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

401–410 of 445 posts

Re: How I think about debt

#401

Post by mlrtime »

yowlingcat wrote: post #98
anon7725 wrote: post #72

Earlier quoted context omitted.

There are lots of ways that stock in food and energy companies could go down while prices go up. A drought or pipeline disruption come to mind.

Absolutely. And I think the same is true for the commodities market correlates there; if memory serves correctly, crude commodity futures went negative for a break period during the supply chain volatility spike during the beginning of the pandemic.

You are correct, for oil contracts near expiration. All oil containers (in certain areas) were full, so anyone taking delivery would need a place to store the oil.

The market needed a way to transfer this risk (risk of delivery) so prices went negative meaning you were paid to find a place for the oil.

It's really neat actually and shows how almost all of the financial system is really a big "risk transfer" mechanism.

Re: How I think about debt

#402

Post by GuB-42 »

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…

You can think of a mortgage like renting a house from your bank.

Or a bit more precisely, for the time the mortgage is running, you and the bank are essentially co-owners, and you rent the share you don't own from the bank (that would be the interests) while at the same time, you buy the bank share bit by bit (that would be the principal). At the end, you become a full owner and stop paying "rent" to the bank.

Re: How I think about debt

#403

Post by GuB-42 »

One can see cash as universal insurance. For example, if you have more than a car worth of cash in an easily accessible account, your car is effectively insured. If you break it, you can just buy another one. A car is a lot of money but insurance premiums are also a lot of money over time.

And unlike a car insurance that only covers your car and only in specific cases (ex: crashes are covered but not mechanical failures), cash covers for everything up to the value you have available. It doesn't mean you shouldn't get "proper" insurance, there are extreme events you would need way to much cash to cover (ex: civil liability, health,...), just that cash can be counted as insurance.

Re: How I think about debt

#404

Post by Kirby64 »

throwaway2037 wrote: post #358
Kirby64 wrote: post #163

Earlier quoted context omitted.

Obviously. Which is why 20:1 leverage (5% down) is kind of foolish, since you can quickly become underwater on a house purchase if the value shifts. At 5:1 leverage though, you still maintain enough equity to weather any valuation swings if you have a need to leave and sell the house.

This post is somewhat misleading. If you put 0% down (yes, it is possible in many places), effectively you have infinite leverage. But let's use your 5% example. If you house price falls by 50%, nothing happens to you -- even with huge negative equity. You keep making monthly payments. There is no "weathering" to be done. Sure, at the end, you might have a giant paper loss, but you still have a roof over your head --…

I agree mortgages cannot be called in, unlike margin trading on stocks, but if you’re wildly upside down on a house then it literally traps you in the house unless you take those losses. If housing prices fall 50% it is also likely that economic conditions may mean you cannot afford the same house anymore. In a situation of missed payment, they can certainly foreclose on your house.

Re: How I think about debt

#405

Post by bombcar »

jjav wrote: post #368
brailsafe wrote: post #337

Earlier quoted context omitted.

This truth has come up quite a lot lately in conversations. It's not just the down payment though, it's like ok first I get together $120k for the down payment, then I'm on the hook for potentially double the already obscene amount the same place would cost to rent for the mortgage payment, then utils, then repairs, taxes (almost like one would need to be a landlord to afford it). Like, pass, ~$4k+ a month is more th…

> then utils, then repairs, taxes Remember you're paying for all these costs (+ landlord profit) when you rent.

Right now in many places we're in a bit of an inversion where you can rent for less than the cost to buy - because some owners have old properties with low mortgage rates, etc.

But the main deal is people are still in "appreciation mode" where they don't really care if on paper they're losing money, because the house is appreciating faster than that.

Once appreciation slows or dries up (or prices start going back down) then things will get suddenly interesting.

Re: How I think about debt

#406

Post by dgfitz »

paulcole wrote: post #339
dgfitz wrote: post #333

Earlier quoted context omitted.

