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Old 01-31-2015, 06:05 PM   #41
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Money and debt are fungible. It doesn't matter what the debt is securitized by or what it is used for, since a $1,000 debt on your balance sheet doesn't matter if it's on a house or on a car or on your credit card - it's still subtracted from your assets in the same mathematical equation. All that matters is what your net worth is growing by, in relation to what interest you are paying on your gross debt.

If I had a 0.9% car loan from the manufacturer and bought a new car, is that "bad" debt because the car drops 15% in value when I drive it off the lot? Does that debt suddenly become 'good' debt if I took out a HELOC on my house for 3.0% instead?

Obviously, for most Americans who take out debt for many things and who don't comprehend many basic financial concepts, it can be a handy rule of thumb. But for the average reader of this forum, there is no "good debt" or "bad debt", since the balance sheet doesn't have emotions and doesn't care what it's for.

But how many people already in significant debt can get the .9% financing to which you refer? People with good credit do as you describe, while people who think they deserve the good life often fund it with with debt. I thought those people were those whom we are discussing?


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Old 01-31-2015, 06:24 PM   #42
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I have mortgage debt, and get tax benefit for it. I have never had credit card debt and never understood why anyone with an income would. I pay for cars with cash. I expect this is the norm for people on this site. I really can't understand the other behavior.


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Old 01-31-2015, 06:33 PM   #43
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Originally Posted by Independent View Post
So I get $225,000 lifetime for the average American.
That's a lot of money, but also a lot less than $600,000.
Thanks a lot for doing the research, estimates, and math.
Since the "tile" wasn't footnoted, we'll never know where the figure came from. I'm guessing the $600K vs $225k discrepancy is likely a combination of:
1) Household total vs individual totals (though, by the words of the "tile" they should have used a number for an individual)
2) Retrospectively, CC, car loans, and mortgage rates were higher than today. They probably used those rates.
3) Inflation: Who knows what kind of "dollars" they are talking about.
4) The need for a high number in order to grab eyeballs and links.
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Old 01-31-2015, 06:36 PM   #44
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But how many people already in significant debt can get the .9% financing to which you refer? People with good credit do as you describe, while people who think they deserve the good life often fund it with with debt. I thought those people were those whom we are discussing?


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But you said:

Quote:
Suffice it to say, any debt on a depreciating asset is dumb debt.
so that is what we were responding to. As was pointed out, debt is debt, money is fungible. Either the debt is advantageous or not. Either the expenditure is advantageous or not. But there really is no tie between them.

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A lifetime of debt? Really? Apparently so...
Old 01-31-2015, 06:49 PM   #45
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A lifetime of debt? Really? Apparently so...

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Originally Posted by ERD50 View Post
But you said:







so that is what we were responding to. As was pointed out, debt is debt, money is fungible. Either the debt is advantageous or not. Either the expenditure is advantageous or not. But there really is no tie between them.



-ERD50

Sigh. As I said, I was speaking in generalities for the purpose of the subset of the population we have been discussing. The people on this board understand that what I said is not an absolute rule (but it is for most people). Let's continue with the discussion at hand, rather than dissect each other's statements with the intent of somehow "being right" or "winning the debate".

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Old 01-31-2015, 07:58 PM   #46
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Sigh. As I said, I was speaking in generalities for the purpose of the subset of the population we have been discussing. The people on this board understand that what I said is not an absolute rule (but it is for most people). Let's continue with the discussion at hand, rather than dissect each other's statements with the intent of somehow "being right" or "winning the debate".

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Old 01-31-2015, 08:04 PM   #47
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Deal. But then, don't speak in absolutes.



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Absolutely. :-)


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Old 01-31-2015, 09:23 PM   #48
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It may not be the majority of Americans, but a lot of people do get that borrowing other people's money for less than you can invest it for is usually profitable. There are whole forums on how to invest money from 0% credit card offers and pocket the spread.
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Old 01-31-2015, 09:41 PM   #49
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I think you have a distorted view of this. I'm retired, I'll keep my mortgage as long as the rate is good (it's 2.875% right now). So what?
-ERD50
I didn't mean to start an argument about the value of mortgages. My friend wasn't saying he was not paying off the house so he could invest his money elsewhere, but he was bemoaning the possibility of not getting it paid off before he retired.

