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How I think about debt

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Re: How I think about debt

#171

Post by ckcheng »

voisin wrote: post #67
Nifty3929 wrote: post #59

Earlier quoted context omitted.

I think it's actually the reverse. The house is the only collateral, but traditionally you would still owe the deficit if the collateral couldn't be sold to pay off the whole loan. This is what's changed in recent decades. A lot (most? all?) primary-residence home loans in the US are non-recourse, meaning that you aren't liable for the deficit - you only lose the house.

> A lot (most? all?) primary-residence home loans in the US are non-recourse, meaning that you aren't liable for the deficit - you only lose the house. This is wild. In Canada not only do we all take interest rate risk every 5 years maximum as we can’t lock in for longer (which seems to make our whole society less robust), we can’t refinance early if rates drop without massive penalties eliminating any incentive to d…

> In Canada ... all of our mortgages are full recourse.

Except in Saskatchewan and Alberta [1].

[1]: https://financialpost.com/personal-finance/mortgages-real-es...

Re: How I think about debt

#172

Post by cess11 »

Joel_Mckay wrote: post #161
cess11 wrote: post #139

Earlier quoted context omitted.

You haven't changed my mind, I still think you ought to read Ostrom. "Mankind does not strive for happiness; only the Englishman does". (Friedrich Nietzsche)

Nietzsche spent most of his time in a brothel, and is hardly an authority on moral intellectualism. I actually really respect you have a differing opinion, as most of my data driven conclusions are statistical rather than philosophical in nature. Have a wonderful day, and good luck out there =3

Kinda weird to make stuff up like that. Maybe you're confusing him with Toulouse-Lautrec, known for moral strength rather than moral intellect?

Nietzsche's The Geneaology of Morals is arguably the most important treatise on christian morality in the previous century, possibly that millenium.

Re: How I think about debt

#173

Post by Nicholas_C »

lurking15 wrote: post #57
Brajeshwar wrote: post #13

Today, I started picking up what I started some time back -- the book “Debt: The First 5,000 Years” by David Graeber goes deep into the details of Debt. I've heard good reviews and I hope this is a good book as they say. https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years

I feel like Graeber's book is another (left leaning) fad to glom on to, like Piketty's book some years back. I found this book, The Price of Time by Edward Chancellor [1], very useful for understanding the development of money and debt over history. It's so detailed and clearly extensively researched. [1]: https://www.harvard.com/book/the_price_of_time/

Thanks for the rec. I’ve wanted to read “Debt” for a long time but I recently read Graeber’s book “the Dawn of Everything” and it bent the truth so much every which way to get to his POV that I won’t read another book by him.

Re: How I think about debt

#174

Post by HeyLaughingBoy »

quadyeast wrote: post #100
GenerocUsername wrote: post #92

Earlier quoted context omitted.

You don't HAVE to carry home insurance do you? You can also change policies for different levels of insurance at any time. It's not exactly a debt, but an ongoing service

Banks want to insure the collateral.

To the point where if they're notified that your insurance has lapsed, they will warn you to get replacement coverage, or they will and then bill you for it.

I had a not so fun experience with switching insurance providers at about the same time that my bank was about to make the insurance payment out of escrow.

Re: How I think about debt

#175

Post by Kirby64 »

temporarara wrote: post #166
Kirby64 wrote: post #125

Earlier quoted context omitted.

Anyone buying a house with a mortgage generally is taking a 5:1 leverage (a 5% down loan is 20:1 leverage) position on the house. Making $100k on a $200k investment, with 5:1 leverage means making 100k on a 40k investment, which isn't a 50% return... it's a 250% return. And it's tax free, assuming it's your primary residence (up to 250k cap gains). You have to spend an obnoxious amount on costs to not have it make se…

While there is some "leverage" in mortgage, you actually need to pay the whole sum, and with interest too, so taking a $200k loan means you pay usually something like $250k for it in the end, and this means you have to make $50k profit to not lose. And houses age too. If the location is superb you can justify it as an investment, otherwise it's pure nonsense in every way. Thinking normal housing as an investment is o…

What do you think leverage means?

If I take a leveraged position on a stock via margin trading and the stock goes to $0 (or, more realistically, it dips in value enough that I get a margin call) then I owe the whole balance, not just what I put up as capital. This is true of literally any leverage. And on top of that, I pay a margin rate in the form of an interest payment based on the amount of money I have outstanding beyond my capital. Sounds familiar, right? Because it's exactly identical. The only difference between a mortgage and a margin interest payment is that a mortage is amoritized across the term and is a fixed period, whereas margin interest is indefinite and acts more like a HELOC (i.e., you only pay interest on the amount that you have outstanding... and that amount can vary over time).

I absolutely hate the idea that "paying X in interest means that's money you have to earn in addition to make it worthwhile". No, it's not. It's money you are paying to free up extra capital elsewhere that can be invested more efficiently. Unless you're spending well beyond your means (which, admittedly, some people do), then paying interest on a mortgage payment should mean making much much more elsewhere by investing money you would have spent on buying a house in cash.

