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

I think it's safe to say that your risk level is way out of whack with 98% of investors and is more akin to a 98 year old's.

Yeah, that's what everyone was saying to me in 07-08 as they watched 40%-50% of their 401k's go away and I lost 5%.

Now let me put it to you in real terms..

with my house paid for 100% that means my largest monthly expense just went from someone else's pocket into my own.

Why would I spend $500-$1200 a month or so on a mortgage when I can keep it in my own pocket?

Either way you slice it, it's better to just buy the ****ing house outright and enjoy the extra $ in your pocket that you would otherwise be putting into someone else's.

[Comrade Crapski]

Originally Posted by Pawnmower

In most places there are caps and laws in place to prevent this sort of thing......

True, but governments more and more have been violating the laws.

I was reading an article recently about homeowners in Detroit refusing to pay property taxes. There was one case where the house was worth $25 grand and his annual tax was $3,000.

That is insane.

Originally Posted by Pawnmower

but anyhow, the main way that property taxes rise , is if property values also rise....

During the recession/depression....property taxes lowered significantly, (which is one reason local governments were/are very short of cash)

Not true at all. In Hudson county NJ property values depreciated considerably while taxe rates increased.

Property taxes in NJ have increased every year since 2007.

[petegz28]

Originally Posted by La literatura

This seems odd. I've never bought a house, but why would the typical seller care if you're paying in cash or having a bank finance it?

It seems like most of your information would apply to a particular subsection of the market (purchasing foreclosures, for example), and not the typical housing transaction.

Because paying cash makes the entire thing go quicker, and no chance of the bank ****ing something up and causing the loan to fall through at the last moment. And that happens all the time, not just on the sub-sector you talked about.

[RedDread]

I don't think he's saying they lowered because they were reduced by states, they lowered because there was less privately owned property to tax.

[Comrade Crapski]

Originally Posted by petegz28

Yeah, that's what everyone was saying to me in 07-08 as they watched 40%-50% of their 401k's go away and I lost 5%.

Now let me put it to you in real terms..

with my house paid for 100% that means my largest monthly expense just went from someone else's pocket into my own.

Bingo.

Any financial advisor will tell you that your greatest financial capital is your capacity to earn.

Of course, you don't need a financial advisor to tell you that, it's common sense.

[La literatura]

Originally Posted by petegz28

Yeah, that's what everyone was saying to me in 07-08 as they watched 40%-50% of their 401k's go away and I lost 5%.

Now let me put it to you in real terms..

with my house paid for 100% that means my largest monthly expense just went from someone else's pocket into my own.

Why would I spend $500-$1200 a month or so on a mortgage when I can keep it in my own pocket?

Either way you slice it, it's better to just buy the ****ing house outright and enjoy the extra $ in your pocket that you would otherwise be putting into someone else's.

1) Where are their 401Ks now?
2) I just don't think you're thinking about the entire picture. Yes, your largest monthly expense is gone, but what? You invest it, presumably. You could have invested that earlier and done better for yourself long term.

[petegz28]

Originally Posted by La literatura

1) Where are their 401Ks now?
2) I just don't think you're thinking about the entire picture. Yes, your largest monthly expense is gone, but what? You invest it, presumably. You could have invested that earlier and done better for yourself long term.

1, I don't know where they are...some had to convert what they had left to cash becasue they were close to retirement. That's not the point.

If you want to get into this financial planning business the first thing you need to understand is what investments are appropriate for what type of person based on their age, risk tolerance, etc, etc. but that is another discussion


2, I think you have it backwards, it is you who isn't seeing the bigger picture. And I said this once and obviously it went over your head so I will say it again, the more "play" $'s I can invest vs. the more "non-play" $'s the better.

First lesson, don't ever assume your are going to automatically come out ahead on investments. How many people got their ass kicked in the last crash and are not young enough to recoup their losses?


As far as what do I do with the money? Invest it, maybe. Save it for a travel fund, use to to send my kids to college?

I say this in all seriousness, one thing you will learn as you get older is that there are all kinds of "investments" outside of financial investments and those become more clear as a person ages and unfortunately has to start making some decisions about their life that they didn't have to make when they were 20.


So that beckons the ultimate question that should always be asked first and foremost by any financial expert, "what are you investing for?"

[BigRedChief]

Originally Posted by petegz28

Sorry but no, you're wrong

And what facts do you have to back up your position?