It’s just a numbers thing. Applying emotion and trust (in your words) to a numerical financial decision is naive at best. I would try to change your mind with numbers and facts, but I can tell it would fall on deaf ears/eyes.

Yeah I don’t deny there are ways to make more money than the choice I made. How would you answer the question I asked? > I would’ve done better financially by buying a home somewhere I don’t want to live, but what’s the point? Few decisions are purely numerical to most people. Or rather there are many decisions people claim are purely numerical and then make suboptimal numerical decisions on. It doesn’t make my choic…

It was this comment:

> Something similar to this is why I prefer renting and why anyone who unshakeably believes renting is “throwing money away” is immediately suspicious to me.

That doesn't seem like a rational take. Renting IS throwing money away if your goal is to maximize wealth. Paying off a mortgage early when you can get a higher % return in the market than the interest rate of your loan is ALSO throwing money away.

To try and claim you're generating more wealth by renting just isn't true. To claim you're living the lifestyle you prefer, great.

To be suspicious of everyone who makes such a mild claim is a microchasm of why the world is going to hell in a handbasket.

Re: How I think about debt

#407

Post by Vegenoid »

WalterBright wrote: post #340
Vegenoid wrote: post #215

Earlier quoted context omitted.

You are thinking of worth and value only in the monetary sense, and the person you are responding to is referring to a house's ability to be valuable to individuals, even if nobody else will pay for it, because it provides them shelter, satisfying a basic necessity. This is most of where its monetary value comes from (obviously not universally true, many properties have simply become investments), and its monetary va…

> you must agree that a house has utility that is not affected by its market price The market price is determined by how much people want it, of which utility is a large component.

Agreed, but it is the utility that is the root of the value, and the relationship from utility as shelter -> market value is one way.

Re: How I think about debt

#408

Post by dmoy »

throwaway2037 wrote: post #355
dmoy wrote: post #206

Earlier quoted context omitted.

It's not forgiven, even in a non-recourse mortgage. So it can still e.g. hurt your credit score. They just legally can't pursue you for it. With a recourse mortgage, they can go through normal debt channels (including wage garnishment, etc).

"[R]ecourse mortgage": It would be better to say "recourse loan". Mortgages are specific to properties. Loans are generic for anything. In my personal experience, non-recourse loans are basically payday loans with horribly high rates. You would never do it, if given the choice. I guess that 100% of home mortgages (in highly developed countries) are recourse by legal requirements.

> I guess that 100% of home mortgages (in highly developed countries) are recourse by legal requirements.

Not necessarily so in the US. In several states (including the biggest ones like CA and TX), non-recourse mortgages are the default. In other states, sometimes non-recourse mortgages exist too.

E.g. right now I'm sitting on a 2.5% fixed 30 year non-recourse mortgage.

Re: How I think about debt

#409

Post by rqtwteye »

throwaway2037 wrote: post #360
rqtwteye wrote: post #177

Earlier quoted context omitted.

It depends on where you live. In CA renting is usually cheaper than a mortgage for the same property. Here in New Mexico my mortgage (2.6%) is cheaper than renting the same thing. With higher mortgage rates it’s not that clear but it still looks favorable knowing that mortgage stays stable for the next 15 years vs rents constantly increasing.

To be clear, no one is getting a 2.6% mortgage these days. Your post isn't a very good comparison. It is better to compare renting today vs taking a new mortgage today .

Where I live, rents have gone up a lot in the last two years so even with the higher interest rates owning is still competitive with renting.

Re: How I think about debt

#410

Post by vlod »

GuB-42 wrote: post #403

One can see cash as universal insurance. For example, if you have more than a car worth of cash in an easily accessible account, your car is effectively insured. If you break it, you can just buy another one. A car is a lot of money but insurance premiums are also a lot of money over time. And unlike a car insurance that only covers your car and only in specific cases (ex: crashes are covered but not mechanical failu…

Doesn't car insurance also cover the cost of you hitting another car. Sure I can save enough to replace my 20 year car, but not for a Bugatti (~$3M).
Post reply on HN