

3) high cost high income area: well you sort of are paid high income so you can live there. You are betting between say, in my area, a $8k a month rent for a home in a good school (because you likely value education if you are paid that much due to your education), or you are paying maybe $3k a month for private school, or you are paying $15k a month on opportunity cost to mortgage interest / prop tax / insurance / opportunity cost. It really has no way around it when all your company's competitors are paying their employees with stock money that land some lucky fellows (not all, but enough to drive up the one who want to buy a home) $600k a year per couple in the last several years (no guarantee for the next several years of course) to drive up the local home prices.

4) Move somewhere to make 30% less and get massive home price discount. We are seeing that in this pandemic like crazy. IMO this will balance out the equation in a bigger area (averaging Austin with Bay Area and Seattle, averaging out Texas with Utah and Montana, for example).



So, depends on your income level and local market, 20% down and 30 years fix can be the right choice. Remember interest rate don't stay the same so your 15 years fix at 6% can be less affordable than 30 years fix at 3%. Do you want to wait till you save up enough to buy with 15 year fix but the interest rate rise to 6%? or do you think 30 years fix now at 3% is worth locking into?

A lot of this is speculation on area and interest rates and Im not up for the discussion in here, its too involved and way, way too much speculation on any given area or state for that matter. High cost areas can turn into low cost areas, low cost areas can turn into high cost areas. over a 30 year period.
Maybe missing my point too. My point is, many Americans have way more money to pay down a 15 year mortgage IF they would live within their means. They don't need expensive pay TV packages, Cell phones and cars, Its living within your means and being responsible instead of leaning on a third party to borrow money from their whole lives.
I dont really know any young couple buying their first home that actually saves up the 20% down payment in a high cost area you speak of anymore either.
Its all good, I see your point and dont disagree on everything but for me, instead of speculation, not leaning on banks to borrow money is a mindset for me and its pays off. I want to be the one lending it if I could. Hence the banking industry profits.

 

[JeffKeryk]

You NEVER have a home "free and clear". NEVER. Not ever. It does not happen.

I suppose you are talking about property taxes and upkeep. Those are recuring operating costs, much the same as our cars.
I would hope you understand I am talking about home mortgages which are simply financial tools. Using other people's money to acquire an asset. Buying money, if you will.

 

[Jarlaxle]

I suppose you are talking about property taxes and upkeep. Those are recuring operating costs, much the same as our cars.
I would hope you understand I am talking about home mortgages which are simply tools. Using other people's money to acquire an asset. Buying money, if you will.

Yes, property taxes and an unpaid part-time job. I don't miss either one.

 

[Andrew1972]

Yes, property taxes and an unpaid part-time job. I don't miss either one.

Property taxes on paid for home rise slowly. The challenge is rent you have no control on that rent. It has at least doubled if not tripled in my area in coastal New England in last 10 years. Condo seems to be a good compromise of upkeep if not into it.

 

[nomas]

People use the argument that you can make more money on your investments than what you're paying in mortgage interest . This is true but there's another thing to consider , and that's cash flow . When I retired , I used some of my savings to pay off the mortgage . This free'd up a bunch of monthly income to give us a cushion to live off of . When I told my financial advisor what I wanted to do he said he understood and wouldn't try to talk me out of it . We gave it a lot of thought and stand by our descision .

 

[PimTac]

A lot of this is speculation on area and interest rates and Im not up for the discussion in here, its too involved and way, way too much speculation on any given area or state for that matter. High cost areas can turn into low cost areas, low cost areas can turn into high cost areas. over a 30 year period.
Maybe missing my point too. My point is, many Americans have way more money to pay down a 15 year mortgage IF they would live within their means. They don't need expensive pay TV packages, Cell phones and cars, Its living within your means and being responsible instead of leaning on a third party to borrow money from their whole lives.
I dont really know any young couple buying their first home that actually saves up the 20% down payment in a high cost area you speak of anymore either.
Its all good, I see your point and dont disagree on everything but for me, instead of speculation, not leaning on banks to borrow money is a mindset for me and its pays off. I want to be the one lending it if I could. Hence the banking industry profits.

Again it’s up to the individual to determine their destiny, financially or socially. Many have trouble figuring out what to do each day.

Cable television is a ripoff. That is a easy one to cherry pick if one is trying to pare their spending. Smoking and drinking is another. That’s a double winner since you will be improving your health as well.

Cell phones/smartphones are blamed a lot here but in many cases they are cheaper to own than a landline and in my area residential landlines are gone. Getting a new one each time the latest model rolls out is overkill. Use it until it no longer meets your needs then upgrade.

There is so much that one can do to cut spending. Cook your own meals instead of eating out for one. Be realistic about the cars you purchase. Expensive vacations, the list goes on.


Do you really need it?

