Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

How I think about debt

collabfund.com

Post reply on HN
Print view View original

241–250 of 445 posts

Re: How I think about debt

#241

Post by jjcm »

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 never understood buying things that I can't afford.

I think even if you choose not to use debt as a mechanism, you should understand why it's used as a mechanism, much like the parent comment has. Debt as a mechanism is not a bad thing - there's ample proof out there that availability of credit is an extremely strong indicator of future economic activity at the macro level.

Re: How I think about debt

#242

Post by Kirby64 »

temporarara wrote: post #235
Kirby64 wrote: post #175

Earlier quoted context omitted.

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…

You don't make 375k in profit off a 25k investment (in your example) if you sell a house for 400k. You would make 125k in profit using your numbers (minus fees, interest, etc). It's exactly how leverage works, and the equivalent in margin trading is 100% identical. The only difference with a mortgage is that you slowly deleverage yourself over time as a consequence of paying off the loan (principal that goes to value of the loan).

As an example, if you sold a house 5 years into owning it, at current interest rates, you would only have paid down approximately 6% of the 30 year loan, so the 'leverage' of a 20% down loan would still be ~4.8:1.

Re: How I think about debt

#243

Post by beryilma »

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…

Owning a house does not mean not owing anyone a cent. You still owe multiple types of taxes to the government. You still need to get insurance. You still need to make repairs.

I actually find piece of mind in renting. I can always say screw it and move to the cheapest part of the country as I am getting closer to retirement age.

Re: How I think about debt

#244

Post by Kirby64 »

Dylan16807 wrote: post #239
Kirby64 wrote: post #175

Earlier quoted context omitted.

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…

In today's 7% interest rates, yeah it's potentially a wash. In the era of 3-4% rates, it's free money. 'much much more' is absolutely correct at 3-4%, which a lot of people currently have mortgages at today.

Re: How I think about debt

#245

Post by hinkley »

personjerry wrote: post #236

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

Most people who take on debt believe they have a good reason to do so.

It's like how almost nobody thinks of themselves as Evil. Everyone is doing their best, but nobody has the same yardstick.

Re: How I think about debt

#246

Post by synergy20 »

Dylan16807 wrote: post #232
dheera wrote: post #204

Earlier quoted context omitted.

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.

my landlord friend told me, many of her tenants earn decent salary, definitely more than her income, they can even spend $8000 or more to remodel a car or things like that, but can never save up to the 20% down payment ever.

Re: How I think about debt

#247

Post by bmicraft »

synergy20 wrote: post #246
Dylan16807 wrote: post #232

Earlier quoted context omitted.

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.

my landlord friend told me, many of her tenants earn decent salary, definitely more than her income, they can even spend $8000 or more to remodel a car or things like that, but can never save up to the 20% down payment ever.

> spend $8000 or more to remodel a car

> can never save up to the 20% down payment

something tells me those two things are connected

Re: How I think about debt

#248

Post by bobthepanda »

llukas wrote: post #220
francisofascii wrote: post #193

Earlier quoted context omitted.

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.

Shouldn't this be priced into the house value in this local market?

it usually isn't because banks are not all-seeing and cannot tell which local employer or industry is likelier to go bust. in that sense all metro areas are often equally risky.

Re: How I think about debt

#249

Post by bobthepanda »

jopsen wrote: post #209
crooked-v wrote: post #97

Earlier quoted context omitted.

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.

You could also argue that there was population growth, and we might not see that in future. 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

even without population growth, household size decline means that there will be more demand for housing, since the same amount of people divided by smaller household size = more households.
Post reply on HN