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How I think about debt

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Re: How I think about debt

#191

Post by PopAlongKid »

dmoy wrote: post #28
leononame wrote: post #12

Earlier quoted context omitted.

I think the article still holds up. A financial crisis where you lose your job, a war causing deflation, a housing bubble bursting are all events that could lead to you paying _much_ more than rent. If you can't pay, they'll take your house and everything else until they decide that the debt is paid. In case of a bubble bursting this can mean that you _still_ owe money after they took your house. This has happened to…

> and everything else Unless you live in a no-recourse state, where they can't take everything else. In AZ, CA, TX, WA, and a handful of other states, banks can't go after your other assets, just the house that's mortgaged.

In CA, only the original mortgage used to buy your residence is non-recourse. If you refinance, the new mortgage is almost certainly recourse.

There is also a similar process, non-judicial foreclosure[0], which is similar to non-recourse in some ways, but not for tax purposes (e.g. cancelation of debt income).

[0]https://www.nolo.com/legal-encyclopedia/how-foreclosure-work...

Re: How I think about debt

#192

Post by psychlops »

callalex wrote: post #167
psychlops wrote: post #116

Earlier quoted context omitted.

Bitcoin is a deflationary currency.

It’s a security/commodity, not a currency.

It's a currency and used as a direct form of acceptable payment. Not as much as it's creator envisioned, but it is. It's not a security. It certainly shares attributes with a commodity although I think a characteristic of a commodity is that it is tangible.

Re: How I think about debt

#193

Post by francisofascii »

fwip wrote: post #85
Tade0 wrote: post #83

Earlier quoted context omitted.

> If your house loses half its value, that represents hundreds of thousands in losses. I never understood that part. Barring actual damage that would necessarily affect its worth it's still the same house. Or in other words: why should I care what others think my house is worth when I'm not selling, as I currently live there?

Well, you don't always know if you're going to want to sell later. Maybe you lost your job, maybe you need to move to another city, maybe you just hate the neighborhood.

Right, all it takes is for the large local employer to suddenly downsize, causing both the loss of job, and the crash of the local housing market simultaneously.

Re: How I think about debt

#194

Post by psunavy03 »

pmg101 wrote: post #135
psunavy03 wrote: post #47

Earlier quoted context omitted.

The purpose of a 30-year fixed mortgage is to build up equity in a home you otherwise couldn't afford. If OP moves, they now only have to take on a smaller mortgage for their new home and then keep paying that new mortgage off. The goal is that by the time you reach retirement age, you have paid off the mortgage and own your home free and clear. Thus, you only have to pay the property taxes and have more financial se…

Isn't the common use case that the equity in your home can be exchanged for elder care in your latter years?

Depends on the size of someone's nest egg. The goal should arguably be to use your other investments first.

Re: How I think about debt

#195

Post by tsimionescu »

WalterBright wrote: post #106
leononame wrote: post #12

Earlier quoted context omitted.

I think the article still holds up. A financial crisis where you lose your job, a war causing deflation, a housing bubble bursting are all events that could lead to you paying _much_ more than rent. If you can't pay, they'll take your house and everything else until they decide that the debt is paid. In case of a bubble bursting this can mean that you _still_ owe money after they took your house. This has happened to…

> they'll take your house Yes, and they'll sell the house to cover the debt. But the amount they receive from selling the house in excess of the debt goes to you. I.e. you'll get the equity portion. It's in your mortgage contract. Worth reading.

If your house is still worth enough to cover the debt. If the sale of your house is not enough to cover it (which can happen if you bought during a bubble that burst), will your whole debt at least be forgiven?

Re: How I think about debt

#196

Post by vel0city »

tombert wrote: post #186
HeyLaughingBoy wrote: post #174

Earlier quoted context omitted.

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.

That was something we had to worry about when buying our house. The house I have is pretty old and the roof had some issues. I obviously was planning on fixing those, but it became a bit of a catch-22 problem; the insurance I was planning on using (cuz I had a discount from my employer) said that they wouldn't insure me until the roof was thoroughly fixed and/or replaced, but I couldn't fix the roof until the deal cl…

I had a similar issue with buying a house. In the end we just wrote the roof replacement into the contingency of the contract and adjusted the price a bit so both sides paid a little bit into the cost of the new roof. The roof was replaced, we got our insurance, and the house was sold.

Re: How I think about debt

#197

Post by glitchc »

aidenn0 wrote: post #111
glitchc wrote: post #88

Earlier quoted context omitted.

No, it's far less risky to invest in housing. These two graphs over long term illustrate the difference in risk: Average home price since 1965: https://fred.stlouisfed.org/series/ASPUS Average Dow Jones index since 1919 [adjust scale to ~1965]: https://www.macrotrends.net/1319/dow-jones-100-year-historic...

Isn't the latter CPI adjusted, but not the former?

Thank you for that, I forgot to mention it: Both inflation adjusted and log plotting need to be turned off (as checkboxes) for an apples to apples comparison.

Re: How I think about debt

#198

Post by WalterBright »

bluGill wrote: post #187
WalterBright wrote: post #183

Earlier quoted context omitted.

Generally, to break even you've gotta stay at least 5 years. The transaction costs of selling a house are enormous. Meanwhile, Microsoft stock is about 10x over the last 10 years. Transaction costs are minimal. I can sell it on a moment's notice. I was paid dividends. No insurance costs, no property tax, no maintenance. I just had to replace the roof on my house. Wow, that was a whopping bill. The roofer told me if I…

you have to live someplace though. Over the 30 year life of that roof it is cheap enogh but that is a large one time cost if you only are there for 5 years.

Roofs are so expensive they factor heavily into what you can sell the house for.

Asphalt shingle roofs are lucky to get 20 years, cedar shingles are even worse.

Re: How I think about debt

#200

Post by TexanFeller »

I have a paid off house and zero debt. Sure I might be ahead if I had used some of the cash to buy stocks instead of paying down the house early, but I’m completely happy with my decision. There is no peace of mind like not owing anyone a cent and keeping your living expenses low. Having debt was incredibly stressful and no longer worrying about making payments is the best thing that’s ever happened to my mental health.
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