Do you absolutely have to have it?

Two questions to ask yourself when you are ready to purchase anything. It is a matter of discipline.

 

[PandaBear]

A lot of this is speculation on area and interest rates and Im not up for the discussion in here, its too involved and way, way too much speculation on any given area or state for that matter. High cost areas can turn into low cost areas, low cost areas can turn into high cost areas. over a 30 year period.
Maybe missing my point too. My point is, many Americans have way more money to pay down a 15 year mortgage IF they would live within their means. They don't need expensive pay TV packages, Cell phones and cars, Its living within your means and being responsible instead of leaning on a third party to borrow money from their whole lives.
I dont really know any young couple buying their first home that actually saves up the 20% down payment in a high cost area you speak of anymore either.
Its all good, I see your point and dont disagree on everything but for me, instead of speculation, not leaning on banks to borrow money is a mindset for me and its pays off. I want to be the one lending it if I could. Hence the banking industry profits.

All good. I think as I grow older I realize there is no way to go around speculation in life. We no longer have any guarantee for life things anymore other than maybe 30 years fixed mortgage (and even then it is just 30 years guarantee). Look at marriage, there's an even lower guarantee than the mortgage.

Picking career, picking jobs, picking schools, picking spouse(s), picking retirement investment, picking how many kids to have, guessing if they are healthy, speculating if they will be genetically defective so you may not want to have them (or regrets when you are old), which home to buy, pay off mortgage first vs invest in index fund, whether to sell the house to retire somewhere else, whether to work really hard and risk dying early due to stress, whether to have 2 incomes and lesser earning / career growth each vs 1 focus on career and 1 a home maker, etc. These are all speculations, no way to avoid it in life other than maybe staying life in prison without parole.

 

[PandaBear]

People use the argument that you can make more money on your investments than what you're paying in mortgage interest . This is true but there's another thing to consider , and that's cash flow . When I retired , I used some of my savings to pay off the mortgage . This free'd up a bunch of monthly income to give us a cushion to live off of . When I told my financial advisor what I wanted to do he said he understood and wouldn't try to talk me out of it . We gave it a lot of thought and stand by our descision .

People tends to forget that as you pay off debt like mortgage, car payment, student loans, etc you are freeing up the emergency fund you may need, giving you a bigger tolerance of risk, so you can take more risk in life that may reward you with bigger return. Yes the financial advisors with their own math cannot quantify this but YOU can, determine what can make you sleep better at night and take some risk in career that you would probably be too scared to take if you pay off your mortgage and have some FXXX YXXX money, give you some balls to do what you think is right.

Of course, in the end it takes discipline. People who take the effort to pay off mortgage tend to be more disciplined and therefore maybe just a correlation vs a causality.

 

[Dave Hess]

That’s a plus. I’ve been lucky to always be able to pay my bills when I get them and save. Now, I’m with mom and stepdads financial planner/advisor. Plus I usually (read: always) have cash on me.

Keep it up and you will always sleep well at night knowing you are not under a mountain of debt.

Ive met people that are paycheck to paycheck but from the outside they look like they are doing well financially.

Just wait till the wave of foreclosures are allowed to take place and the posers lose everything.

 

[Dave Hess]

All good. I think as I grow older I realize there is no way to go around speculation in life. We no longer have any guarantee for life things anymore other than maybe 30 years fixed mortgage (and even then it is just 30 years guarantee). Look at marriage, there's an even lower guarantee than the mortgage.

Picking career, picking jobs, picking schools, picking spouse(s), picking retirement investment, picking how many kids to have, guessing if they are healthy, speculating if they will be genetically defective so you may not want to have them (or regrets when you are old), which home to buy, pay off mortgage first vs invest in index fund, whether to sell the house to retire somewhere else, whether to work really hard and risk dying early due to stress, whether to have 2 incomes and lesser earning / career growth each vs 1 focus on career and 1 a home maker, etc. These are all speculations, no way to avoid it in life other than maybe staying life in prison without parole.

Thats why I’m content with the many decisions I’ve made and don’t dwell on the ‘What If” hypothetical questions I would ask myself that would drive me crazy.

 

[Wolf359]

Not to derail an excellent thread, but as someone who has spent three decades in law enforcement and investigated thousands of accidents, she could also be charged with negligence and/or reckless operation (depending on the jurisdiction) for not having adequate tires. Not to mention in some states the ability for an officer to revoke registration roadside due to the car not being able to pass inspection, and the subsequent insurance problems once the insurance carrier learns that the vehicle owner caused a crash due to poor tires.

It's an interesting point, but let's say that the tires were at the legal minimum which is 2/32's but in snow, they say you should have at least 5/32's worth of tread. So you can still have bad tires, but not be in any legal violation. It could even have been 3 or 4/32s and you would still have trouble in the snow.

