Interest rates. WTF? Why are we getting almost free money?

[BigRedChief]

I put a contract on a house yesterday. Locked in a rate and loan. Got 3.625 and they gave me $8,800 towards closing costs. Which is obviously more than it costs.

We were able to lower the purchase price because we didn't have any closing costs.

Last time we bought a house we got 5.25% which at the time our loan guy said was the lowest rate since WWII.

So my question for the board is why is the public getting home loans that are maybe 1%-2% above inflation? Where's the money being made or lost?

[petegz28]

Originally Posted by La literatura

Borrow! Low interest rates are great. Then you can put the cash into higher-returning investment portfolios.

-- not a financial adviser, but I'm reading a lot more into the world of investments and personal finance.

Here is the problem with the current market. It's not healthy. Yes, yes, I know, the Dow is going to record highs and what not. But when you look at the underlying reasons it isn't what I would call healthy. Super low rates and skeleton work forces are driving up profits that unfortunately are being hoarded and not used to hire staff.

The stock market has a lot of players in it right now and for all the wrong reasons. People are having to asssume more and more risk to get less and less of a return. People who are getting closer to retirement are having to unwisely risk their retirment funds in investments that are not suited for them.

And let me say as someone who has been very active in the market and what not for the better part of 2 decades now, if you can pay cash for a house, pay cash for a house. It is never a good idea to borrow if you do not have too regardless of how low rates are.

[petegz28]

Originally Posted by FD

Exchange rates:


Gas prices:

Thank you for proving my point. Notice how when the dollar spiked gas tanked, just like I said? And notice how as the dollar woked it's way back down gas worked its way back up, just like I said??

It's fundamental economics, you nitwit!

[petegz28]

I would like to thank FD for proving that I was correct in my statement to BRC and will not ask for his apology since his pretty charts proved me to be exactly right though he claimed otherwise.

[FD]

Originally Posted by petegz28

Thank you for proving my point. Notice how when the dollar spiked gas tanked, just like I said? And notice how as the dollar woked it's way back down gas worked its way back up, just like I said??

It's fundamental economics, you nitwit!

Indeed, oil is denominated in dollars. Pat on the head for knowing that.

Ever notice how everything else you've said over the past few years has been wrong?

The dollar isn't falling, gas prices are steady, inflation remains at historic lows, and interest rates are too, all despite your predictions to the contrary.

[petegz28]

Originally Posted by Dayze

One debt free next yr my wife and I are considering saving a ton of money and either buying a house cash, or only borrowing like 20%. Not sure of the pros or cons of it all just yet though

If you can pay cash for 100%, pay cash for 100%. There is not reason, absolutely no reason not too. We paid 100% cash for our rental property and it's awesome knowing should something happen with our renter or what not, we don't have to answer to a bank every month. It's ours. Free and clear. No payments, no nothing.

I can never see any pro to owing someone money when you don't otherwise need too.

[petegz28]

Originally Posted by FD

Indeed, oil is denominated in dollars. Pat on the head for knowing that.

Ever notice how everything else you've said over the past few years has been wrong?

The dollar isn't falling, gas prices are steady, inflation remains at historic lows, and interest rates are too, all despite your predictions to the contrary.

The dollar fell, gas prices rose. Just as I said would happen. I know it pains you to admit I was right and you were wrong for saying otherwise, thus your need to reach out to other topics.

I admitted I was wrong about rthe timing of ates starting to move up when I said they would but we have the Fed to thank for that. Inflation is up, contrary to the MSM rant. I look at what every person has to pay for everyday goods, not cherry pick certain prodcuts then make a blanket judgment.

However, everything I have said about the consequences of rates being this low has been spot-on and I challenge you to prove otherwise.

So you win a whizzo button for nailing me on my incorrect timing call.

But don't worry, you and I both know it's a matter of when, not if.

[La literatura]

Originally Posted by petegz28

And let me say as someone who has been very active in the market and what not for the better part of 2 decades now, if you can pay cash for a house, pay cash for a house. It is never a good idea to borrow if you do not have too regardless of how low rates are.

I just don't think that's what most experts would advise. Suppose you borrow 50K for it, with an interest rate of 3.5% over 15 years, you can then put the alternative 50K into an investment portfolio that generates at least 3.6% ROR (pretty easy to achieve), and end up wealthier at the end.

You say "regardless of how low." What if it was 1%? Your ROR is almost guaranteed to be higher than that in a normal long-term portfolio.

