201–210 of 445 posts
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For low-income people, debt is slavery. For high-income people, debt is a powerful tool. The vast majority of people fall into group #1 and need to treat debts like credit cards and car payments with extreme caution.
> For high-income people, debt is a powerful tool. How?
jokes apart, some great replies explain how.
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> 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…
A couple of other good points vs Canada: most fixed-rate US mortgages don’t have a prepayment penalty, and many offer the option to “recast”, which means you can make a lump-sum payment and reamortize your loan while keeping the rate and end date the same. This has the effect of lowering your monthly payment and is often used as an alternative to refinancing if you’re buying and selling a home in sequence.
Now that interest rates are higher than they were a couple of years ago, TD Canada Trust waived all my prepayment penalties. They were happy to let me prepay as much as I wanted.
It's incredible how one-sided the Canadian system is. Prepayment is acceptable as long as the bank benefits. Prepayment is not ok when the person taking out the loan benefits.
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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/
Piketty's book (Capital in the Twenty-First Century) is most definitely not a fad. It is a result of serious research into historical economic data and anyone intellectually honest ought take it seriously. As anything in the social science of economics, it is subject to debate, but to call it a 'fad' is odd, to put it mildly.
But popularity doesn't validate or invalidate its content.
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 heal…
For that reason I also find it ridiculous that it's the social norm to take debt to buy a roof to put over your head. A (simple, clean, functional) house is a basic need, not a luxury item. I always assumed that if I don't have the cash for a house, I can't afford a house. In those terms, I can't afford a house right now, so I've been renting the whole time.
I think it should be the social norm for the median income to be able to buy a house with cash. For that to happen either people need to be making $1M/year median, or house prices need to come down to 1/5 of what they are.
The author of the article, Morgan Housel, is also the author of the book The Psychology of Money . This thoughts on, e.g., paying down his mortgage: > It just increased our independence, even if it made no sense on paper. So that's another element of debt that I think goes misunderstood. And a lot of that for both of those points is this idea that people don't make financial decisions on a spreadsheet. They don't mak…
> > it's okay to make financial decisions that don't make any sense on paper if they work for you I consider that to be (mostly) pernicious nonsense, like ‘it’s okay to walk off of a cliff, if that works for you.’ To a very great degree, finances are a mathematical/legal reality: the path of wisdom is to adjust one’s emotions to that reality rather than to imagine that reality matches one’s emotions. There is some de…
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> 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?
With a recourse mortgage, they can go through normal debt channels (including wage garnishment, etc).
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 heal…
I never understood buying things that I can't afford. I always thought you earn money and when you earn enough money to buy something you can buy that something. That is always how I have lived life. For that reason I also find it ridiculous that it's the social norm to take debt to buy a roof to put over your head. A (simple, clean, functional) house is a basic need, not a luxury item. I always assumed that if I don…
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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.
I never make stuff up unless it is obviously funny or someone makes me a liar... my neutral evil temperament usually ensures stoic honesty even when being deceived. Some of my most cherished friends don't agree with me about most things =3
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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...
Though it helps to keep in mind that returns there are because the US housing market has been distorted beyond all recognition by under-building that goes back to the civil rights era.
So under-building in the future will be harder, as houses exist.
Of course, it's hard to know how population growth will work out in the future. And even harder to know how it'll work out in your neighborhood :D
The author of the article, Morgan Housel, is also the author of the book The Psychology of Money . This thoughts on, e.g., paying down his mortgage: > It just increased our independence, even if it made no sense on paper. So that's another element of debt that I think goes misunderstood. And a lot of that for both of those points is this idea that people don't make financial decisions on a spreadsheet. They don't mak…
Rational Reminder is one of the _best_ podcasts I listen to right now. Love the polite Canadian vibe