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Posts

  • QuetzatcoatlQuetzatcoatl Registered User regular
    edited December 2009
    ಠ_ರೃ wrote: »
    If you're a dude with a regular well paying job living in your parents home it's perfectly possible to save up enough to buy a home in just a few years.

    And you probably should, because if you are mortgage free you have a lot more financial freedom it seems.

    If you don't understand what the time value of money is and investing then you may also be losing money when you think you are being smart.

    Sitting on a savings account until you get 200k instead of getting a mortgage, writing off a ton on taxes, and investing the 180k in bonds or anything low risk is a lot of lost potential.

    I can't really do the math without looking up some stuff while at work, but it's not clear that paying up front is better, and with the investment market and security in the US I would say it is likely that the factors need to line up in a very specific way to make mortgages worse.

    The real factor is making sure you have a good interest and a steady source of income so you don't default.

    Quetzatcoatl on
  • Salvation122Salvation122 Registered User regular
    edited December 2009
    PantsB wrote: »
    Cauld wrote: »
    ಠ_ರೃ wrote: »
    I thought purchasing a home outright is always better than getting a long ass mortgage?

    not in the US, if its your first home.

    Always. Please show me the math.

    Closing costs, PMI and interest paid are tax deductable. There is also currently a $8K tax-free incentive. As its entirely possible $8K > .65 * associated fees, its currently possible for getting a mortgage and paying it off quickly could be better than just buying it. I bought a ~330K house (30 year mortgage) this year and while I've repressed many of the very large numbers involved I don't think my fees exceeded 12K.

    I work in mortgage financing, and paying cash up front is always a better option. Tax deductions, rebate, etc. don't lower the total cost of a 30 year mortgage by more than 50%, or am I missing something?

    I suspect that they might when coupled with inflation, but that's just a gut feeling.

    Salvation122 on
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  • ಠ_ರೃಠ_ರೃ __BANNED USERS
    edited December 2009
    The real factor is making sure you have a good interest and a steady source of income so you don't default.


    The steady source of income bit is the trouble with a mortgage.

    Also, writing off money on taxes because of a mortgage seems good, but wouldn't it be equally better to just not have to pay the mortgage in the first place?

    And what about when you go to sell this property

    ಠ_ರೃ on
    New Year’s Eve is the best. For one magical night, even the most straight-laced babe feels socially obligated to get blindingly drunk and act like a total whore. Pretty daddy’s girls with blond hair and tight asses swill cheap champagne and toss back shots of peach schnapps until they’re flashing their big, firm tits at any chump who wanders by.
  • Salvation122Salvation122 Registered User regular
    edited December 2009
    ಠ_ರೃ wrote: »
    The real factor is making sure you have a good interest and a steady source of income so you don't default.


    The steady source of income bit is the trouble with a mortgage.

    Also, writing off money on taxes because of a mortgage seems good, but wouldn't it be equally better to just not have to pay the mortgage in the first place?

    Presuming the value of the house appreciates above the total cost of the mortgage, no.

    Salvation122 on
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  • ಠ_ರೃಠ_ರೃ __BANNED USERS
    edited December 2009
    ಠ_ರೃ wrote: »
    The real factor is making sure you have a good interest and a steady source of income so you don't default.


    The steady source of income bit is the trouble with a mortgage.

    Also, writing off money on taxes because of a mortgage seems good, but wouldn't it be equally better to just not have to pay the mortgage in the first place?

    Presuming the value of the house appreciates above the total cost of the mortgage, no.

    Well I guess it depends where you live.

    Around here, property values have dropped drastically.

    ಠ_ರೃ on
    New Year’s Eve is the best. For one magical night, even the most straight-laced babe feels socially obligated to get blindingly drunk and act like a total whore. Pretty daddy’s girls with blond hair and tight asses swill cheap champagne and toss back shots of peach schnapps until they’re flashing their big, firm tits at any chump who wanders by.
  • PantsBPantsB Registered User regular
    edited December 2009
    ಠ_ರೃ wrote: »
    If you're a dude with a regular well paying job living in your parents home it's perfectly possible to save up enough to buy a home in just a few years.

