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Old 05-23-2015, 07:26 AM
 
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everything is dependent on your own personal rate of inflation and your wage increasing or income increasng ability.

without that your mortgage stays the same burden it always was regardless of inflation , in fact it becomes a greater burden as everything else costs you more.
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Old 05-23-2015, 09:19 AM
 
12,705 posts, read 9,964,692 times
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Originally Posted by jrkliny View Post
What do you think is happening "now"? As I remember the DJIA hit an all time high a few days ago. So did my overall portfolio. Still I would give up looking at short term fluctuations. That is almost as bad as listening to the evening market report.

I think you should give up looking at "now". There are plenty of fluctuations of plus or minus 300-500 points or so. Trying to see some sort of trend over a period of a few months will just lead to frustrations.
And over 2 years the same is true. This is why all of your raving about having beat your mortgage over the last 2 years is totally irrelevant, if the markets are to crash soon.
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Old 05-23-2015, 09:25 AM
 
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Originally Posted by honobob View Post
I don't know many people that take out 1 year mortgages. To actually compare you would have to run the figures for 30 years. Trapping 2015 cash in an illiquid investment doesn't make much sense when you can make 360 monthly payments in 2016-2045 dollars but earn on the cash in 2015-2045 dollars. Even modest inflation will make a substantial portion of that payment.
Inflation does not make your mortgage payment, ever.

"Hey Mr. Banker, I realize I am 60 days late on my house payment, but the CPI is up 2% this month, so you should take the late off my credit report" - not going to fly.

You have to either get money from assets, from income, or a combination, in order to make that payment.

The only thing that matters is if your assets return more than the mortgage costs or not. You can either compare nominal interest on mortgage to nominal return on assets, or you can compare real rate to real return.

You get the same answer either way, as I have shown on other threads, but if you don't find it, it is an exercise to the reader to show, mathematically, that the two approaches are in fact equivalent (apart from an overall multiplicative factor which doesn't change whether mortgage prepayment comes out ahead or behind.)
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Old 05-23-2015, 09:34 AM
 
12,705 posts, read 9,964,692 times
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Originally Posted by jrkliny View Post
Mathjak, I am truly impressed with your pessimism. I am sure there will be times over a 30 year mortgage when the cost of the mortgage will be higher than the return on investments. But over the course of 30 years, investment returns are likely to average around the historical which I believe is about 7.5% for a moderate, diversified portfolio.
The key phrase here is "likely to". This is why I say that it depends on your risk tolerance. For those with higher tolerances, such as yourself, the "hold-a-mortgage-you-have-the-money-to-payoff" strategy can make sense.

However, with a low risk tolerance, the same cannot be said. Risk tolerance is subjective (if you know economic theory, you understand how it relates to utility functions, and since personal utility is by nature subjective, so is risk tolerance, even if we ignore the very real comfort/emotional/peace of mind considerations relevant to the mortgage payoff question).

To dogmatically insist that mortgage payoff is incontrovertibly irrational, as you have been doing this entire thread, does not do justice. This is the point that me and Mathjak have spent the last umpteen pages of posts trying to get across.

Quote:
Originally Posted by jrkliny View Post
At today's rates it only takes less than 4% to pay the interest and about 5% to pay interest and prinicpal. I am pretty happy to make 2.5% on someone else's money especially when I am currently making a lot more than the 2.5% average. Short term dips in returns are only going to be a problem for someone who spends the money as fast as it comes in. Personally I am not spending any of the profits I am making. That money just continues to grow and I don't plan on spending it until the amount has grown way beyond the requirements for servicing the mortgage. That is actually happening at a rapid rate. As of today, 2.5 years into the mortgage, I have made enough to pay the mortgage up till now and to be able to pay it with no additional returns for the next 3 years.
You can say this only with hindsight.

Quote:
Originally Posted by jrkliny View Post

I think you read too many articles by Pfau. Is he still predicting the perfect storm when bonds have low yields and the stock market tops out? Is he still maintaining that the perfect storm will last for many years? He came out with that prediction in 2011. Four years later it seems even less likely that he will ever be correct.
Based on what?
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Old 05-23-2015, 09:34 AM
 
6,235 posts, read 4,721,373 times
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Originally Posted by ncole1 View Post
And over 2 years the same is true. This is why all of your raving about having beat your mortgage over the last 2 years is totally irrelevant, if the markets are to crash soon.
The markets are not about to crash soon. I almost wish they would. I would make a lot of money.
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Old 05-23-2015, 09:40 AM
 
12,705 posts, read 9,964,692 times
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Originally Posted by jrkliny View Post
The markets are not about to crash soon. I almost wish they would. I would make a lot of money.
Why don't you write and sell $100k in put options, if you are so absolutely certain of that?
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Old 05-23-2015, 11:24 AM
 
6,235 posts, read 4,721,373 times
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Originally Posted by ncole1 View Post
Why don't you write and sell $100k in put options, if you are so absolutely certain of that?
Because I never gamble and I have an investment strategy that I don't monkey with.

