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How I think about debt

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Re: How I think about debt

#151

Post by voisin »

anon7725 wrote: post #69
voisin wrote: post #67

Earlier quoted context omitted.

> A lot (most? all?) primary-residence home loans in the US are non-recourse, meaning that you aren't liable for the deficit - you only lose the house. This is wild. In Canada not only do we all take interest rate risk every 5 years maximum as we can’t lock in for longer (which seems to make our whole society less robust), we can’t refinance early if rates drop without massive penalties eliminating any incentive to d…

A couple of other good points vs Canada: most fixed-rate US mortgages don’t have a prepayment penalty, and many offer the option to “recast”, which means you can make a lump-sum payment and reamortize your loan while keeping the rate and end date the same. This has the effect of lowering your monthly payment and is often used as an alternative to refinancing if you’re buying and selling a home in sequence.

Thanks for this. I’d never heard of this option and once again I am shocked at how much better Americans have it than Canadians when it comes to mortgages.

Re: How I think about debt

#152

Post by bluGill »

tombert wrote: post #36
CalRobert wrote: post #21

Earlier quoted context omitted.

It might be extreme but 15 years ago he was telling people not to be so flippant about taking on enormous amounts of debt for degrees with a questionable payback and I think he was right. I always thought the snowball method was dumb but as time goes on I can see how it makes sense psychologically, even if not mathematically.

Sure, I've said a few negative things about Ivy Leagues being overpriced here in the last few weeks, so I'm not saying you should necessarily get into $400,000 of student loan debt. What I didn't like about his take was that it also kind of also excluded getting into like $20,000-$40,000 of debt to go to a decent state school. That's a bad take; getting a degree (at least in a technical field) substantially increases…

State schools are not ivy league expensive, but they are not cheap anymore.

of course the degree matters. You pay about the same for art and engineering degrees but one will earn far more than the other.

Re: How I think about debt

#153

Post by walkerbrown »

WalterBright wrote: post #106
leononame wrote: post #12

Earlier quoted context omitted.

I think the article still holds up. A financial crisis where you lose your job, a war causing deflation, a housing bubble bursting are all events that could lead to you paying _much_ more than rent. If you can't pay, they'll take your house and everything else until they decide that the debt is paid. In case of a bubble bursting this can mean that you _still_ owe money after they took your house. This has happened to…

> they'll take your house Yes, and they'll sell the house to cover the debt. But the amount they receive from selling the house in excess of the debt goes to you. I.e. you'll get the equity portion. It's in your mortgage contract. Worth reading.

No snark, but posting with genuine concern for any homebuyers who didn’t experience the pain of 2008, please read and grok this: https://www.investopedia.com/terms/u/underwater.asp

Re: How I think about debt

#154

Post by ochoseis »

throw0101d wrote: post #30

The author of the article, Morgan Housel, is also the author of the book The Psychology of Money . This thoughts on, e.g., paying down his mortgage: > It just increased our independence, even if it made no sense on paper. So that's another element of debt that I think goes misunderstood. And a lot of that for both of those points is this idea that people don't make financial decisions on a spreadsheet. They don't mak…

Rational Reminder is one of the _best_ podcasts I listen to right now. Love the polite Canadian vibe

Re: How I think about debt

#155

Post by pixl97 »

phaedrus wrote: post #90
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…

Besides taxes, there is another sense in which outside circumstances can break your "rent control" model of home ownership with 30 year mortgage. Here in Oklahoma, insurance rates have skyrocketed in the last couple years. I now pay more in homeowner's insurance monthly than either my principle or interest payment (though perhaps not both together - yet). And I have a 4.something% mortgage. I suspect it has or will s…

>I suspect it has or will soon reach the point where the Kelly criterion says mathematically I'd be better off to self-insure

Heh wait till you go to replace the property/damage. Unless you're doing yourself you'd absolutely crap on the floor once you see how high prices have got for this work.

Add to this the increasing incidence of weather/climate related damages to homes and the situation isn't looking good for many states.

Re: How I think about debt

#157

Post by Negitivefrags »

Tade0 wrote: post #83
francisofascii wrote: post #26

Earlier quoted context omitted.

People don't realize how risky housing is compared to other investments. It is risky because it is SO MUCH MONEY and it is not diversified at all. If your house loses half its value, that represents hundreds of thousands in losses. And don't think that can't happen. You buy a penny stock for $2K and lose half, no big deal compared to your house. BUT, we need housing, we need a stable school for our kids, or a comfort…

> 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.

Re: How I think about debt

#158

Post by schlauerfox »

WalterBright wrote: post #109
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?

> it's still the same house What a house is worth is what someone else will pay you for it. There is no intrinsic worth to it.

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.

Re: How I think about debt

#159

Post by pixl97 »

aworks wrote: post #131
anon7725 wrote: post #110

Earlier quoted context omitted.

> debt for housing, which is a depreciating asset in normal times (housing wears out, land may become more expensive) is not a great idea, but it has been normalized and when you have negative real rates & inflationary policies, as we had for over a decade, it can make a lot of sense Has there been a 20 year stretch of time in the US in which housing is broadly a depreciating asset? Seems that land is definitely, and…

I'm not answering your direct question but for reasons, I'm interested in Indiana farm land in the 1920s and 1930s. From a peak in 1920, price per acre was down 2/3rds and didn't fully recover until 1948. The Great Depression started early for farmers... https://ag.purdue.edu/commercialag/home/resource/2023/08/the...

Not sure if farmland to housing land is a 1:1 comparison in many places. Where you can dig well (and hopefully get safe water) and use septic it may be as you can get power almost anywhere, but some places require utilities which increases prices significantly

Re: How I think about debt

#160

Post by AstralStorm »

WalterBright wrote: post #106
leononame wrote: post #12

Earlier quoted context omitted.

I think the article still holds up. A financial crisis where you lose your job, a war causing deflation, a housing bubble bursting are all events that could lead to you paying _much_ more than rent. If you can't pay, they'll take your house and everything else until they decide that the debt is paid. In case of a bubble bursting this can mean that you _still_ owe money after they took your house. This has happened to…

> they'll take your house Yes, and they'll sell the house to cover the debt. But the amount they receive from selling the house in excess of the debt goes to you. I.e. you'll get the equity portion. It's in your mortgage contract. Worth reading.

Unless you're backpaid enough so that they take equity in a penalty.

And now you're homeless and with your equity you cannot acquire capital. Your credit is also tanked due to the default...

Remember, most people do not own multiple houses and having no stable address can really mess you up legally even.

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