    And you probably should, because if you are mortgage free you have a lot more financial freedom it seems.
    Median home price is (depending on region) 150K-240K. Median individual income is 32K. At a 100% savings rate, you're still talking 5 to 8 years worth of income, and that's before one considers taxes and normal expenses such as transportation, food and clothing.

    PantsB on
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    QEDMF xbl: PantsB G+
  • ಠ_ರೃಠ_ರೃ __BANNED USERS
    edited December 2009
    I imagined incomes higher than 32k.

    A person in a region of high incomes can potentially save up enough in only a few years to go live somewhere cheaper.

    ಠ_ರೃ on
    New Year’s Eve is the best. For one magical night, even the most straight-laced babe feels socially obligated to get blindingly drunk and act like a total whore. Pretty daddy’s girls with blond hair and tight asses swill cheap champagne and toss back shots of peach schnapps until they’re flashing their big, firm tits at any chump who wanders by.
  • SavantSavant Registered User regular
    edited December 2009
    The thing about mortgages is that they give you leverage on getting property, with a varying amount depending upon how much money you put down. With leverage you use debt to supplement an investment position, which amplifies the gains or losses you have on your initial investment. With a mortgage on a house your initial investment is the down payment.

    So when you have a housing boom where the prices are continually rising and you get a low down payment or no down payment mortgage you can have a hefty return on your property value with a relatively small up front investment which will likely offset the cost of financing. When you have a housing bust and the price of your home stagnates or decreases you can go upside down on your mortgage and lose your shirt.

    The US recently had the first scenario, and the overleveraging in the boom led to the second scenario, wiping a lot of people out. Leverage is powerful but can be extremely risky, and it can completely fuck things over if you have way too much of it.

    Savant on
  • mcdermottmcdermott Registered User regular
    edited December 2009
    PantsB wrote: »
    PantsB wrote: »
    Cauld wrote: »
    ಠ_ರೃ wrote: »
    I thought purchasing a home outright is always better than getting a long ass mortgage?

    not in the US, if its your first home.

    Always. Please show me the math.

    Closing costs, PMI and interest paid are tax deductable. There is also currently a $8K tax-free incentive. As its entirely possible $8K > .65 * associated fees, its currently possible for getting a mortgage and paying it off quickly could be better than just buying it. I bought a ~330K house (30 year mortgage) this year and while I've repressed many of the very large numbers involved I don't think my fees exceeded 12K.

    I work in mortgage financing, and paying cash up front is always a better option. Tax deductions, rebate, etc. don't lower the total cost of a 30 year mortgage by more than 50%, or am I missing something?

    I was thinking the tax credit was only good if you got a mortgage (which I'd assume is the case 99% of the time for first time homebuyers). A quick googling suggests its not a requirement. So I was suggesting that getting a mortgage and then quickly paying it off could conceivably be better than just buying but that doesn't appear to be accurate.

    It is conceivable for not paying up front could be better, but only if your rate of return on your investment was greater than that of your mortgage interest rate and the way banking works that's fairly unlikely.

    It also depends what your mortgage rate is. Mine is at like 5%, which it isn't really hard to get a 5% return on your investments. Or even a little less than 5%, if you count the tax deductions. And given no pre-payment penalties, you can always pay down the mortgage quickly and pay very little in interest, and the additional flexibility that keeping your cash (relatively) liquid (compared to a house) is probably worth it.

    And that's before you get into considerations like being able to increase contributions to employer-matched retirement funds and the like. And let's not forget inflation.

    I'm failing to see how paying cash up front can be any more than marginally better unless you're financing at like rape%. Which, I realize, can sometimes be the case. But at 5%-7%? Seems like a mortgage is the better option, even if you have the cash.

    mcdermott on
  • The Crowing OneThe Crowing One Registered User regular
    edited December 2009
    mcdermott wrote: »
    PantsB wrote: »
    PantsB wrote: »
    Cauld wrote: »
    ಠ_ರೃ wrote: »
    I thought purchasing a home outright is always better than getting a long ass mortgage?

    not in the US, if its your first home.