How about this? If I am wrong, I will stop posted any ideas about the future of our economy or markets. If you are wrong, are you willing to do the same?
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Old 05-23-2015, 12:19 PM
 
71,501 posts, read 71,674,131 times
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Originally Posted by ncole1 View Post
Inflation does not make your mortgage payment, ever.

"Hey Mr. Banker, I realize I am 60 days late on my house payment, but the CPI is up 2% this month, so you should take the late off my credit report" - not going to fly.

You have to either get money from assets, from income, or a combination, in order to make that payment.

The only thing that matters is if your assets return more than the mortgage costs or not. You can either compare nominal interest on mortgage to nominal return on assets, or you can compare real rate to real return.

You get the same answer either way, as I have shown on other threads, but if you don't find it, it is an exercise to the reader to show, mathematically, that the two approaches are in fact equivalent (apart from an overall multiplicative factor which doesn't change whether mortgage prepayment comes out ahead or behind.)
folks get confused over the fact that the thing about inflation is that is is supposed to drive up wages so the payment represents A smaller part of YOUR income.

but the problem is wages have stagnated or fell for what is now many years . i know i am earning less in nominal dollars than 15 years ago.

so the inflation that was supposed to make that mortgage a smaller and smaller part of income only made that mortgage harder to pay as time went on and inflation drove everything else up except wages.

mortgages can cut on both sides. they help you make money when markets and wages co-operate but they eat up that money faster then if you had no mortgage if the markets cycle around again , which they do . having to sell assets at a loss when markets cycle around to make that payment will burn up a part or all of those gains you made with the mortgage depending on how long and steep the next cycle is..

as far as i know no one has repealed the business cycle. so if you take a mortgage so you can invest elsewhere you really don't know how you did until the markets go through their cycles.

Last edited by mathjak107; 05-23-2015 at 01:10 PM..
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Old 05-23-2015, 02:41 PM
 
Location: Myrtle Creek, Oregon
12,223 posts, read 12,491,644 times
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Quote:
Originally Posted by jrkliny View Post
I do agree it is a somewhat strange idea to call a mortgage a hedge against inflation.
Buying the house was a hedge against inflation. The mortgage was a debt you incurred to buy that hedge. If you read the truth in lending papers when you took out the mortgage, they told you exactly how much you were going to have to pay for the mortgage, which is separate from what you paid for the house.

The wonderful thing about buying a house it that it costs very little to live there. The mortgage can be pretty expensive, but you can get rid of the mortgage just by paying it off. Then you can cut your home insurance costs by purchasing a policy with a substantial deductible. Insurance companies know that most homeowner claims are relatively small, so a policy with a $10k deductible can be cheap. With no mortgage payment, you should be able to handle $10k out of pocket change.

Just pointing out that waltzing with your banker has other costs than interest payments.
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Old 05-23-2015, 03:08 PM
 
Location: SF Bay & Diamond Head
1,779 posts, read 1,418,168 times
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Quote:
Originally Posted by ncole1 View Post
Inflation does not make your mortgage payment, ever.

"Hey Mr. Banker, I realize I am 60 days late on my house payment, but the CPI is up 2% this month, so you should take the late off my credit report" - not going to fly.

You have to either get money from assets, from income, or a combination, in order to make that payment.

The only thing that matters is if your assets return more than the mortgage costs or not. You can either compare nominal interest on mortgage to nominal return on assets, or you can compare real rate to real return.

You get the same answer either way, as I have shown on other threads, but if you don't find it, it is an exercise to the reader to show, mathematically, that the two approaches are in fact equivalent (apart from an overall multiplicative factor which doesn't change whether mortgage prepayment comes out ahead or behind.)
Um, no. The mortgage is fixed dollar amount. Income goes up with inflation. I work 40 hours to make mortgage payment in year one. In year ten my salary has increased 50% It now takes less than 27 hours of salary to pay the mortgage. Inflation is paying 13 hours of salary towards the mortgage.
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