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How I think about debt

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Re: How I think about debt

#381

Post by Ekaros »

ornornor wrote: post #359
_heimdall wrote: post #306

I have always hated the recommendation that people should avoid paying off debt and instead leverage that money in interest paying investments. Sure, on paper you seem better off when you keep a mortgage at 5% and have investments paying 9%, but you're locked in place. That 4% in potential gains means you aren't nearly as flexible when it comes to a job and income, selling your house may be untenable or impossible if…

You can always liquidate the investment, pay the house off, sell it, buy elsewhere. If you’ve invested in volatile titles that can be a problem. But if it’s a bond, it’s quite stable and doable.

Situations where a bond pays more than your own debt is either anomalous or carries a risk. The risk is where premium comes from.

Re: How I think about debt

#382

Post by pmg101 »

One thing I don't understand is why mortgage payments are fixed in nominal terms over the terms of the repayment plan. This has the effect of meaning they are most painful on month 1 and can be almost trivial by month 360 since they've been inflated away. And that's not even taking into account that earnings tend to increase over time even in real terms.

It seems there would be a gap in the market for a loan whose payments increase either at or above inflation (perhaps this does indeed exist and I'm simply unaware of it.). Rent doesn't stay flat over a decade time period so why should mortgage payments?

Re: How I think about debt

#383

Post by dusted »

beryilma wrote: post #243
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.

I own several houses, and even with taxes, maintenance and insurance, it's cheaper to own two than renting in the same area..

Re: How I think about debt

#384

Post by Nevermark »

Tade0 wrote: post #379
WalterBright wrote: post #305

Earlier quoted context omitted.

> A buyer has to pay you what you want for your house. You are setting the market price. A buyer offers what he wants to pay for it. You negotiate until reaching an agreement. That is the market price. I.e. The Law of Supply and Demand. If you think the seller sets the market price, try selling your car for $10 million.

Don't you think that your take is a little bit reductionist? There are plenty of things which are valuable or bring value, but are never sold or bought. Case in point: how much is the Sun worth according to you?

I don’t have any ability to make choices about it that depend on any conscious valuation.

But do you doubt I value it because I am not buying or selling it?

I suppose near infinite, in that I would certainly sacrifice everything I have to protect it - given it represents the survival of all of us - which for me at least would be the apex of value.

It is worth noting that value can often be measured in currency, but not always. It is ultimately an ordering of everything, by kind and quantity.

In the end, even money is just another “thing” which we value on a gradient and relative to context (what we need to survive, we value a lot. To live Without stress, a lot, but less. More than that, even less, even if we are ambitious.)

Market value comes directly from each of our personal, “intrinsic” as another commenter called it, valuations. There is no market value where there are no personal valuations. But there can be personal valuations where there is no market.

Each of us still prioritizes what we have against what we want, and the costs to us of that, even if we were hermits. Each of spends our time, the ultimate resource, based on our relative values of things.

That is the source of all “value” or “worth”. Individual or (and before) collective.

Re: How I think about debt

#385

Post by dusted »

slyall wrote: post #294
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…

A house is not a zero-risk investment. Any number of reasons from Natural disaster on down could cause it to lose much of it's value or even become uninhabitable. Possibly in a way that insurance wouldn't cover. Think of people who owned houses in declining industrial cities. The local economy went bad, their house value went down and they faced a barrier to moving since they couldn't sell, move, and get a comparable…

it's still not a high risk, owning a house (that is, having paid for it, not owing any money to the bank) still leaves you in a better position than a renter, as you can basically let it burn and will still be in an easier position to get a loan for a new house in another place if you really need to

Re: How I think about debt

#386

Post by paipa »

ryandrake wrote: post #307
throwaway2037 wrote: post #303

Earlier quoted context omitted.

> it turns into your own home equity so it's money coming out of one pocket and going into the other What if house prices are falling?

Your home equity = your property's value minus your loan balance. So even if that value is currently negative, every dollar you pay towards principal increases it. It's not an expense.

Your expense is that you've hitched yourself to an oversized loan, so you're putting money from one pocket to another, except the latter has a hole in it and you have an obligation to keep feeding it. If your cost was only mortgage interest, you'd be happier with 600k outstanding at 1% than 300k at 4% for the same house.

Re: How I think about debt

#387

Post by whywhywhywhy »

beryilma wrote: post #243
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.

While what you’re saying sorta makes sense I think you’re missing that money spent on a mortgage goes into an appreciating asset that you own.

Money on rent goes to pay for someone else’s appreciating asset you don’t own.

Insurance isn’t that much and you have to pay taxes multiple times on all your money anyway but at least property has a chance to fight back a bit or hopefully outpace inflation.

The money you earn today and sits in your bank is going to be worth very little in terms of spending power by the time you want to move somewhere cheap if you’re not keeping it in investments or property.

We’re entering a dark time financially and there will be a significant quality of life difference in 20 years of those who have money in the right places today.

Re: How I think about debt

#388

Post by gwbas1c »

bddgyrdfv wrote: post #283
gwbas1c wrote: post #262

Earlier quoted context omitted.

> You can buy better neighbors with a house, and less crime. I wish! I built a fancy house in a fancy neighborhood, and then a real a-hole bought the house next to me as his retirement home.

I feel this. Unfortunately the only surefire way to avoid this situation is to be the bigger asshole.

Yup: After my a-hole neighbor yelled at me because he thought I was mowing his lawn, I got the property line surveyed and had him remove all the shrubs he planted on my land.

Re: How I think about debt

#389

Post by gwbas1c »

brailsafe wrote: post #328
gwbas1c wrote: post #262

Earlier quoted context omitted.

> You can buy better neighbors with a house, and less crime. I wish! I built a fancy house in a fancy neighborhood, and then a real a-hole bought the house next to me as his retirement home.

Might be some selection bias happening. It's usually not the fancy neighborhoods that get a reputation for being humble and down to earth.

A-hole neighbors have nothing to do with income level. I've also had a-hole neighbors who were dirt poor.

In my case, the advantage is that I don't have to share a wall with my bad neighbor.

Edit: I should add that the rest of my neighbors are awesome, Just like every other place I've lived.

Re: How I think about debt

#390

Post by gwbas1c »

chihuahua wrote: post #327
bddgyrdfv wrote: post #283

Earlier quoted context omitted.

I feel this. Unfortunately the only surefire way to avoid this situation is to be the bigger asshole.

Not the only way. You can do what Bill Gates did, and buy all the surrounding properties. In his case, some of his staff live there.

I don't have that kind of money!
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