    Always. Please show me the math.

    Closing costs, PMI and interest paid are tax deductable. There is also currently a $8K tax-free incentive. As its entirely possible $8K > .65 * associated fees, its currently possible for getting a mortgage and paying it off quickly could be better than just buying it. I bought a ~330K house (30 year mortgage) this year and while I've repressed many of the very large numbers involved I don't think my fees exceeded 12K.

    I work in mortgage financing, and paying cash up front is always a better option. Tax deductions, rebate, etc. don't lower the total cost of a 30 year mortgage by more than 50%, or am I missing something?

    I was thinking the tax credit was only good if you got a mortgage (which I'd assume is the case 99% of the time for first time homebuyers). A quick googling suggests its not a requirement. So I was suggesting that getting a mortgage and then quickly paying it off could conceivably be better than just buying but that doesn't appear to be accurate.

    It is conceivable for not paying up front could be better, but only if your rate of return on your investment was greater than that of your mortgage interest rate and the way banking works that's fairly unlikely.

    It also depends what your mortgage rate is. Mine is at like 5%, which it isn't really hard to get a 5% return on your investments. Or even a little less than 5%, if you count the tax deductions. And given no pre-payment penalties, you can always pay down the mortgage quickly and pay very little in interest, and the additional flexibility that keeping your cash (relatively) liquid (compared to a house) is probably worth it.

    And that's before you get into considerations like being able to increase contributions to employer-matched retirement funds and the like. And let's not forget inflation.

    I'm failing to see how paying cash up front can be any more than marginally better unless you're financing at like rape%. Which, I realize, can sometimes be the case. But at 5%-7%? Seems like a mortgage is the better option, even if you have the cash.

    I think my comments have been taken very much out of their context. I was speaking without variables, in two separate "homebuyer" scenarios and comparing them at that single moment.

    Of course it's a better investment to get the mortgage as opposed to spending years building up the cash. My point earlier was on the "value" of the dollar spent to purchase outright versus the value of borrowed money, and how value is significantly less per $1 when money is borrowed for a 30-year term mortgage.

    More to the point, paying no interest is more economically viable for long-term (30 years) profit, especially within this housing market. The scenario assumes that one doesn't "flip" a property for profit pretty quickly, a strategy that worked for many during the bubble as they were able to get "interest only", low mortgages that would allow them to make a minimal investment for an up to 15% annual appreciation rate.

    At a modest 5-6% appreciation rate (it was around 13% in the bubble in 2005), a 100k home would appreciate about 30k in five years. At 15%, it would appreciate to around 200k, doubling in value (assumption that the home was owned from 2001-2006ish).

    Combined with tax incentives, especially for first-time buyers, now, it is absolutely more worthwhile to take a mortgage with the attempt to flip in 2-5 years. The bubble bursting screwed anyone with this plan post 2007ish.

    But as a long-term investment for a family home (which is what most middle-class and lower buyers are doing) it is certainly less expensive to purchase outright (theoretically). Again, the wrench in the cogs is selling the home previous to maturity of the loan, but again, one who has the easy ability to invest cash outright is seeing a straight return as opposed to one that is mitigated by interest, unpaid principle and flux in market prices.

    It comes down to risk and value. I get blindsided by risk in many cases, as I tend to elevate a "safe" investment as more soluble than a "risky" investment. In each case, the mortgage (for a working or middle-class family) remains a risk. The gamble between market, interest and sheer "bad luck" can throw a wrench in the gears.

    Unemployment, which is an issue here and now, can be the absolute death of a mortgage investment. Not only does it it less than a year to foreclose (and usually after 3 months of delinquent payments it gets even more difficult to "catch up"), mortgage servicing companies can and will inflate principle balance through attaching fees and costs to any delinquency. I've seen principle balances rise 25%+ somewhat commonly due to the "you can't pay your debt? the solution is to make you pay more!" attitude that lending has been attempting to take to an extreme.

    But now we're approaching all of the crazy variables that make investing work.

