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Americans also don't have the financial discipline to take out a 30 year mortgage, pay an extra few dollars per month and pay off the loan 5-10 or more years early, depending on the price of the house.
If they bothered to look at a mortgage amortization chart, they'd know that on a 30-year note, it would take you 21 years of monthly payments in order to own exactly half of the house.
Folks who repeatedly refinance their homes are also extremely stupid and that's not open to debate; granted personal finance courses are nonexistent in most high schools from coast to coast, but that's not a secret either.
During the housing crash, everybody who watched their local newscast saw the sob stories of couples whose homes had lost 30% or more of their value and whose owners had also refinanced repeatedly, failing to realize how indefensibly stupid that practice is, yet refusing to take any blame for their own intellectual ignorance as it relates to personal finance.
Then someone watching this newscast from their living room would look behind the reporter and the couple and see two or more gleaming automobiles that were brand new or only a couple of years old at the most and say to themselves 'at least we know where the money went'---straight into buying a depreciating asset as opposed to buying another piece of real estate, even a modest duplex or triplex, and having your renters pay off those mortgages and ensuring your financial security for the rest of your life.
Americans also don't have the financial discipline to take out a 30 year mortgage, pay an extra few dollars per month and pay off the loan 5-10 or more years early, depending on the price of the house.
It's very possible that they shouldn't have done any such thing in an era of declining mortgage rates. The smarter move might well have been to refinance every chance that came along (an available rate more than 1% below the current rate), thus slashing monthly payments and reducing interest costs while pushing juicy tax deductions back to the top of the amortization table. Mortgage refinancing is also a handy chance to consolidate other higher-interest debts and improve cashflow even further.
Quote:
Originally Posted by Marv101
If they bothered to look at a mortgage amortization chart, they'd know that on a 30-year note, it would take you 21 years of monthly payments in order to own exactly half of the house.
LOL! What you own is the equity -- that is, the difference between what the house is worth and the principal balance remaining on the mortgage. Equity does NOT consist only of the cash you have put into a home.
Quote:
Originally Posted by Marv101
Folks who repeatedly refinance their homes are also extremely stupid and that's not open to debate.
Oh, it's quite debatable indeed since at least some of those who have done multiple refinancings over the past 15 years are very well-to-do PhD economists.
Quote:
Originally Posted by Marv101
...granted personal finance courses are nonexistent in most high schools from coast to coast, but that's not a secret either.
Actually, these courses are quite commonly offered but are not always mandatory. There are a few places that require passing such a course in order to receive a diploma, but not enough.
Quote:
Originally Posted by Marv101
During the housing crash, everybody who watched their local newscast saw the sob stories of couples whose homes had lost 30% or more of their value and whose owners had also refinanced repeatedly, failing to realize how indefensibly stupid that practice is, yet refusing to take any blame for their own intellectual ignorance as it relates to personal finance.
Being underwater is a problem only if circumstances require you to SELL the property while it is. Otherwise the biggest effect is likely to be a reduction in your property taxes. Nice! Millions upon millions of people saw the market value of their homes decline and just continued to live in them as always. Whether they had never refinanced or had refinanced half a dozen times really didn't matter.
So you are advocating against what you did? Taking a 15 year or taking a 30 and paying it in 15 years is the same thing basically. The reality is people take out a 30 because they can't afford the 15 year payment. Americans have proven they don't have the discipline to pay down a 30 in less time. They also aren't investing the difference.
Back to my point. Anyone can afford a 15 year mortgage. One will just have to buy a lesser house. The only exception to this would be someone at the very bottom of the market. The payment on a 15 year for a 170k house is the same as the payment for a 220k house on a 30 year.
No, not advocating. Merely suggesting there is more to the issue than a black and white interpretation. I am capable of reassessing my choices, beliefs and strategies. That has always worked well for me. You should give it a try.
BTW, your point was not that anyone could afford a 15 year mortgage, it was that a 15 year mortgage somehow would have helped with the housing bubble or been financially beneficial to those who couldn't pay their bank note. I can provide quotes if you like. Comparing a 170K home with a 220K home is apples and oranges. The payment would be lower on the 170K home, even if they were both 15 year mortgages.
And my point is still that no matter how fast you pay off your principle, you will still lose that money if the bank takes your home. Less equity in the house means less loss in the end. Not promoting this practice, simply stating a numerical fact.
One more thing, I did not take out a 30 year because I could not afford a 15 year. I had a 15 year and refied to a 30 year (at a lower rate - win/win), as a preemptive measure, when my job security went into jeopardy. This provided more financial leeway and a considerable amount of psychological comfort.
