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How I think about debt

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Re: How I think about debt

#391

Post by hifromwork »

oooyay wrote: post #114
tombert wrote: post #6

I don't think all debt is equal, and I don't think all debt hurts your ability to handle volatility. I have a 30 year mortgage on my house with a 2.75% interest rate. That has effectively given myself "rent control"; outside of a potential rise of property taxes, my "rent" payment will not exceed a certain number of dollars. That means that if the housing prices rise rapidly, I'm covered. If I had decided not to leve…

> I have a 30 year mortgage on my house with a 2.75% interest rate. That has effectively given myself "rent control" This only works in places with fixed property tax. When I lived in Texas my property tax went up hand over fist every year as my property increased in value and automatic reassessments occurred. If your salary remains relatively stagnant and does not increase with cost of living (most salaries are subj…

>This only works in places with fixed property tax

Critically, this also only works in places that offer fixed-rate mortgages. In my country (and most of Europe I believe) they are relatively expensive and the rate is fixed for only ~5 years (after which you either change to floating or update the rate). So basically nobody considers them long-term. Damn, I envy Americans.

Re: How I think about debt

#392

Post by tlonny »

pmg101 wrote: post #382

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 pa…

You could always refinance every 5 or so years to achieve this

Re: How I think about debt

#393

Post by chiefalchemist »

toomuchtodo wrote: post #295
chiefalchemist wrote: post #276

Earlier quoted context omitted.

Rent can do that. But in renting you can more easily move to a better paying job. I'm not sure you're derisking as owning is also subject to local taxes of whatever sort. Those too can increase faster than income.

And if you can’t find a job because you’re older or the employer market is raking you over the coals, you’re screwed, while your housing is mostly locked in.

But that's the point,

rent === mobility

own === 10x less so

Sure. It's nice to want roots, have a home, etc. But given how the financial system works - and the economic and sociopolitical systems that sit on top of it - an RV might be the smartest way to go.

Sure there's always the American Dream narrative but (leadership) actions speak louder than words. Seeing Santa Claus or the Easter Bunny is 100x more likely than the now mythical Anerican Dream.

Re: How I think about debt

#394

Post by _heimdall »

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.

How often do you have access to bonds that pay higher than a mortgage though? Bonds are much less risky than mortgages, I'd only expect them to pay higher in rare instances when rates changed dramatically and you happened to be in the market at the right time.

Re: How I think about debt

#395

Post by upsertingdefl »

whywhywhywhy wrote: post #387
beryilma wrote: post #243

Earlier quoted context omitted.

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…

>goes into an appreciating asset that you own

Like any asset, it _could_ appreciate, but is not guaranteed. Where I live you can buy a house for 15-40K where normal prices in the country are 100-200K. It didn't use to be that way, last decade was all downhill for the city.

Re: How I think about debt

#396

Post by ornornor »

_heimdall wrote: post #394
ornornor wrote: post #359

Earlier quoted context omitted.

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.

How often do you have access to bonds that pay higher than a mortgage though? Bonds are much less risky than mortgages, I'd only expect them to pay higher in rare instances when rates changed dramatically and you happened to be in the market at the right time.

I don’t have personal experience with this, I was referring to GP who said that’s what they did.

Re: How I think about debt

#397

Post by incomingpain »

sokoloff wrote: post #130
incomingpain wrote: post #94

Earlier quoted context omitted.

>The total interest due on the debt is the flow that you should be comparing to the total income flow. That's what these numbers are. I'm talking about a calculated popular metric many people use for many countries all over the world. It's really not a controversial or debated subject for either of these countries.

You’re incorrect about what that figure is . https://tradingeconomics.com/norway/households-debt-to-incom... That means for every 100 units of annual income, Norwegians owe 210 units in total debt. (Not total debt service payments [a flow, with unit of kr/yr], but total debt [a stock, with unit of kr].)

>You’re incorrect about what that figure is.

Why then would all these countries, as websites such as your source be calculating such a useless indicator? If I am incorrect?

Re: How I think about debt

#398

Post by whywhywhywhy »

upsertingdefl wrote: post #395
whywhywhywhy wrote: post #387

Earlier quoted context omitted.

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…

>goes into an appreciating asset that you own Like any asset, it _could_ appreciate, but is not guaranteed. Where I live you can buy a house for 15-40K where normal prices in the country are 100-200K. It didn't use to be that way, last decade was all downhill for the city.

If the housing market crashed in any meaningfully impactful wait there would be way bigger issues to worry about and you’d still only be in the same situation as a renter, maybe even still more well off.

Re: How I think about debt

#399

Post by sokoloff »

incomingpain wrote: post #397
sokoloff wrote: post #130

Earlier quoted context omitted.

You’re incorrect about what that figure is . https://tradingeconomics.com/norway/households-debt-to-incom... That means for every 100 units of annual income, Norwegians owe 210 units in total debt. (Not total debt service payments [a flow, with unit of kr/yr], but total debt [a stock, with unit of kr].)

>You’re incorrect about what that figure is. Why then would all these countries, as websites such as your source be calculating such a useless indicator? If I am incorrect?

It's not a useless measure. Normalizing total debt against total income is a sensible way to compare countries to another. It's just not a measure that is a unitless ratio of two measures with the same units. (The unit is years [of income to payoff the debt if no further interest accrued].)

Re: How I think about debt

#400

Post by mlrtime »

jjav wrote: post #371
dheera wrote: post #222

Earlier quoted context omitted.

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. You're thinking of debt as a consumer. Like, take a personal loan or credit card debt and buy a big screen TV. Yes, that's dumb. Not all debt is like that. Picture this scenario: Your bank pays 5% interest on deposits. You're offered a loan from somewhere for an interest rate of 4.9%. It is a n…

No brainer may be pushing it... At a minimum there is duration risk and other various terms in the note where this breaks down quickly.

Banks do this all the time and some often fail.

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