I listed several pieces of a puzzle that can't possibly fit together. Yet, you say the puzzle does fit.

[La literatura]

Originally Posted by petegz28

1, I don't know where they are...some had to convert what they had left to cash becasue they were close to retirement. That's not the point.

It has to be an important point if one of your arguments for paying off mortgage rather than investing is that the market crashed. Their 401k is most likely up. Even if they invested primarily right before 2008, it's probably almost up to even and in several more years, will most likely be above.

And keep in mind that 2008 was a historic hit. I think it's overwhelming your perception of the market.

[La literatura]

Originally Posted by petegz28

2, I think you have it backwards, it is you who isn't seeing the bigger picture. And I said this once and obviously it went over your head so I will say it again, the more "play" $'s I can invest vs. the more "non-play" $'s the better.

Here's the bigger picture I'm seeing:

Even regardless of the interest deduction (which is a great point Dane pointed out), the ROR for a 50K portfolio held 15 years is almost certainly going to produce a higher cash value than the amount of interest you will pay for a 15 year 50K mortgage at 3.5%.

After 15 years, you will almost certainly be wealthier if you borrow rather than paying for the house in full.

[petegz28]

Originally Posted by BigRedChief

And what facts do you have to back up your position?

I listed several pieces of a puzzle that can't possibly fit together. Yet, you say the puzzle does fit.

I have posted chart after chart for the last several years with the US$ overlayed with the price of oil. FFS, FD just posted one thinking he was going to disprove me and all he did was prove me right.

[petegz28]

Originally Posted by La literatura

It has to be an important point if one of your arguments for paying off mortgage rather than investing is that the market crashed. Their 401k is most likely up. Even if they invested primarily right before 2008, it's probably almost up to even and in several more years, will most likely be above.

And keep in mind that 2008 was a historic hit. I think it's overwhelming your perception of the market.

dude, I ahve studied the stock market for 20 years, I am well aware of what kind of hit we took and what not. What you are doing is talking, when your actual $'s are on the line you would be amazed at how quick people change.

[petegz28]

Originally Posted by La literatura

Here's the bigger picture I'm seeing:

Even regardless of the interest deduction (which is a great point Dane pointed out), the ROR for a 50K portfolio held 15 years is almost certainly going to produce a higher cash value than the amount of interest you will pay for a 15 year 50K mortgage at 3.5%.

After 15 years, you will almost certainly be wealthier if you borrow rather than paying for the house in full.

Based on what? That is such a narrow view of things, Jensen. You're assuming a lot.

[petegz28]

Originally Posted by La literatura

Here's the bigger picture I'm seeing:

Even regardless of the interest deduction (which is a great point Dane pointed out), the ROR for a 50K portfolio held 15 years is almost certainly going to produce a higher cash value than the amount of interest you will pay for a 15 year 50K mortgage at 3.5%.

After 15 years, you will almost certainly be wealthier if you borrow rather than paying for the house in full.

And just so you understand, what it means to be "wealthy" changes a lot as you age.

and as far as the Tax Deduction goes, I am getting back money I paid out. If I never paid it out then WTF do I care?

What I think you need to do is put yourself in the position of being married, couple kids and a job which in this day and age is not very secure from a longevity aspect. Having no mortgage to pay every month pays huge dividends to that family should something unfortunate happen, such as the bread winner losing their job.

[2bikemike]

Not often I will agree with some of the more liberal posters on here but in this circumstance I will.

Mortgage money is cheap money. I would much rather have $300K or $400K invested somewhere intead of tied up in equity in my home.

One of the reason the rich get richer is because they have capital to take advantage of opportunities. Even the very wealthy carry mortgages because they know they can make a greater return on the money that would otherwise be tied up into a property.

I was able to take some of the over inflated pre bubble bust equity from my home and purchased a 4 plex in Olathe that has a decent return. I then took some of my earnings from my investment and the remaining cash I had left over from the initial equity draw and purchased a duplex in Calif on a Short Sale. This Duplex is the real money maker. It was purchased after the bubble burst and prices plummeted. An opportunity that was there because I had capital.

My initial property value did drop to about what I owe or maybe even a little less. But those prices are on the rebound and I still own the home. In fact I converted it to a rental and bought another house.

All of this by leveraging that equity instead of leaving it locked in to the house.