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Old 12-06-2012, 12:02 AM
 
5,730 posts, read 10,089,600 times
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Quote:
Originally Posted by Willy702 View Post
Americans are incredibly spoiled. They are in a rush to pay off a mortgage because some fools have them thinking a paid off home is the new American dream, but they overlook how incredibly good a deal a 30 year fixed mortgage at 3.75% is. Its an off the charts great deal, mortgages are incredible deal when you consider how little you have to put down to control a valuable asset. People around the world envy the US home mortgage and yet so many "gurus" tell you the best thing you can do is pay it off as fast as you can. Anyone with a worldview and a little bit of sanity can see how insane it is.
Your post tells me you have NO CONCEPT of the freedom that comes from being debt free.

You could look at it from the prespective of being able to get by no matter what:

Or what one of the 2 decamillionares I've met told me:
"no one ever got rich paying interest"
(and yes, I know your going to say you can borrow money and make more... After taxes etc...)


I like the freedom and flexibility
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Old 12-06-2012, 12:07 AM
 
6,360 posts, read 11,805,855 times
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Quote:
Originally Posted by Themanwithnoname View Post
Your post tells me you have NO CONCEPT of the freedom that comes from being debt free.

You could look at it from the prespective of being able to get by no matter what:

Or what one of the 2 decamillionares I've met told me:
"no one ever got rich paying interest"
(and yes, I know your going to say you can borrow money and make more... After taxes etc...)


I like the freedom and flexibility
Freedom? Flexibility? As long as I buy a property correctly I create freedom and flexibility in the long run. If I want the equity I can always sell when I deem the time right. And do it enough and I create the financial freedom you had to work harder to earn.
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Old 12-06-2012, 12:10 AM
 
1,784 posts, read 3,447,430 times
Reputation: 1295
Quote:
Originally Posted by Willy702 View Post
Americans are incredibly spoiled. They are in a rush to pay off a mortgage because some fools have them thinking a paid off home is the new American dream, but they overlook how incredibly good a deal a 30 year fixed mortgage at 3.75% is. Its an off the charts great deal, mortgages are incredible deal when you consider how little you have to put down to control a valuable asset. People around the world envy the US home mortgage and yet so many "gurus" tell you the best thing you can do is pay it off as fast as you can. Anyone with a worldview and a little bit of sanity can see how insane it is.
To quote Princess Bride: "I do not think that means what you think it means".
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Old 12-06-2012, 12:11 AM
 
5,730 posts, read 10,089,600 times
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Quote:
Originally Posted by Willy702 View Post
Freedom? Flexibility? As long as I buy a property correctly I create freedom and flexibility in the long run. If I want the equity I can always sell when I deem the time right. And do it enough and I create the financial freedom you had to work harder to earn.
Monthly notes are not conducive to freedom and flexibility.
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Old 12-06-2012, 12:26 AM
 
1,858 posts, read 3,090,342 times
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Quote:
Originally Posted by Themanwithnoname View Post
You could rent b/c you move around a good bit for employment opportunities.

You Could live in corporate apartments, and Airstreams etc while you work long hours (Just knocked off) to save up the cash in 2-3 years.

It's doable, Depending on how much I make here I will have the cash for my 4plex in 2013 or 2014...
You will notice that I said "every situation is different." For some people, it makes sense to rent. But that is not generally true. Yes, there is some emotional comfort in being debt free, but emotional decisions are not necessarily always the wisest decision. For example, while you are waiting to save up the money to pay cash for a 4 plex, you could have mortgaged it and had the entire mortgage paid by your tenants. If you're not comfortable with that, that's fine, but you should at least acknowledge that the decision is a little more complicated than that, and there are many factors to consider.
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Old 12-06-2012, 12:33 AM
 
5,730 posts, read 10,089,600 times
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Quote:
Originally Posted by dmills View Post
You will notice that I said "every situation is different." For some people, it makes sense to rent. But that is not generally true. Yes, there is some emotional comfort in being debt free, but emotional decisions are not necessarily always the wisest decision. For example, while you are waiting to save up the money to pay cash for a 4 plex, you could have mortgaged it and had the entire mortgage paid by your tenants. If you're not comfortable with that, that's fine, but you should at least acknowledge that the decision is a little more complicated than that, and there are many factors to consider.
My circle includes some bankers/banking types.
I asked them about it, and they told me that for the 2-3 year difference I was better off just waiting and paying cash. Not paying interest and fees would more than make up for the difference.


And it's not about comfort... It's about security:
As in: I don't care if I loose my job or not... It's not necessary. (different than it improves my lifestyle...)
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Old 12-06-2012, 12:36 AM
 
1,784 posts, read 3,447,430 times
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I am working on a spreadsheet that addresses this exact question, and would love feedback as to how to improve it, though I don't know how I would share an Excel file here.