[petegz28]

Originally Posted by La literatura

I just don't think that's what most experts would advise. Suppose the house is $100,000. If you borrow 50K for it, with an interest rate of 3.5% over 15 years, you can then put the alternative 50K into an investment portfolio that generates at least 3.6% ROR (pretty easy to achieve), and end up wealthier at the end.

You say "regardless of how low." What if it was 1%? Your ROR is almost guaranteed to be higher than that in a normal long-term portfolio.

What is there to gain by owing someone money? You say take the other $50 k and invest it and hope to get a good return? I say that's not only shortsighted, it's foolish. Why not take the money I would otherwise owe someone and put it in my pocket and\or invest it? I don't care if rates were .25%, it is always better to be debt free. Aside from the fact that I have 100% equity in my home now and stand to get a return on that as the the house appreciates in value. So in other words, the other $50k is invested and I am debt free to boot.

You're thinking in very simplistic terms meaning you see only a return if money is invested. I see it as the money I keep in my pocket that I would otherwise owe carries a larger, safer return over the long run.

Plus should something go wrong, like our recent bubble in housing and employment, I don't owe shit to anyone. I don't have to worry about losing my house, or being forced to sell it at a loss.

There is so much more to financial manamgment than a projected paper return.



And if 3.5% retrun is so easy to achieve, why are people having to take on more and more risk to get that? Because it's not as easy as you think.

[petegz28]

And just to add, Jensen, most of thos so-called experts get their ass handed to them time and time again. You only need look back over the last decade or two to see that.

[La literatura]

Originally Posted by petegz28

What is there to gain by owing someone money? You say take the other $50 k and invest it and hope to get a good return? I say that's not only shortsighted, it's foolish. Why not take the money I would otherwise owe someone and put it in my pocket and\or invest it? I don't care if rates were .25%, it is always better to be debt free.

I am saying invest it. Historically, if you invest long-term, you will get a better return then 3.5%. I don't think it's shortsighted to say that -- on the contrary, that's the long-view.

By borrowing at low interest rates, it allows you to invest your available money into something that pays off better in the long-term.

[FD]

Originally Posted by petegz28

The dollar fell, gas prices rose. Just as I said would happen. I know it pains you to admit I was right and you were wrong for saying otherwise, thus your need to reach out to other topics.

I admitted I was wrong about rthe timing of ates starting to move up when I said they would but we have the Fed to thank for that. Inflation is up, contrary to the MSM rant. I look at what every person has to pay for everyday goods, not cherry pick certain prodcuts then make a blanket judgment.

However, everything I have said about the consequences of rates being this low has been spot-on and I challenge you to prove otherwise.

So you win a whizzo button for nailing me on my incorrect timing call.

But don't worry, you and I both know it's a matter of when, not if.

There are a lot of statistical measures of inflation, typically generated by watching the prices of most or all products over long periods of time. Some are done by government agencies, others by academics, others by markets and private sector companies. Each of them tell the same story, that current inflation is at historic lows. All market measures of expectations of future inflation predict record low inflation over the next 10 years. This approach is the exact opposite of "cherry picking."

Besides being wrong about inflation, gas prices, and interest rates, the value of the dollar is also not falling, as I showed in my previous post. But yeah, other than those things, everything else has been spot on.

[La literatura]

Originally Posted by petegz28

And just to add, Jensen, most of thos so-called experts get their ass handed to them time and time again. You only need look back over the last decade or two to see that.

I don't mean 'Wall-Street beat-the-market experts.' I mean people like Malkiel and Charles Ellis.

[petegz28]

Originally Posted by La literatura

I don't mean 'Wall-Street beat-the-market experts.' I mean people like Malkiel and Charles Ellis.

And I will tell you that being debt free is the best position most people could ever be in.

[petegz28]

Originally Posted by FD

There are a lot of statistical measures of inflation, typically generated by watching the prices of most or all products over long periods of time. Some are done by government agencies, others by academics, others by markets and private sector companies. Each of them tell the same story, that current inflation is at historic lows. All market measures of expectations of future inflation predict record low inflation over the next 10 years. This approach is the exact opposite of "cherry picking."

Besides being wrong about inflation, gas prices, and interest rates, the value of the dollar is also not falling, as I showed in my previous post. But yeah, other than those things, everything else has been spot on.

You showed exactly that when the dollar falls gas prices rise. A small sample of time is not going to bail you out, sorry and you should be ashamed of even pretending otherwsie.

[La literatura]

Originally Posted by petegz28

And I will tell you that being debt free is the best position most people could ever be in.

Yes, for credit cards. For stuff with high interest rates. A mortgage is a different type of beast. A mortgage with a historically low interest rate is a beautiful beast.