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Old 02-09-2008, 01:45 PM
 
17 posts, read 35,777 times
Reputation: 11

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Quote:
Originally Posted by marmac View Post
I blame a lot of the problem on people falling prey to the ads of "cashing in your equity on your house" that were unheard of years ago.

When I entered the labor market sone 45 years ago, the dream was to buy a house and have it paid off before you retire so you have eliminated a huge expense ( mortgage payments) once your income drops due to retirement.

I recall some of the first home equity ads. They showed a couple going on a cruise or island vacation. The ad said---"you work hard, you deserve this"--" cash in the equity on your home"

A relative works doing mortgage closings. For many years she has noticed most are done for re-financing and she is seeing many people reaching retirement who still owe 75% + of the value of their house in mortgage.

Somehow the timetable of having ones house paid off by retirement was deemed "old fashioned" and we are about to see the fallout from the abandonment of that good fiscal practice.
The problem is not accesing the cash in the house the problem is accessing it and spending it. Paying off your house the "old fashioned" way is just as detrimental to a great retirement. If you gave 200,000 to an investor and he made 0% on the money, i would guess you might fire the investor. Well, look at the 200,000 of equity in your home -- 0%. If you acess the equity in your home and put it in a safe, liquid, tax-free investment earning compound interest with the ability to pay off the house anytime you want - that is the "new fashioned" way to pay off the house. Leverage your assets correctly. Read "Missed Fortune 101" by Douglas Andrew for a full explanation.
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Old 02-09-2008, 02:41 PM
 
Location: Upper Midwest
113 posts, read 251,876 times
Reputation: 73
Default Equity loans/2nd mortgages

I absolutely hate equity loans/2nd mortgages. Customer A might have a good FICO score, a home that has appreciated some. Now, if they have a home equity loan for $70.000. That high balance second mortgage will be the #1 reason for them not being able to qualify for a lower rate refinance. One of the dumbest things people do is they take an equity loan to clean up their credit card debt and then run up their credit cards all over again, that leaves them with twice the debt—the equity line and the credit cards.
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Old 02-09-2008, 03:17 PM
 
Location: DC Area, for now
3,517 posts, read 12,053,898 times
Reputation: 2141
Quote:
Originally Posted by Tfreesemann View Post
The problem is not accesing the cash in the house the problem is accessing it and spending it. Paying off your house the "old fashioned" way is just as detrimental to a great retirement. If you gave 200,000 to an investor and he made 0% on the money, i would guess you might fire the investor. Well, look at the 200,000 of equity in your home -- 0%. If you acess the equity in your home and put it in a safe, liquid, tax-free investment earning compound interest with the ability to pay off the house anytime you want - that is the "new fashioned" way to pay off the house. Leverage your assets correctly. Read "Missed Fortune 101" by Douglas Andrew for a full explanation.
And yet, for the majority of homeowners, the net worth is in the house. Sorry, the new-fashioned idea is not borne out by actual facts. Unless you are doing something like FB and buying rental real estate such that the tenants are paying all the costs, paying off a house can be a cornerstone of a comfortable retirement. Paying interest is not a winning wealth-building strategy and can be a killer when the income and living expenses need to be reduced. Earning interest and real estate appreciation can be.

I don't know what real estate you are talking about, but my paid off house is worth more than 100 grand more than every cent I've put into it including the interest so I have in effect lived in my house for free and then some for quite a few years. Seems like a pretty good investment to me. Somehow, there is a whole lot more money in my hands without the payout of a mortgage.

The reality is that the shaky economy means most investments are not doing all that spectacularly. And all those fees you pay for the investments means some pretty serious erosion of the nest egg. There's a lot of bogus and bad financial advice out there with the hidden agenda of making money for the brokers and fund managers. The result is a lot of people are not in such great shape after years of working. How many people are in trouble now because they owe too much compared to people who owe little or nothing?