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Do you pay property taxes on that house? Welcome to lifelong serfdom.

If we'd paid cash for our house rather than get a low-interest fixed mortgage, I would have had about $100K less in stocks over the last 12 years, and would have missed out on all the growth of those investments. It wasn't a sure thing, but it has worked out okay. The $100K has turned into about $250K over the intervening 12 years, and we've even paid the mortgage down a bit. But at the present approx 4.5% fixed rate, I'm not in a hurry.
Yes I pay taxes on my house

I hear see this argument about taking money and investing it versus putting it into the mortgage. This is all well and good when the market is flat or rising (which I admit is most of the time). In my case I bought in 1998 and paid it off in 2011. While overall the market did go up over that time frame (S&P 500 went up about 12% (total!) over that period), my house went up 250% in value (even with the drop off in 2007). And if you were to figure out how much I would have paid on my mortgage over that time, I would have probably paid 50% total. I think I did well putting my extra funds in my house. YMMV.
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Old 01-31-2015, 10:37 PM   #50
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I paid off my mortgage as soon as I could. I didn't like the risk of having a big debt while I tried to invest my way to a better situation. In retrospect most years the investment would have done better, while only a few would have done worse. On the whole, paying down the mortgage slowly but investing the extra payment money I would have done much much better. But I'm not regretting my choice. It all turned out well. It might have been better, but at least I was assured it wouldn't be worse. I'm content with my choices.

At my workplace, many well paid engineers and managers have discussed their personal situations. Occasionally the question of paying down a mortgage early has come up. Universally the consensus was to pay down the mortgage as slowly as possible, but the reason was not to do other investments. The consensus opinion was that mortgage money was so relatively cheap that the debt should be kept and the money then because available for consumption, vacations, lots of current living expenses. No one ever suggested using it for savings or investments.
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Old 02-01-2015, 11:59 AM   #51
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I paid off my mortgage as soon as I could. I didn't like the risk of having a big debt while I tried to invest my way to a better situation. In retrospect most years the investment would have done better, while only a few would have done worse. On the whole, paying down the mortgage slowly but investing the extra payment money I would have done much much better. But I'm not regretting my choice. It all turned out well. It might have been better, but at least I was assured it wouldn't be worse. I'm content with my choices.

At my workplace, many well paid engineers and managers have discussed their personal situations. Occasionally the question of paying down a mortgage early has come up. Universally the consensus was to pay down the mortgage as slowly as possible, but the reason was not to do other investments. The consensus opinion was that mortgage money was so relatively cheap that the debt should be kept and the money then because available for consumption, vacations, lots of current living expenses. No one ever suggested using it for savings or investments.
Sounds like we work with exactly the same people.
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Old 02-01-2015, 08:46 PM   #52
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By my observations of others' lifestyles and comments made to me when I said I can retire early because we have no debt, I think the majority of families carry debt throughout their lives.

It felt good today for us to pay cash for a new big screen tv, while noticing others asking about credit on the same tvs.


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Old 02-01-2015, 09:18 PM   #53
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There's a certain appeal to borrowing to the hilt during highly inflationary times, like the 1970's. The money one borrows is paid off later in dollars that are worth less and less each year. I am reluctant to borrow at all, and right now inflation is not high enough to persuade me to borrow to the hilt.
I think the appeal is the reverse, because when inflation is high, interest rates are high. Unless you think inflation will stay that high or higher for the life of your loan, you are essentially "buying" high and "selling" low, aren't you? With inflation low like it has been recently, you can get a low interest rate, and there's at least a reasonable chance that inflation and rates will go higher. (The exception seems to be credit cards, where interest rates stay very high even during low inflation.)

I'd much rather borrow when interest rates are very low and I might be able to pay it back when inflation jumps and I'm paying back in dollars that are worth much less than today.

Like you, though, I don't need to borrow and would rather just avoid debt and the associated risk.
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Old 02-02-2015, 05:04 AM   #54
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I think the concept of having tax deductible debt (mortgage), and investing, while adding to your risk, over time will usually result in financial benefit. In addition, having a fixed rate mortgage seems a way of diversifying, allowing you to benefit in case of inflation.

