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If the alternative is throwing away money on rent, then mortgage debt is good. Even if you ended up paying double after 30 years, you ended up with an asset.
or perhaps you left your own money invested in assets growing far greater then those mortgage rates are today . many leave their own money invested and take a mortgage . even retirees do it if the return is greater elsewhere .
If the alternative is throwing away money on rent, then mortgage debt is good. Even if you ended up paying double after 30 years, you ended up with an asset.
that is not my quote about looking at the amortization chart ... in fact that is not true as mortgages are not front end loaded . that implies a higher interest rate in the beginning then the end .
/4's of homeowners need a mortgage . a mortgage can be good debt .[/QUOTE
I agreed, somewhat, until I took a long, hard look at an amortization chart and realized how I was being fleeced by front-loaded interest and ended up paying nearly double the purchase price at the end of 30 years.
It’s just herd mentality. Debt is bondage and adding the word “good” in front doesn’t change that fact.
the way you quoted this it looks like i am saying the amortization of a mortgage is front end loaded , it got tagged on to my comment as if i said it . .
i disagree with everything you added to my comment .
I'm about 4 years into my mortgage. Am I better off to make some extra payments on my mortgage or invest in some stock?
It seems to me most financially successful people do a mix of both.
I think Dave Ramsey's blueprint is a good guideline here. Here it is, in order of priorities.
1. Save $1000
2. Pay down all consumer debt except for mortgage.
3. Increase emergency fund to 3 to 6 months' of living expenses.
4. Invest 15% of gross income for retirement.
5. Save for college if you have kids.
6. Pay down mortgage.
OP, you live in a country that is run by keeping people in debt. They so much became used to it, by everpresent "it is better to be in debt" tune that they can't think outside that box. Add to this, that they can easily circle back to the same source, that put that idea into their minds, and sources will easily provide them with gymnastics and equlibristics of math and "examples" "proving" that it is good to be in debt. Also, literally all of "advisors" here ARE in debt and think accordingly. None of them became Mr Buffet or, they simply wouldn't bother with spending time on CD. So you get according advice.
Ocenagaia, thank you, has the best sober opinion. Are you investing genius? Do you KNOW how to invest, do you have any insider information that will GUARANTEE you not losing money? Do you feel lucky, or do you? I have been through enough financial crashes and money reforms to know better. In matter of one TV announcement all savings or investments may be gone in puff. And the word out there is - you are looking at just that.
So here's my very simple, non Buffet philosophy. Real estate is real estate. It historically grows in value 7% a year. Add to this that every penny, you put into principal, saves your interest rate amount. Say, it 4 - 5%. That adds up to 12% literally risk free money placement. Oh, and I KNOW what it feels like be debt free and own the property straight. Very fulfilling.
So sure, you may want to have debt to "free money" to buy a new toy. Basically, add debt to debt. But, should you be a frugal person that knows how to save and can tame buying cravings and has secure stable income - PAY OFF THE DARN MORTGAGE. Listen to no one, as they don't care about you and spend not your money. You want your money SAFELY invested, real estate it is. As a side dish, my "investments", what's left of them, as I sold basically all and keep cash in money market, keeping 2 stocks as gauge - lost 21% in the last 2 months and going down.
Remember one thing - NO ONE knows what will happen next. Not a single investment or a country is protected from disappearing. Out of such gloomy thoughts, as Mr Rogers said - put your money into dirt, they don't make it anymore.
this is untrue ... mortgages are not front loaded , that is a myth . that implies your rate is higher in the early years then the later . your rate is constant and you only pay on your balance .
if your rate is 4% you pay 4% on the balance all the way through . you pay the same rate in the beginning as the end . the balance you pay on is dropping so you pay less interest as time goes on .
this is a standard 30 year amortization . 200k , 30 year 4% .... you can see the interest on each years balance is 4% regardless if day 1 or 30 years from now ..
Look at an amortization schedule. You pay more in interest early, which means the lender is getting their money firstly. The principle is where you want the money to go and that is always less early. Not good for the borrower.
Look at an amortization schedule. You pay more in interest early, which means the lender is getting their money firstly. The principle is where you want the money to go and that is always less early. Not good for the borrower.
That's because your remaining loan amount is higher in the beginning. It's really simple math but many people seem to struggle with it.
Think about it, if more money went to pay the principle (which means that part of interest accrued have to be deferred - not sure why lenders will agree to that) then after a year your principle will be lower and you will be the first one to complain that you have to pay effectively higher interest rate on a lower balance.
Also, put yourself on the other side. Say you loaned someone 100k with 3% interest and they took the loan for 10 years. There are two ways to do it, amortized over 10 years (like a mortgage so that the balance will be zero at the end of 10 years) or just pay 3% interest per year and pay back the entire principle at the end of the 10 years (like interest only loan). Now, after taking the loan they insist that their monthly payment to towards principal only and you agree. After 5 years or so, the principal will be paid and that guy or gal comes back and claims that the principal is paid and they owe nothing to you, therefore they will stop payment. How will you feel about that?
the principal is calculated as it is because it is spaced to be paid off at the loan term . so your payment is balanced out so you can cover the interest yet pay the loan if 30 year in 360 payments .
the principal is calculated as it is because it is spaced to be paid off at the loan term . so your payment is balanced out so you can cover the interest yet pay the loan if 30 year in 360 payments .
Sorry, my reply was directed towards Snowpacked. I know you are very familiar with the math, no need for me to tell you
I only see a few posts in this thread that use math to justify the position of the poster. Lots of "feels data" though.
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