How I think about debt • Hacker News Board

Re: How I think about debt

#231

Post by krisoft » Mon, May 06, 2024, 10:14 PM UTC

WalterBright wrote: post #181

schlauerfox wrote: post #158

Earlier quoted context omitted.

A house has intrinsic worth. It is a house, people live in it, it provides shelter by it's nature as a house. How many dollars it's worth to others is extrinsic, but it certainly has intrinsic value.

> A house has intrinsic worth It's value is only what people will pay for it. For example, a relative of mine died some years ago. She had a house full of expensive furniture. You couldn't give that furniture away, even though it was in perfect condition. It had no value. The average estate value, excluding land, houses, and cars, is about $900. I have friends who ran an estate liquidation service. You'd net somethin…

> It's value is only what people will pay for it.

If that is how you define it then by definition that is true. It is not the only possible definition though.

In my world I prefer to sleep in a place where the rain doesn’t fall on me. Having a place with a roof over me is value to me. If this meaning of the word “value” does not work for you then simply we are talking different languages.

Perhaps try thinking about “how much would i need to pay to provide the same neccesity if I wouldn’t own this place”. Maybe that puts it into economic terms what we are talking here.

Re: How I think about debt

#232

Post by Dylan16807 » Mon, May 06, 2024, 10:16 PM UTC

dheera wrote: post #204

TexanFeller wrote: post #200

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…

I agree that house prices should come down.

But given that you need a home, what's the difference between $1000 in rent+fees and $1000 in mortgage+taxes+fees?

Normally the biggest difference between renting and buying with debt is that you can stop renting. But you're not going to stop having a home.

Re: How I think about debt

#233

Post by Tokkemon » Mon, May 06, 2024, 10:18 PM UTC

DrPhish wrote: post #22

“Debt is slavery” is how I’ve always thought about debt, and what I’ve taught my kids.

Debt also allows you to live when you can't find means otherwise.

Re: How I think about debt

#234

Post by Tokkemon » Mon, May 06, 2024, 10:20 PM UTC

5350-uiop-1130 wrote: post #40

> "As debt increases, you narrow the range of outcomes you can endure in life." when you have cash you do what you want. when you have debt you do what someone else wants.

Real hard-hitting, groundbreaking news on HN.

Re: How I think about debt

#235

Post by temporarara » Mon, May 06, 2024, 10:22 PM UTC

Kirby64 wrote: post #175

temporarara wrote: post #166

Earlier quoted context omitted.

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 outstandi…

You HAVE to pay back your debt if you want to pocket all your profits. If your down payment is 25k and you buy 250k house, you need to borrow 225k for your "leverage". Now you get lucky and years later, AFTER you have paid 25k + 225k + interest + fees which amounts to at least 300k, prices have gone up and you can sell that house for 400k. Nice you think! I will make 375k profit just by investing 25k! NO, that's not how "leverage" works at all. At that point you have paid at least 300k to get 400k which makes not that great considering it's been 20 years or so.

The logic you are using is flawed beyond all reasoning to be honest. People who are in a position to both pay back their mortgages AND invest heavily elsewhere are already rich.

Re: How I think about debt

#236

Post by personjerry » Mon, May 06, 2024, 10:26 PM UTC

That's a really naive view. If you take on debt for a good reason, you can alter the trajectory of the function completely.

Re: How I think about debt

#237

Post by Tade0 » Mon, May 06, 2024, 10:27 PM UTC

Negitivefrags wrote: post #157

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?

You care if you have a mortgage and you live in a non-US country where interest rates can actually go up to price you out of it.

You mean a situation where I could not afford the installments and therefore would be forced to sell it?

In my corner of the world banks are required to assume a 2,5-5 percentage point buffer when calculating mortgage eligibility - the upper bracket is for variable interest rate mortgages. An unlikely scenario, but keeps the risk of what you mentioned low.

Re: How I think about debt

#238

Post by rcxdude » Mon, May 06, 2024, 10:28 PM UTC

psychlops wrote: post #117

Night_Thastus wrote: post #115

Earlier quoted context omitted.

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?

I would phrase it more as a powerful tool if you are financially literate and have a predictable income (especially if it's predictable with confidence to a lender), something which is generally more true of high-income people. Debt (when appropriately priced) allows you access things that you would otherwise need to wait to afford, allowing saving money vs. renting said thing, or the time-value to you of the length of that wait (whether it's through directly financially benefitting from that thing, or from simply whatever utility you are getting from that thing, or both, like buying a more expensive car which saves you money on fuel and maintenance as well as just being nicer to drive). It's dangerous when your income is not predictable (because it means that debt is more expensive for you as well as more personal risk), or if you are forced into debt for necessities that are beyond your means, or if you are financially illiterate, all of which can mean you take on debt beyond your means, which quickly becomes exploitative.

(That latter part can happen even with very high incomes. It's not unheard of for e.g. professional sports players or celebrity actors making millions to take on way too much debt and ruin themselves, especially because their high income can disappear quickly, e.g. due to an injury)

Re: How I think about debt

#239

Post by Dylan16807 » Mon, May 06, 2024, 10:29 PM UTC

Kirby64 wrote: post #175

temporarara wrote: post #166

Earlier quoted context omitted.

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 outstandi…

What you're skipping in this equation is that the amount of leverage drops every month when you make your payment. The average leverage is a lot lower than the starting leverage. That's what makes a mortgage pretty different from a leveraged trade.

> 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.

There's no free lunch. Often, investments will get you a better return than your interest fees. Often they won't. And "much much more" is downright wrong.

Re: How I think about debt

#240

Post by JadeNB » Mon, May 06, 2024, 10:30 PM UTC

dheera wrote: post #222

rcxdude wrote: post #218

Earlier quoted context omitted.

because the risk with debt is not being able to pay it back - and you are paying the lender for their side of that risk (generally paying less the more of that risk falls on your side, like secured debt). It's a service they are freely offering (and in fact benefits them disproportionately on average), I don't see how it's a moral issue at all.

The moral issue I have is that simply put, if I don't have the money for something, I wasn't meant to have that something. I need to earn the money for it, after which I deserve to have that something. However, the most basic clean-and-functional versions of basic necessities (food, water, shelter, and transportation) should be accessible to everyone working a full-time job, in my opinion, without having to spend oth…

> The moral issue I have is that simply put, if I don't have the money for something, I wasn't meant to have that something. I need to earn the money for it, after which I deserve to have that something.

There's a difference between having money and earning money. If you find $20, are you therefore $20 more deserving? If you are mugged and the thief gets $100, does that make you $100 less deserving?

There are plenty of people who have lots of money through no good deed, and plenty who have little through no evil deed, and I think confusing monetary holdings with morality is a very poor road to go down.