On my house purchase two years ago, I intended to have a mortgage even though there was sufficient cash to buy without debt. I applied at least two months prior to closing. The mortgage company kept screwing around, and when the closing date came, they weren't ready. Rather than extend the closing, I felt an obligation to follow through and paid cash on the scheduled date. Couple weeks later, the mortgage company says they're ready now. I say ok. They say, however, since I already own the house this is now a "cash out refi" and they are raising the rate 1/2%. I argue that no, this is just a completion of the process I started two months ago that they've been messing up, and it's a new purchase. No, a cash out refi. I ask, I thought a property had to be "seasoned" at least 60 days to qualify for refi. They agree that's true, but say since I already own the house...ARGHH! Repeat up thru 2-3 levels of supervisors, I finally say, Screw it, keep your money, I'm done! In retrospect, I think they did me a favor, as I have other cash I've been sitting on that I haven't put in the market, and I'm sure I wouldn't have invested all that mortgage money. Just goes to prove my life motto, I'd rather be lucky than smart.


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Old 02-02-2015, 12:53 PM   #55
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Thanks a lot for doing the research, estimates, and math.
Since the "tile" wasn't footnoted, we'll never know where the figure came from. I'm guessing the $600K vs $225k discrepancy is likely a combination of:
1) Household total vs individual totals (though, by the words of the "tile" they should have used a number for an individual)
2) Retrospectively, CC, car loans, and mortgage rates were higher than today. They probably used those rates.
3) Inflation: Who knows what kind of "dollars" they are talking about.
4) The need for a high number in order to grab eyeballs and links.
I'm guessing it was mostly (4).

But, I can believe (1) and a non-precise definition of "average".
Let's say "A slightly above average income couple, who both went to college and had student loans, and who borrowed for a slightly above average priced house".
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Old 02-02-2015, 01:30 PM   #56
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Some facts on when people pay off mortgages

Percent of Households by home ownership:
Age of RP ..Renter ..HO-w-M ..HO-no-M ..
00-24 8677
25-3460337
35-44385111
45-54315019
55-64214336
65-74183250
75-99211267

This is from the Consumer Expenditure Survey.
Each row totals to 100. Not surprisingly, people start out as renters, transition to home owners with mortgages, then (often) become home owners without a mortgage.

The "RP" in the first column is the "reference person". That is the person who answered the survey, it is not necessarily the older or the younger spouse.
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Old 02-02-2015, 04:46 PM   #57
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At my workplace, many well paid engineers and managers have discussed their personal situations. Occasionally the question of paying down a mortgage early has come up. Universally the consensus was to pay down the mortgage as slowly as possible, but the reason was not to do other investments. The consensus opinion was that mortgage money was so relatively cheap that the debt should be kept and the money then because available for consumption, vacations, lots of current living expenses. No one ever suggested using it for savings or investments.
I agree unless you have children applying for, or in college. If you are sitting on cash the funds are as good as gone. The federal aid forms say that that cash is available for education. So either putting them toward paying down the house or into retirement accounts is one of the few ways to shelter them. You have to make such moves at least 2 years before college though. Then they look just at your income to measure how much you can pay. Or you can make sure your kids get full academic scholarships! I prefer the later but we'll see if it works for our second child in a couple years!
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Old 02-02-2015, 05:41 PM   #58
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Age of RP .. Renter .. HO-w-M .. HO-no-M ..
00-24 86 7 7
25-34 60 33 7
35-44 38 51 11
45-54 31 50 19
55-64 21 43 36
65-74 18 32 50
75-99 21 12 67
Wow. So well over 1/2 of people over age 65 own their home free-and-clear. I wonder if that includes HELOCs, etc. Regardless, I would have guessed the number was lower than that, esp with so many people refinancing in the last 10-15 years, etc.
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Old 02-02-2015, 05:44 PM   #59
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Wow. So well over 1/2 of people over age 65 own their home free-and-clear. I wonder if that includes HELOCs, etc. Regardless, I would have guessed the number was lower than that, esp with so many people refinancing in the last 10-15 years, etc.
Probably you don't hear of the ones paid off because they make boring magazine or web site articles.
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Old 02-02-2015, 06:18 PM   #60
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My Granddad bought a foreclosed home during the Depression for peanuts.

He once told me, "there's nothing sadder than someone who has to get rid of something they wanted because they can't afford it anymore...if you own something outright, nobody can ever take it away from you!"
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