BTW, in the scenario I posed to you, which you neatly tried to sidestep (What if I had not paid off the remainder of my mortgage 5 years ago and instead directed that money into an index fund, while enjoying a 3% 30 year mortgage with minimal payments? Would equity still be my friend?), I would have a sizable sum of money on hand to make that lower 30 year mortgage (on any size home) should my income stream dissipate.
Last edited by shaker281; 07-17-2013 at 10:14 PM..
Folks who repeatedly refinance their homes are also extremely stupid and that's not open to debate; granted personal finance courses are nonexistent in most high schools from coast to coast, but that's not a secret either.
You are confusing taking a lower interest rate refi with pulling equity from one's home and using it irresponsibly. I refied several times as rates dropped from 1993 through 2008 (two different homes). i never pulled equity from my home. Which is why this extremely stupid person is 100% debt free. And paid considerably less interest in the long run.
What would be "intellectual(ly) ignoran(t) as it relates to personal finance", would be paying 2-3% higher interest when rates are dropping. I guarntee no one holding a 3.5% 30 year right now is feeling stupid. There is no debate about that!
No, not advocating. Merely suggesting there is more to the issue than a black and white interpretation. I am capable of reassessing my choices, beliefs and strategies. That has always worked well for me. You should give it a try.
BTW, your point was not that anyone could afford a 15 year mortgage, it was that a 15 year mortgage somehow would have helped with the housing bubble or been financially beneficial to those who couldn't pay their bank note. I can provide quotes if you like. Comparing a 170K home with a 220K home is apples and oranges. The payment would be lower on the 170K home, even if they were both 15 year mortgages.
And my point is still that no matter how fast you pay off your principle, you will still lose that money if the bank takes your home. Less equity in the house means less loss in the end. Not promoting this practice, simply stating a numerical fact.
One more thing, I did not take out a 30 year because I could not afford a 15 year. I had a 15 year and refied to a 30 year (at a lower rate - win/win), as a preemptive measure, when my job security went into jeopardy. This provided more financial leeway and a considerable amount of psychological comfort.
BTW, in the scenario I posed to you, which you neatly tried to sidestep (What if I had not paid off the remainder of my mortgage 5 years ago and instead directed that money into an index fund, while enjoying a 3% 30 year mortgage with minimal payments? Would equity still be my friend?), I would have a sizable sum of money on hand to make that lower 30 year mortgage (on any size home) should my income stream dissipate.
Fill me in on how buying a home you could afford 15 years ago, in order to live in it for 25-30 years, and watching its valuation drop by 50% in one year and then getting laid off from your job of 20 years could have been planned for more competently?
This is where you reference it being bought 15 years ago. If one bought on a 15 year it would be paid off.
The 220k to 170k is very relevant. It is the the sacrifice you have to make to pay a home off in 15 years.
Huh? You just took that completely out of context. That was meant to illustrate how no one can plan 15 years in advance for a black swan event. How is that not clear? You are compounding your errors at this point.
Although, I know understand how you got off on this tangent initially.
I understand you are trying to save face. You are not. The opposite is occurring.
Let's say you lost your job and are unable to work. Are you worse off with a 30 year payment and 150K in the bank on a 200K home or with a paid off house with nothing in the bank - assuming equal interest rates?
Can you answer that question directly?
Last edited by shaker281; 07-18-2013 at 04:54 AM..
Huh? You just took that completely out of context. That was meant to illustrate how no one can plan 15 years in advance for a black swan event. How is that not clear? You are compounding your errors at this point.
Although, I know understand how you got off on this tangent initially.
I understand you are trying to save face. You are not. The opposite is occurring.
Let's say you lost your job and are unable to work. Are you worse off with a 30 year payment and 150K in the bank on a 200K home or with a paid off house with nothing in the bank - assuming equal interest rates?
Can you answer that question directly?
You can plan. The problem here is you are arguing from the perspective of the typical American which it is my opinion is quite foolish. I simply think the majority of Americans are are horrible financial planners who don't live within their means.
My personal answer to that question is no mortgage. We bought a house on a 15 year that could be afforded on only one of our incomes. I bought what I could afford in lean times on a short loan. The American economy these days doesnt provide the job security one needs for a 30 year mortgage. I'll be debt free by 40. Anyone who is taking debt past the prime working age of about 45 is taking risks in the new economy.
The answer for the typical american who plans poorly is neither. You can sell your house for 200k if your job loss is long term. Not to mention it would be foolish for someone to not have any savings and a paid off house so your example is skewed.
This is the same problem the people in the PBS doc faced. They should have sold their house at the start when they couldn't afford it. People get emotionally attached to a house and make poor financial choices.
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