I never hear about the case of someone who has no debt and owns their own home being in financial trouble.
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Old 02-09-2008, 04:14 PM
 
782 posts, read 3,489,239 times
Reputation: 398
Quote:
Originally Posted by Tesaje View Post
And yet, for the majority of homeowners, the net worth is in the house. Sorry, the new-fashioned idea is not borne out by actual facts. Unless you are doing something like FB and buying rental real estate such that the tenants are paying all the costs, paying off a house can be a cornerstone of a comfortable retirement. Paying interest is not a winning wealth-building strategy and can be a killer when the income and living expenses need to be reduced. Earning interest and real estate appreciation can be.

I don't know what real estate you are talking about, but my paid off house is worth more than 100 grand more than every cent I've put into it including the interest so I have in effect lived in my house for free and then some for quite a few years. Seems like a pretty good investment to me. Somehow, there is a whole lot more money in my hands without the payout of a mortgage.

The reality is that the shaky economy means most investments are not doing all that spectacularly. And all those fees you pay for the investments means some pretty serious erosion of the nest egg. There's a lot of bogus and bad financial advice out there with the hidden agenda of making money for the brokers and fund managers. The result is a lot of people are not in such great shape after years of working. How many people are in trouble now because they owe too much compared to people who owe little or nothing?

I never hear about the case of someone who has no debt and owns their own home being in financial trouble.
I agree a paid off mortgage is the best way to have a comfortable retirement.I know a person who took out 100k of equity to invest in the market.I would not made that choice.He will have too pay back that equity line of credit with interest.I hope he can gain more interest than he will paid out.
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Old 02-09-2008, 04:30 PM
 
Location: Marietta, GA
857 posts, read 4,473,978 times
Reputation: 809
Quote:
Originally Posted by Tfreesemann View Post
Paying off your house the "old fashioned" way is just as detrimental to a great retirement. If you gave 200,000 to an investor and he made 0% on the money, i would guess you might fire the investor. Well, look at the 200,000 of equity in your home -- 0%. If you acess the equity in your home and put it in a safe, liquid, tax-free investment earning compound interest with the ability to pay off the house anytime you want - that is the "new fashioned" way to pay off the house. Leverage your assets correctly. Read "Missed Fortune 101" by Douglas Andrew for a full explanation.
the flaw in your logic is that if one were to refinance and take the $200k out of their house and invest it in something safe, like CDs, they will earn about 4% on their investment, meanwhile they will be repaying the mortgage at 6%, and at a time in their life when they don't really need the interest deduction on their taxes. No, a comfortable and secure retirement begins with a paid-off house.
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Old 02-09-2008, 04:31 PM
 
782 posts, read 3,489,239 times
Reputation: 398
Quote:
Originally Posted by Tfreesemann View Post
The problem is not accesing the cash in the house the problem is accessing it and spending it. Paying off your house the "old fashioned" way is just as detrimental to a great retirement. If you gave 200,000 to an investor and he made 0% on the money, i would guess you might fire the investor. Well, look at the 200,000 of equity in your home -- 0%. If you acess the equity in your home and put it in a safe, liquid, tax-free investment earning compound interest with the ability to pay off the house anytime you want - that is the "new fashioned" way to pay off the house. Leverage your assets correctly. Read "Missed Fortune 101" by Douglas Andrew for a full explanation.
I am lost here.Trying to figure this out.Let say i have 200k in my pocket to pay off the mortgage and be payment free.Instead of not having a mortgage on my house i will invest that money and continue to pay over 1k monthly to the bank with hopes of making some type of gain.Will i get an investment earning compound interest that will be more than what i will be paying the bank monthly.Maybe i have a brain fart or something,help me understand.
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Old 02-09-2008, 04:48 PM
 
Location: Upper Midwest
113 posts, read 251,876 times
Reputation: 73
A home is not really the "nest egg" that most people think it is. I found this article that I had read in the Wall Street Journal and I wish more people were aware of this. I do not think this is a pessimistic view on homebuying, but when you take into account the true cost of homeowning, you will realize that the actual gains from appreciation over the long run are often overstated. Also, if you look at the chart that shows appreciation in Houston, San Francisco and the US, you will understand that owning a house in the "right place" makes a huge difference over the long run.

