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Old 03-21-2016, 10:46 AM
14,113 posts, read 7,526,443 times
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Originally Posted by beer belly View Post
We do have some equity. We bought in 2007, then the market dropped, and is currently creeping back up. We are not trying to put together a plan to make a few extra payments a year to go directly after the principal. If we had refinanced, most of the monies would of went into accounts, and maybe a little to treat ourselves, but very little....we don't spoil ourselves by any means....maybe a new car / truck every few years, but vacations / travel are usually close to home, and involve towing our camper, and dinning out maybe once or twice a year.
So what do you do if we have a second Great Recession and you lose all that appreciation again? What do you do if something awful happens in 2016 where you have to stop working? I'm not saying that a 30 year mortgage refi isn't the right thing for you but have you thought through your contingency plans?
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Old 03-21-2016, 10:59 AM
Location: SW Corner of CT
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I edited this quoted post to read "We are now trying to put together a plan to make a few extra payments a year to go directly after the principal"....thats pretty much the plan moving forward. As far as the "What if"...well, we'll deal with them when, and if it happens.....I try to look at the positive side and hope for the best. Our home is not our golden egg for retirement, we do have other investments, and if we were to just break even on the sale, we would still be okay.
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Old 03-21-2016, 02:50 PM
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It's amazing to me that every time someone says the word "refinance", the bells and whistles go off with people and they start screaming about loss of equity and the like. At what point did the two become synonymous? Sorry, they're not. Have any of you guys ever heard of someone refinancing to pay down their mortgage sooner? I just find so many people on internet sites that don't understand what an interest rate is and how that works in regards to paying down principal. I don't know all the details on beer belly's plan but I do know that people can't seem to get off of this misnomer on financing and the thought that refinancing has anything to do with your equity (sorry, it doesn't). jrkliny said it best on the 2nd post of this thread "It depends on your current rate versus the rate and origination fees for a new loan". There's nothing more to it than that (it's simple math). My wife and I have refinanced twice. The first time we went from a 6.99% down to a 4.75%. The second time we went from a 4.75% down to a 2.75%. In each instance, all things being equal (in other words, you continue to make the exact same mortgage payment), we took years off of our loan. The equity in your home is based on market conditions...not refinancing. Beer belly could continue to pay down his principal or even accelerate it and still have his equity drop if all of a sudden there are no buyers in the market and the value of his house goes down. Clearly if the current market price of his home is $300K and he owes $200K on it, he could pay down his principal to $150K and still lose equity is his market value of his home goes down to $240K when he goes to sell it.

I'm also not too worried about the Monday morning quarterbacking on the financial crisis. Obviously if anyone saw it coming, they'd be on easy street right now. And no, I'm not going to go on for pages and pages arguing about it (not worth my time). The whole thing was pretty ridiculous to me with Paulson screaming like Henny Penny for days on TV and then of course Rahm Emanuel with his "never let a crisis go to waste"....yawn. And in the end, what really happened? A lot of people had paper losses that are mostly gone right now. For all the "sky is falling" claims of people, the total amount of foreclosures on a national basis was a little over 2%. So in other words, almost 98% weren't foreclosed on (however people always like to focus on the negative and when they point to foreclosures they talk about Arizona and parts of Nevada, Las Vegas in particular...the areas hit the worst). Where I live, CA, foreclosures were 4.5% (that's it). Of course you'll hear people scream about the "trillions" of dollars of foreclosures and that sounds very impressive. Until you realize in 2009, that trillions of dollars equated to 2.21% of homes. Yeah, that's it. Do you ever hear anyone talk about the amount of money that equate to the homes that didn't go into foreclosure...NOPE. And that amount is almost 49 times those "trillions" in foreclosure.

One of my favorite speakers on this topic is Logan Mohtashami who periodically speaks on CNBC. His comment regarding the next recession is as follows....

"-This cycle we have the cleanest loan profile in decades
-1/3 has been bought with cash (so 2/3 financed by banks)
-50% has been bought by the very strong middle class and the Rich
When the next recessions comes, we won't have the distress supply like we did from the housing bubble creating a massive crass in prices. Which is common with every bubble or over investment thesis.

In addition, there are no more stated value loans (i.e. liar loans).

Beer belly, don't get too freaked out when people start screaming the word "bubble". Real estate has ebbs and flows (it's always been that way). And for everyone of these guys that screams "thank god I sold in 2006", there's someone like me that says thank god I didn't sell.

My wife and I will be doing something similar to you, we plan on relocating in the next year or two. But we won't be selling our house (we're going to rent it). Our home value dropped to roughly $575K in 2010 (it had peaked at $780K at the end of 2006). Today it will sell for over $900K. And every time we've had a recession, after the drop off, our area has recovered and made new highs (been that way for over 40 years now). It's all about location buddy, and we live in the SF Bay Area so as far as I'm concerned, housing is a prized possession. There are such a small amount of homes that go for sale in our area, and supply is so limited, that you only need 10-15% of the population to be able to afford the exorbitant prices (this is something people don't understand when they make the silly argument using median income....it doesn't matter). As long as supply is as limited as it is, rents will be staying high for quite some time. We figure we'll let one of the techies pay off our mortgage for us while we go to a lower COL area, where the cash flow alone will cover our rent. We have another investment property so we know all the ins and outs of investment property (just in case someone wants to preach).

Most economists are predicting our next recession to be in 2017 (and these recessions usually last 4-5 years). And although these are simply estimates (there's no guarantee), based on your time horizon (6-9 years), you could be sitting in a sweet spot for your housing value.

Have a plan and stay the course Beer Belly. You'll be fine.

Last edited by bodyforlife99; 03-21-2016 at 03:39 PM..
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