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

Which is why you diversify in a broad portfolio. It's not like you put the 300K into Apple.

So, what was the best place to make money in the last market crash? Aside from being short the market, that is.

[La literatura]

Originally Posted by petegz28

So, what was the best place to make money in the last market crash? Aside from being short the market, that is.

Commodity funds, I suppose. But here's what really matters: Sometimes you just have to ride out the market.

[2bikemike]

Originally Posted by petegz28

leveraging equity for additional investment is not is not quite what I am talking about...simply because you have equity in the first place in order to leverage it

It would be the same thing if you were making an extra $300 or $400 an month extra payment to payoff your mortgage. That same money could be invested in say a Roth IRA or something.

The other point I wanted to make is the equity I took from my home was Phantom. My home skyrocketed to about $550K during the filling of the balloon. Once the ballon popped the value fell dramatically.

[petegz28]

Originally Posted by 2bikemike

Unless your investing in the options market or throwing all your eggs in one basket your chances of losing everything is pretty remote if your paying attention to your investments. I would never invest in anything without an exit strategy.

Even the richest people have mortgages, because they know they can make more money on the cash than tying it up in a property.

I haven't really looked into it but I read when Mark Zuckerberg bought his house he got around a 1% mortgage because he had the cash to pay it off. The article went on to say that anybody who could back there mortgage could do the same thing.

Yes but for all intents and purposes, if you have that kind of cash, you are debt free. His balance sheet still shows a net positive even after said mortgage is taken into account.

[petegz28]

Originally Posted by La literatura

Commodity funds, I suppose. But here's what really matters: Sometimes you just have to ride out the market.

That all depends on your age and goals. Some people don't have time to ride out the market.Whcih brings me back to my original point in the thread being those people are being forced into a market they don't belong in because they cannot get any return elsewhere. The risk you take on every $ you have to invest for every 1% of return has gone up substantially over the last several years.

And most likely you would have done best to have your money between your matresses during the crash.

[petegz28]

Originally Posted by 2bikemike

It would be the same thing if you were making an extra $300 or $400 an month extra payment to payoff your mortgage. That same money could be invested in say a Roth IRA or something.

The other point I wanted to make is the equity I took from my home was Phantom. My home skyrocketed to about $550K during the filling of the balloon. Once the ballon popped the value fell dramatically.

Ok but I think you are confusing my point. You are using equity in real estate to buy more real estate which in the end leaves you net-net invested in real estate.

And that is fine if that is what one wishes to do. But again, if you have have a note on a property then the amount of equity you are able to leverage is limited to whatever equity you have minus the value of the note. so if I own my home free and clear I have the ability to tap 100% of the equity.

[DaKCMan AP]

12. Buying a home with cash is the best option, if you have the money.
Covering a home purchase with cash is in vogue. With the housing market heating up, the tactic may help a buyer win a bidding war—and the idea of not living under a mortgage can be appealing.

But going with cash isn't always the best financial choice. Mortgage-interest payments can be deducted on your tax return, which can save you a bundle.

Then there's the opportunity cost of handing over that much money. Some people prefer to invest the money they would have spent on the home purchase, betting it will earn a higher return than the interest rate on the mortgage when considering the tax deduction, says Jimmy Lee, a financial adviser in Las Vegas, Nev.

http://online.wsj.com/article/SB1000...down+mortgages

[DaKCMan AP]

Originally Posted by 2bikemike

Even the richest people have mortgages, because they know they can make more money on the cash than tying it up in a property.

I haven't really looked into it but I read when Mark Zuckerberg bought his house he got around a 1% mortgage because he had the cash to pay it off. The article went on to say that anybody who could back there mortgage could do the same thing.

Yep - and with the way rates are now many of them - who can easily pay cash for their purchases - are instead mortgaging with zero down.

http://articles.marketwatch.com/2013...i-private-bank

[2bikemike]

Originally Posted by petegz28

Yes but for all intents and purposes, if you have that kind of cash, you are debt free. His balance sheet still shows a net positive even after said mortgage is taken into account.

Exactly which is what I am saying about you paying off your mortgage early. Instead of pouring extra money into your mortgage invest that money, in time you will have the value of your mortgage in cash.

I used to think the same way you are, I was hell bent on paying off my mortgage. Then I was challenged by someone I respect who was pretty financially savy. I gave all the same reasons you are using. He then put pen to paper and showed me how I could do so much better by not locking up equity in my house. It really is lost opportunity.

[petegz28]

Originally Posted by DaKCMan AP

http://online.wsj.com/article/SB1000...down+mortgages

Well, like it said.."betting".

I am all for a sound bet but then there is the time where you also say a bird in hand is worth 2 in the bush

[DaKCMan AP]

Originally Posted by petegz28

Well, like it said.."betting".

I am all for a sound bet but then there is the time where you also say a bird in hand is worth 2 in the bush

You're risk averse. It's ok. You should never invest when you're not comfortable with the risk and everyone has a different risk appetite.

[petegz28]

Originally Posted by 2bikemike

Exactly which is what I am saying about you paying off your mortgage early. Instead of pouring extra money into your mortgage invest that money, in time you will have the value of your mortgage in cash.

I used to think the same way you are, I was hell bent on paying off my mortgage. Then I was challenged by someone I respect who was pretty financially savy. I gave all the same reasons you are using. He then put pen to paper and showed me how I could do so much better by not locking up equity in my house. It really is lost opportunity.

I think that depends on what you want out of life. I look at it more and more as an income\outflow issue as I get older. I want less outflow compared to income. The less financial obligation I have at the end of the month the better off I am to enjoy more of what I want to do with my remaining years.

Oh sure, I might cost myself a bit from a tax deduction purpose but I am also not having to shove out $1k every month either. That's $1k I can do other things with including investing. Plus should my job get shipped to India tomorrow I have the security of not having to meet that financial obligation.


So as I stated earlier, it's all what you want out of life and what not.

[petegz28]

Originally Posted by DaKCMan AP

You're risk averse. It's ok. You should never invest when you're not comfortable with the risk and everyone has a different risk appetite.

To a certain extent I am. I have seen how our economy has gone over the last decade and see that traditional job security is a thing of the past. And I know most people have their mortgage as their largest outflow every month and that if they didn't have said outflow it would put them in a better all-around situation.

Basically it comes down to an income vs. growth ordeal and I have always been more income oriented.

[2bikemike]

Originally Posted by petegz28

Ok but I think you are confusing my point. You are using equity in real estate to buy more real estate which in the end leaves you net-net invested in real estate.

And that is fine if that is what one wishes to do. But again, if you have have a note on a property then the amount of equity you are able to leverage is limited to whatever equity you have minus the value of the note. so if I own my home free and clear I have the ability to tap 100% of the equity.

Ok lets say you lose your job. You need cash and you have your house free and clear. Now you have no income who is going to lend you money without an income. Well you probably could have before the bubble burst but I doubt it now.

[La literatura]

Originally Posted by petegz28

To a certain extent I am. I have seen how our economy has gone over the last decade and see that traditional job security is a thing of the past. And I know most people have their mortgage as their largest outflow every month and that if they didn't have said outflow it would put them in a better all-around situation.

Basically it comes down to an income vs. growth ordeal and I have always been more income oriented.

Actually, I bet most people would spend it on videogames rather than invest it. A lot of people just don't invest their extra income.

And it's not "to a certain extent." You are extremely risk averse. Like I said, more than 98% of investors your age. I made up that number, but you get the point.