The basic gist is that you enter the following:
- interest rates for both a 15-year and 30-year term
- the loan amount*
- your marginal tax bracket
- your capital gains tax rate
- your expected average rate of return in the market depending on how you invest

Then, for every year going forward I calculate (for both 15 and 30 year options, up to 15 years):
- that year's principal/equity
- that year's interest
- that year's tax savings from the interest
- cumulative amounts for each of these above
- cumulative investments made to date.... assuming you are investing both the monthly payment difference and the annual interest deduction tax savings if you go the 30-year route.

After adding all these up, I compare the Net Difference at each year and throw that number into a graph, where then you can see a nice upside-down parabola and easily see where your break even point is. Modifying those initial inputs automatically updates the graph. (years on x-axis, net worth difference on y-axis)


So for example, with a 2.75% 15-year and 3.5% 30-year, 25% tax bracket, 15% capital gains rate, and 5% ARR, you actually come out ahead in total net worth with a 30-year term after 12 years. (assuming you are actually investing in the market and not using your extra cash for random expenses). Change it to 2.675% vs. a 3.25%, and a 6% ARR, and it's now only 7 years.

However, I may be overlooking some things or making inaccurate assumptions, which I would like to know about!



* Actually irrelevant to the break-even time, but let's you see the real numbers at each point.

Last edited by snowdenscold; 12-06-2012 at 12:45 AM..
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Old 12-06-2012, 01:25 AM
 
15,631 posts, read 26,120,239 times
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It was just a few years ago when a number of gurus were telling people to take all the cash out of their homes, have the biggest mortgage they could possibly have, take all the equity they could and dump it in the stock market.

One guy actually said you were stupid for keeping money in your home.

Wonder where all the people that followed him are today? I'm guessing homeless. But the guru who said that isn't... and he's still on the air spouting his nonsense.

Here's my take. Learn. And figure it out for yourself.

Read a lot and formulate your own strategy and budgets and forecasting. They all want you to think it's rocket science, but it really isn't. Invest in what you KNOW, and don't let these cockamamie gurus tell you what to do -- they are wrong WAY more often than they are right.

Each and every one of us have different needs and wants and levels of risk and comfortability. I don't like to pick stocks. I feel very comfortable with mutual funds, and I have a system so I don't buy funds that overlap. Sort of dumb to buy five funds that all invest heavily in Amalgamated Widgets. Might be okay to buy a fund with Amalgamated Widgets, and maybe another fund with their competitor Undiversified Doodads... or maybe not....
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Old 12-06-2012, 07:35 AM
 
Location: Wisconsin
7,214 posts, read 9,355,245 times
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I don't always buy the argument of "take a smaller payment with the 30 year mortgage and invest the difference." How many Americans actually do that?

Anyway, I guess I'll be the oddball in the thread and say that my wife and I did a 20 year mortgage with our new house last year.
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Old 12-06-2012, 08:12 AM
 
16,979 posts, read 21,650,194 times
Reputation: 29053
Quote:
Originally Posted by Willy702 View Post
Americans are incredibly spoiled. They are in a rush to pay off a mortgage because some fools have them thinking a paid off home is the new American dream, but they overlook how incredibly good a deal a 30 year fixed mortgage at 3.75% is. Its an off the charts great deal, mortgages are incredible deal when you consider how little you have to put down to control a valuable asset. People around the world envy the US home mortgage and yet so many "gurus" tell you the best thing you can do is pay it off as fast as you can. Anyone with a worldview and a little bit of sanity can see how insane it is.

Interesting point but I will share a different view. I was a financial planner with a major firm about 15 years back. I was new to the business and had a client that recently started making great money (25K a month+). He owned a small home, owed less than 150K. Goal #1 was to pay off his home. Obviously I was perplexed. He had a long career ahead of him (Architect, specifically nursing homes which was soon to be a booming industry) and I couldn't figure out why he wanted to payoff the house. His answer: My dad always told me "to own your own dirt"....there is a mental freedom that there is one less payment you have to make and you actually own an asset.

I am at the other end of the payment book myself and I totally understand borrow on a fixed asset, invest the money and hope for a greater return but being the recent collapse of the real estate market I can now see the relax, own it and move on with your life. Too many people are underwater, can't sell the home their in and of course their "investing" may not have gotten the 10% they were shooting for. Also remember a bulk of the pre-baby boomer's retirement success was owning their own home outright, something the baby boomer generation didn't stick to. You don't want mortgage payments in retirement!

I live on a street of 18 homes. All of the homes are roughly the same age and most folks are 1/3 of the way through their mortgages (10 yrs in on a 30). I am 2/3's through a 15....so when I am all done making payments, most of my neighbors are hitting their 1/2 way point. At that point I will still have 20+ years until retirement so plenty of time for that TVM equation to kick in and I will have $2216 per month to add to the pile every month all awhile "owning my own dirt!"
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