 

[JeffKeryk]

People use the argument that you can make more money on your investments than what you're paying in mortgage interest . This is true but there's another thing to consider , and that's cash flow . When I retired , I used some of my savings to pay off the mortgage . This free'd up a bunch of monthly income to give us a cushion to live off of . When I told my financial advisor what I wanted to do he said he understood and wouldn't try to talk me out of it . We gave it a lot of thought and stand by our descision .

And then there's risk. Gimme a known everyday. Having the house paid off is an incredible feeling. Then you can buy a bunch of stupid cars, like I did. And not have a care in the world. People around here pay $1,500 to rent a room. Rents are insane, a 1 bedroom apartment starts at $2,500 per month. Me? I have peace of mind.

 

[hrv]

Keep it up and you will always sleep well at night knowing you are not under a mountain of debt.

Ive met people that are paycheck to paycheck but from the outside they look like they are doing well financially.

Just wait till the wave of foreclosures are allowed to take place and the posers lose everything.

I sleep very well.....No debt period.........

 

[alarmguy]

"investments" are speculation.
Paying off a mortgage and living within your means in a mature fashion is a solid investment with almost no downside. Paying 15 years worth of interest with almost no significant reduction in the debt is a great "investment" once which frees someone from the lending companies.
As I pointed out in post number 149 of this thread. Why would someone not consider an investment paying off a mortgage in a timely 15 years?

Dont they realize this is an investment and the example I posted shows they pay the bank $180,000 less in interest by taking out a 15 year mortgage rather then pretend someone has money to invest by taking out a 30 year mortgage.
$180,000 less interest paid to the bank, vs speculation in putting your money someplace else instead of paying off your obligations first.

Once your mortgage is paid off, your home free and clear, you can dump an additional 15 years worth of money into whatever investments that you want with a fully paid off house. Not paying off a mortgage in a timely fashion of 15 years is more of a lack of financial understanding for the general public or an excuse for others to live a life they shouldn't be living, only a small percentage of people can put the money to work risk free by delaying paying off a debt for another 15 years and come out ahead.

 

[SwampSurvivor]

I try to avoid it where necessary. There's been a lot of cool stuff I've wanted over the years but passed on because it would lead to something being put on a credit card. Yeah, it would have been cool to have, but no way do I need that.

I'll likely always have a mortgage. And the student loans will follow me to the grave.

The only debt I really regret is the student loans. Going to college was the biggest mistake of my life.

 

[javacontour]

Part true but "investments" are speculation.
Paying off a mortgage and living within your means in a mature fashion is a solid investment with almost no downside. Paying 15 years worth of interest with almost no significant reduction in the debt is a great "investment" once which frees someone from the lending companies.
As I pointed out in post number 149 of this thread. Why would someone not consider an investment paying off a mortgage in a timely 15 years?

Dont they realize this is an investment and the example I posted shows they pay the bank $180,000 less in interest by taking out a 15 year mortgage rather then pretend someone has money to invest by taking out a 30 year mortgage.
$180,000 less interest paid to the bank, vs speculation in putting your money someplace else instead of paying off your obligations first.

Once your mortgage is paid off, your home free and clear, you can dump an additional 15 years worth of money into whatever investments that you want with a fully paid off house.

True, but I can look at how much my 401(k) has grown over the past 14 years of paying on my home and see that I'm 3x to 4x better off investing.

But if one cannot do that, then yes, pay off the home. Again, that also is speculation. It's speculation that one will do better paying off the home than putting the money in the market. Looking at the past 40 years of the S&P500, averaging about 9.5% annually over that range, it seems to me the money is better employed in the market. Not every year goes up. But in the down years, if one kept buying, they added more shares like a sale at Macy's.

So it's all speculation. One has to look at the pluses and minuses and their personal relationship with money to find a path that works best for them.

So yes, I can pay $180k less in interest and forego $500-600k in returns over that same period. To me, opportunity cost of the paid off mortgage isn't worth the benefit of a paid off mortgage.

 

[alarmguy]

True, but I can look at how much my 401(k) has grown over the past 14 years of paying on my home and see that I'm 3x to 4x better off investing.

But if one cannot do that, then yes, pay off the home. Again, that also is speculation. It's speculation that one will do better paying off the home than putting the money in the market. Looking at the past 40 years of the S&P500, averaging about 9.5% annually over that range, it seems to me the money is better employed in the market. Not every year goes up. But in the down years, if one kept buying, they added more shares like a sale at Macy's.

So it's all speculation. One has to look at the pluses and minuses and their personal relationship with money to find a path that works best for them.

So yes, I can pay $180k less in interest and forego $500-600k in returns over that same period. To me, opportunity cost of the paid off mortgage isn't worth the benefit of a paid off mortgage.