I like the example of the guy that bought a home in the Washington DC area in 1977 for $55000 and sold it today for $860000, his actual net profit was only $175000.
RealEstateJournal | Your Home Isn't the Nest Egg That You May Think It Is
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Old 02-09-2008, 05:13 PM
 
782 posts, read 3,489,239 times
Reputation: 398
Quote:
Originally Posted by condorito View Post
A home is not really the "nest egg" that most people think it is. I found this article that I had read in the Wall Street Journal and I wish more people were aware of this. I do not think this is a pessimistic view on homebuying, but when you take into account the true cost of homeowning, you will realize that the actual gains from appreciation over the long run are often overstated. Also, if you look at the chart that shows appreciation in Houston, San Francisco and the US, you will understand that owning a house in the "right place" makes a huge difference over the long run.

I like the example of the guy that bought a home in the Washington DC area in 1977 for $55000 and sold it today for $860000, his actual net profit was only $175000.
RealEstateJournal | Your Home Isn't the Nest Egg That You May Think It Is
This example is what you make of it.You will always pay insurance and taxes on a house.Part of owning a house.The home improvements and refinance is what really matter to me on this example.If this person didn't refinance or make elaborate home improvements the outcome would been different.The house probably wouldn't been worth what is was also.The high interest rates back then is different from todays rates.Houses today probably will not appreciate that much like the old days.What if this guy never refinance and did some of the home improvements himself and paid his loan off early.The outcome would been different.
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Old 02-09-2008, 06:52 PM
 
29,782 posts, read 34,876,173 times
Reputation: 11705
Default Yepper

Quote:
Originally Posted by Tesaje View Post
And yet, for the majority of homeowners, the net worth is in the house. Sorry, the new-fashioned idea is not borne out by actual facts. Unless you are doing something like FB and buying rental real estate such that the tenants are paying all the costs, paying off a house can be a cornerstone of a comfortable retirement. Paying interest is not a winning wealth-building strategy and can be a killer when the income and living expenses need to be reduced. Earning interest and real estate appreciation can be.

I don't know what real estate you are talking about, but my paid off house is worth more than 100 grand more than every cent I've put into it including the interest so I have in effect lived in my house for free and then some for quite a few years. Seems like a pretty good investment to me. Somehow, there is a whole lot more money in my hands without the payout of a mortgage.

The reality is that the shaky economy means most investments are not doing all that spectacularly. And all those fees you pay for the investments means some pretty serious erosion of the nest egg. There's a lot of bogus and bad financial advice out there with the hidden agenda of making money for the brokers and fund managers. The result is a lot of people are not in such great shape after years of working. How many people are in trouble now because they owe too much compared to people who owe little or nothing?

I never hear about the case of someone who has no debt and owns their own home being in financial trouble.
Recently retired, sold that house relocated and bought a brand spanking new lots of bells and whistles house. Love it love it and when given the choice paid cash. Now thats sweet. Brand new house with bells and whistles and NO mortgage. Thats how to sleep well at night. Oh yeah love that cash flow. Having a mortgage so I might leave the kids more? Not.
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Old 02-09-2008, 07:00 PM
 
29,782 posts, read 34,876,173 times
Reputation: 11705
Quote:
Originally Posted by Booboy View Post
This example is what you make of it.You will always pay insurance and taxes on a house.Part of owning a house.The home improvements and refinance is what really matter to me on this example.If this person didn't refinance or make elaborate home improvements the outcome would been different.The house probably wouldn't been worth what is was also.The high interest rates back then is different from todays rates.Houses today probably will not appreciate that much like the old days.What if this guy never refinance and did some of the home improvements himself and paid his loan off early.The outcome would been different.
The crux of the article is to not use your home equity as the anchor for your retirement income. I think in this day and age all would agree with that. That is not an argument for whether to have a mortgage or not when retired. I think most seniors would argue that no/minimal debt is the anchor to a good retirement. Having a paid for house is the anchor to no/minimal debt. PS it then frees up cash to continue investing. I think thats the ideal situation to be retired debt free and still accumulating wealth.
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