    As a short-term investment, a mortgage is generally the better and more effective way to go. For long-term investment in real estate, an outright purchase grants better value per dollar. Again, this doesn't go into questions like "what if I had invested 80% of the cost of the home in a mutual fund?" etc.

    The Crowing One on
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  • ಠ_ರೃಠ_ರೃ __BANNED USERS
    edited December 2009
    You'd still have to have the money in the mutual fund for quite sometime before you saw good profit out of it. You probably wouldn't have much if you went to cash in 2 or 5 years later.

    Of course, if there was ever an emergency such as unemployment and you needed to make payments you could always take out money from the mutual fund, so there isn't as much of a risk anymore. Unless the fund implodes. But just set a stop loss.

    Actually, this isn't gonna work.

    ಠ_ರೃ on
    New Year’s Eve is the best. For one magical night, even the most straight-laced babe feels socially obligated to get blindingly drunk and act like a total whore. Pretty daddy’s girls with blond hair and tight asses swill cheap champagne and toss back shots of peach schnapps until they’re flashing their big, firm tits at any chump who wanders by.
  • The Crowing OneThe Crowing One Registered User regular
    edited December 2009
    Came across this in the HuffPost this morning. Seems relevant. While transferring enough funds from "Big Banks" to "Community Banks" seems like a liberal pipe-dream, there's something to the notion that strengthening community lenders to take on low and moderate-income lending would avoid a great deal of the issues that were created by the big boys on Wall St.

    The Crowing One on
    3rddocbottom.jpg
  • SavantSavant Registered User regular
    edited December 2009
    Came across this in the HuffPost this morning. Seems relevant. While transferring enough funds from "Big Banks" to "Community Banks" seems like a liberal pipe-dream, there's something to the notion that strengthening community lenders to take on low and moderate-income lending would avoid a great deal of the issues that were created by the big boys on Wall St.

    Unfortunately, I'm not sure how much good that would do.

    Our banking system is fractional reserve banking, which means that banks can loan out the bulk of any deposits they receive and only have to keep a small fraction as reserves. For big banks in the US with demand deposits like checking accounts they have to keep 10% on reserve. These reserves either have to take the form of hard currency, or more commonly in the form of an account with the Federal Reserve bank.

    These accounts with the Federal Reserve can be lent between banks, and this is more commonly known as Federal funds. The interest rate on the lending on these reserves is called the Federal funds rate. When you hear on the news about the Federal Reserve setting targets for interest rates, the Federal funds rate is the one they are most directly trying to manipulate, which then will impact other interest rates and the economy as a whole.

    Coming back to the example of moving your money out of the big banks, it is already the case that banks lend to each other in order to satisfy their reserve requirements with the Federal funds market. If I recall correctly a lot of this movement in reserves lending is already in the direction of the smaller community banks lending to the larger national banks, due to the community banks already having a relatively thicker deposit base than the big banks. There's also more general interbank lending going by the LIBOR rate.

    The credit crunch in 2008 seized up this interbank lending quite a bit, but the thing is now we have very heavy government intervention propping up the big banks directly. If they couldn't get help from the sounder smaller banks, then Uncle Sam and the Federal Reserve stepped in to more directly give them money. And, in case you haven't been paying attention to the financial news, the interest rates on this assistance and in general are pretty low.

    If the problem was that the big banks were currently going nuts and giving out crazy loans left and right then trying to erode their depositary base might constrain them somewhat, requiring them to seek money from other sources. However, we are in the aftermath of that madness and a credit crunch, where the big guys have seized up due to their previously existing shitty loans, so instead of in a mad rush to overexpand they are zombies using whatever money they can find just to not fall over dead. The impact this has had in general is that they aren't lending out very much in general, not only reducing their shitty loans but cutting off sound loans and inhibiting financing for the day to day operation of the economy. Cutting off their deposits would make them more zombie like, because they can't just wish away all the bad loans and foreclosures they previously made by themselves.

    If the government had decided to kill off the zombie banks instead of propping them up then the story might be different, but they've made it pretty clear that "too big to fail" is in force so we're stuck were we are.

    Savant on
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