Re: How I think about debt

#176

Post by HeyLaughingBoy »

deadbabe wrote: post #20
tombert wrote: post #6

I don't think all debt is equal, and I don't think all debt hurts your ability to handle volatility. I have a 30 year mortgage on my house with a 2.75% interest rate. That has effectively given myself "rent control"; outside of a potential rise of property taxes, my "rent" payment will not exceed a certain number of dollars. That means that if the housing prices rise rapidly, I'm covered. If I had decided not to leve…

Are you going to live in that house for 30 years? What’s your plan when you need to move?

I might. I've lived in it for pretty damn close to 20 years at this point.

Re: How I think about debt

#177

Post by rqtwteye »

WalterBright wrote: post #108
francisofascii wrote: post #26

Earlier quoted context omitted.

People don't realize how risky housing is compared to other investments. It is risky because it is SO MUCH MONEY and it is not diversified at all. If your house loses half its value, that represents hundreds of thousands in losses. And don't think that can't happen. You buy a penny stock for $2K and lose half, no big deal compared to your house. BUT, we need housing, we need a stable school for our kids, or a comfort…

Houses have always been a lousy investment for me. Once you factor in all the costs (property tax, insurance, repairs, 6% real estate commissions, the time the house sits empty waiting for a buyer, etc.) the returns are not that good at all. Most people think: "I bought my house for $200,000 and sold it for $300,000, I made $100,000!!!!!" and neglect to do a proper accounting.

It depends on where you live. In CA renting is usually cheaper than a mortgage for the same property. Here in New Mexico my mortgage (2.6%) is cheaper than renting the same thing. With higher mortgage rates it’s not that clear but it still looks favorable knowing that mortgage stays stable for the next 15 years vs rents constantly increasing.

Re: How I think about debt

#178

Post by tombert »

somenameforme wrote: post #169
tombert wrote: post #36

Earlier quoted context omitted.

Sure, I've said a few negative things about Ivy Leagues being overpriced here in the last few weeks, so I'm not saying you should necessarily get into $400,000 of student loan debt. What I didn't like about his take was that it also kind of also excluded getting into like $20,000-$40,000 of debt to go to a decent state school. That's a bad take; getting a degree (at least in a technical field) substantially increases…

You age is showing a bit with your post. Randomly picking Penn State you get annual costs of $60k+ for out-of-state and $40k+ for in-state. [1] The cost listed on the page is only for tuition/housing. Use the calculator to get estimates for everything else. And that's an anti-cherry picked example, as I wanted to avoid absurdly expensive places like California, but while also going for a well regarded school. You can…

Fair enough, but in fairness not all state schools are created equal. For example, at least one SUNY college (SUNY Empire) is only about $3,535 per semester (at least for tuition) for in-state [1], so assuming eight semesters roughly $30,000. I grew up in Florida, and the first college I went to was Florida State, and tuition is roughly $5,500 as of last year for in-state [2]. I feel like there are plenty of options for perfectly decent universities that fall roughly into that price range I specified in most states, so I think my point still stands.

That said, I'm a huge fan of European/UK universities. I do graduate school in the UK, it's a lot cheaper than a comparable program in a lot of American universities. I've been trying to get my considerably-younger brother in law to consider applying to European schools.

[1] https://catalog.sunyempire.edu/undergraduate/tuition-fees/#t...

[2] https://admissions.fsu.edu/first-year/finances/

ETA:

Sorry, I didn't see the "housing" part of your first sentence. That certainly does make the costs add up, particularly if you stay in the dorms, which I think are kind of a scam in most schools. I think to save money, a lot of people would benefit from trying to stay with their parents a bit longer instead of partaking in the dorms.

Re: How I think about debt

#179

Post by z0r »

mucle6 wrote: post #168
mempko wrote: post #128

Here is a mind bending concept. Those that hold a lot of cash are resilient. But that cash came from someone else getting into debt. That's because money IS debt. Money gets created when people take out loans. That debt ends up as income to someone else. If you hold a lot of savings, others had to get into debt to create the money that ended up in your bank account. If EVERYONE decides to hoard cash, then the economy…

Not trying to be pedantic, just curious. Money isn't zero sum right? Like the U.S. Government prints it and spends it, so its not clear to me that there is a balance sheet of cash being someone elses debt. Unless its in a metaphorical sense like we're all in "debt" to the U.S government and we pay interest when they inflate more money.

Money isn't zero sum, but its value is based on being able to exchange it for goods and services - or to compel the production of goods and the carrying out of services. The less debt exists, the less compelled people are to work.

Re: How I think about debt

#180

Post by drexlspivey »

k__ wrote: post #52
adverbly wrote: post #49

This is an overly simplistic model which happens to have applied very well to Japan but would break down if applied in other economies where inflationary risk is present. I'm pretty sure there's a joke about there being three types of economies: developed, undeveloped, and Japan. Cash is useless if the value of the cash goes down by 10,000% and you don't have an inflation adjusted revenue stream. You have to do somet…

What about deflationary currencies?

What is that?
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