How I think about debt • Hacker News Board

Re: How I think about debt

#161

Post by Joel_Mckay » Mon, May 06, 2024, 7:31 PM UTC

cess11 wrote: post #139

Joel_Mckay wrote: post #73

Earlier quoted context omitted.

Another counterargument: is the opportunity for individuals to improve family living standards increasing or decreasing since the 1950's? I'll spare you the exhaustive list from education, housing, infrastructure, and medical service access. It is not, kids are no longer getting stable jobs, their own homes, or starting families until later in life. In my opinion, creating financial securities out of communities just…

You haven't changed my mind, I still think you ought to read Ostrom. "Mankind does not strive for happiness; only the Englishman does". (Friedrich Nietzsche)

Nietzsche spent most of his time in a brothel, and is hardly an authority on moral intellectualism.

I actually really respect you have a differing opinion, as most of my data driven conclusions are statistical rather than philosophical in nature.

Have a wonderful day, and good luck out there =3

Re: How I think about debt

#162

Post by AstralStorm » Mon, May 06, 2024, 7:32 PM UTC

jp191919 wrote: post #150

mikestew wrote: post #91

Earlier quoted context omitted.

WA resident: our mortgage is 2.5% from the credit union. I've not noticed that current rates are any worse than other states I've checked. OTOH, in 25 years of living here, I've never seen house prices go down, only stay steady.

Home prices definitely went down during the great recession.

So did the wages, and those went down more. If you lost a job during that time, you're pretty screwed.

Re: How I think about debt

#163

Post by Kirby64 » Mon, May 06, 2024, 7:32 PM UTC

WalterBright wrote: post #144

Kirby64 wrote: post #125

Earlier quoted context omitted.

Anyone buying a house with a mortgage generally is taking a 5:1 leverage (a 5% down loan is 20:1 leverage) position on the house. Making $100k on a $200k investment, with 5:1 leverage means making 100k on a 40k investment, which isn't a 50% return... it's a 250% return. And it's tax free, assuming it's your primary residence (up to 250k cap gains). You have to spend an obnoxious amount on costs to not have it make se…

Remember, leverage works both ways.

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.

Re: How I think about debt

#164

Post by AstralStorm » Mon, May 06, 2024, 7:34 PM UTC

phkahler wrote: post #46

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…

>> If you can't pay, they'll take your house and everything else until they decide that the debt is paid. This is new. Mortgages in the US traditionally took just the home as collateral. Thanks for the reminder that this is now a thing to look out for, as I may need to borrow one more time than I ever expected.

That is just the mortgage. I assume that you also defaulted on media and anything else you had on credit, such as student loans.

And those do not have such nice terms either.

Re: How I think about debt

#165

Post by edmundsauto » Mon, May 06, 2024, 7:34 PM UTC

AstralStorm wrote: post #160

WalterBright wrote: post #106

Earlier quoted context omitted.

> 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.

What would be different in this situation if the person were renting? Usually costs are similar per month for comparable places. I guess the down payment is a difference? But if you’re that far in arrears on rent you’re really still bad off…

I don’t feel convinced that having a mortgage debt is that much worse than not having one, if you lose your job and war and other bad things.

Re: How I think about debt

#166

Post by temporarara » Mon, May 06, 2024, 7:35 PM UTC

Kirby64 wrote: post #125

WalterBright wrote: post #108

Earlier quoted context omitted.

Houses have always been a lousy investment for me. Once you factor in all the costs (property tax, insurance, repairs, 6% real estate commissions, the time the house sits empty waiting for a buyer, etc.) the returns are not that good at all. Most people think: "I bought my house for $200,000 and sold it for $300,000, I made $100,000!!!!!" and neglect to do a proper accounting.

Anyone buying a house with a mortgage generally is taking a 5:1 leverage (a 5% down loan is 20:1 leverage) position on the house. Making $100k on a $200k investment, with 5:1 leverage means making 100k on a 40k investment, which isn't a 50% return... it's a 250% return. And it's tax free, assuming it's your primary residence (up to 250k cap gains). You have to spend an obnoxious amount on costs to not have it make se…

While there is some "leverage" in mortgage, you actually need to pay the whole sum, and with interest too, so taking a $200k loan means you pay usually something like $250k for it in the end, and this means you have to make $50k profit to not lose. And houses age too. If the location is superb you can justify it as an investment, otherwise it's pure nonsense in every way. Thinking normal housing as an investment is one of those reasons why we can't have nice things.

Re: How I think about debt

#167

Post by callalex » Mon, May 06, 2024, 7:37 PM UTC

psychlops wrote: post #116

adverbly wrote: post #56

Earlier quoted context omitted.

I don't think there have been any currencies that have been deflationary for 100+ years so it's impossible to say. Obviously currency risk is what you have to watch out for though if you're not able to consistently both spend and collect from this single currency over the lifetime of your business.

Bitcoin is a deflationary currency.

It’s a security/commodity, not a currency.

Re: How I think about debt

#168

Post by mucle6 » Mon, May 06, 2024, 7:38 PM UTC

mempko wrote: post #128

Here is a mind bending concept. Those that hold a lot of cash are resilient. But that cash came from someone else getting into debt. That's because money IS debt. Money gets created when people take out loans. That debt ends up as income to someone else. If you hold a lot of savings, others had to get into debt to create the money that ended up in your bank account. If EVERYONE decides to hoard cash, then the economy…

Not trying to be pedantic, just curious.

Money isn't zero sum right? Like the U.S. Government prints it and spends it, so its not clear to me that there is a balance sheet of cash being someone elses debt. Unless its in a metaphorical sense like we're all in "debt" to the U.S government and we pay interest when they inflate more money.

Re: How I think about debt

#169

Post by somenameforme » Mon, May 06, 2024, 7:40 PM UTC

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…

You age is showing a bit with your post. Randomly picking Penn State you get annual costs of $60k+ for out-of-state and $40k+ for in-state. [1] The cost listed on the page is only for tuition/housing. Use the calculator to get estimates for everything else. And that's an anti-cherry picked example, as I wanted to avoid absurdly expensive places like California, but while also going for a well regarded school.

You can easily get well into the 6 figures of debt even at state schools now. You'll find even rando state universities are hitting $30k+/year. Education costs have done exactly what you'd expect them to do when you convince people something is priceless and then give them unlimited and near unconditional loans to buy it.

I don't really see the point in this when you can instead attend English language programs in e.g. Europe or Asia and pay less for your entire education than you'd pay for a semester at rando state school in the US. Do a work-study program and you could graduate with a tidy chunk of change saved up, instead of graduating buried in enough debt to buy a house.

The ironic part is that this advice is even more pertinent for those coming from low income backgrounds, or from parents with limited education. But they're probably the people most unlikely to take advantage of such options, if not only because they probably just don't consider it.

[1] - https://admissions.psu.edu/costs-aid/tuition/

Re: How I think about debt

#170

Post by curious_cat_163 » Mon, May 06, 2024, 7:40 PM UTC

I think that the analogy of drawing lines on a volatile plot is a good starting point. But fails to account for some dynamics of how the consequences of debt can be different.

Debt limits choices. But, one can still make a choice that expands their liberty.

Having a stable home, being able to go to college, etc. are good uses of debt.

Buying a flashy car purely to impress the neighbors? Maybe not.