You have 600,000 in unrealized gains until you cash out your 401k or move it to cash. That money can be gone this week. Your home will still be there with a mortgage obligation to pay. Hey, as my last post says, which I was editing it as you posted a reply. It works for some people but not the vast majority. People are always heroes in a bull market and one does not know that maybe one would have done better if they paid the house off first and invested in the market 15 years later.

Its a methodology, its hard to get in trouble if you dont owe other people boatloads of money and your putting your own money to work by not owing. Its like borrowing money from a loan shark to gamble on a horse race, in good times, everyone is a hero until ...

Lets put it this way, by not paying 180,000 less in interest you made $600,000 and that is all great but you got lucky, you had no way to know the market would do what it has done over that time but you did know you would have to pay that extra $180,000 in interest by paying off your home in 30 years instead of 15 and if you dont cash out, you could lose half or more of it in the next 15 years but you will still be stuck with that 180,000 in extra payments.
Lets face it, banks survive on other peoples money, there is a reason for that, lending money and collecting interest is a sure thing win win.

The worlds finances are a mess right now and every market around the globe is propped up by governments printing paper with nothing to back it up. Look at our own, the Fed owns 8 trillion dollars in our own equities market, all bought with fake money, look at our national debt, as a people we keep looking for government to make our lives easy, so we keep borrowing and expect bailouts. Look at college loans, what a mess after government got into that business. The world and this country is awash in red ink, again, not everyone like you but there are a lot more who are debt free and have nothing to worry about.
My wife and I have 401k's ... scares the heck out of me, I also have self directed Roth and feel much more secure. Hope you see I dont completely disagree with you but the vast majority ? Up to their necks in debt? No so much, its going to happen. Not sure when but we are debt free so not as concerned. I also own some real property other then my primary. S diversified we are but can still get damaged in a massive downfall, yet will always have our home.

http://usdebtclock.org

___

 

[alarmguy]

So what generation will start paying off this debt? Who will be stuck in the equities/stock market?
Its just not going to go away, debt is a drug, always an excuse to "use" it.
Lets not forget Japan, where it took roughly 20 years (two decades) for their stock market to get back to the level it is today and Japan still has a mountain of debt. Someone always pays.

USA 1990 (only 20 years ago!)

USA TODAY=

USA for the next president in 2026

 

[javacontour]

You have 600,000 in unrealized gains until you cash out your 401k or move it to cash. That money can be gone this week. Your home will still be there with a mortgage obligation to pay. Hey, as my last post says, which I was editing it as you posted a reply. It works for some people but not the vast majority. People are always heroes in a bull market and one does not know that maybe one would have done better if they paid the house off first and invested in the market 15 years later.

Its a methodology, its hard to get in trouble if you dont owe other people boatloads of money and your putting your own money to work by not owing. Its like borrowing money from a loan shark to gamble on a horse race, in good times, everyone is a hero until ...

Lets put it this way, by not paying 180,000 less in interest you made $600,000 and that is all great but you got lucky, you had no way to know the market would do what it has done over that time but you did know you would have to pay that extra $180,000 in interest by paying off your home in 30 years instead of 15 and if you dont cash out, you could lose half or more of it in the next 15 years but you will still be stuck with that 180,000 in extra payments.
Lets face it, banks survive on other peoples money, there is a reason for that, lending money and collecting interest is a sure thing win win.

The worlds finances are a mess right now and every market around the globe is propped up by governments printing paper with nothing to back it up. Look at our own, the Fed owns 8 trillion dollars in our own equities market, all bought with fake money, look at our national debt, as a people we keep looking for government to make our lives easy, so we keep borrowing and expect bailouts. Look at college loans, what a mess after government got into that business. The world and this country is awash in red ink, again, not everyone like you but there are a lot more who are debt free and have nothing to worry about.
My wife and I have 401k's ... scares the heck out of me, I also have self directed Roth and feel much more secure. Hope you see I dont completely disagree with you but the vast majority ? Up to their necks in debt? No so much, its going to happen. Not sure when but we are debt free so not as concerned. I also own some real property other then my primary. S diversified we are but can still get damaged in a massive downfall, yet will always have our home.

http://usdebtclock.org

___

I am relatively debt adverse. Not against it. I just want to use it wisely.

I've never bought more house than I could afford on just my salary. In fact, I think my first home was 1/3rd of what the lender said I could afford to buy. I realize that's easier to do in the Midwest than on the coasts.

But when oilBabe retires in June of 2024, we can still easily afford our mortgage. (It's less than what our daughter is paying in rent in Seattle.)

Now it is time to sell the 4 bedroom home since we are the only ones here. The problem right now is where do we rent for a while as homes are in relatively short supply here.

We also have unrealized gains in our home, but also have to have a place to live. So selling really isn't in the cards today.