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04-03-2009, 10:05 AM
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#21
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Thinks s/he gets paid by the post
Join Date: Mar 2005
Posts: 2,603
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Seems to me the risks would be worth taking if your re-fi was lowering your rate.
You could concievably keep your payment roughly the same; have a nice hedge against inflation (via the mortgage) and increase the upside on the equity investment.
There can't be too much doubt that inflation is in our future. The feds are spending $$ like it grows on trees.
__________________
FIRE'd since 2005
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04-03-2009, 10:13 AM
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#22
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Thinks s/he gets paid by the post
Join Date: Jan 2007
Location: Silicon Valley
Posts: 1,812
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I would ask myself what my motivation is to do such a thing. For example, do you have enough to FIRE without entering into this strategy or is your intention to attempt to accelerate the process? If you are just trying to add some topping to the ice cream do you really want to subject yourself to the stress. Personally if I was in a situation where I could FIRE with adequate funds and little stress that is the avenue I would take.
__________________
I be a girl, he's a boy. Think I maybe FIRED since July 08. Mid 40s, no kidlets. Actually am totally clueless as to what is going on with DH.
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04-03-2009, 10:26 AM
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#23
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,888
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Quote:
Originally Posted by frayne
Borrowing money to invest, sounds pretty risky to me.
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So, as haha mentioned - are you recommending that no one should invest a penny in anything until their mortgage is paid off?
-ERD50
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04-03-2009, 12:47 PM
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#24
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Quote:
Originally Posted by Animorph
I asked for cash out on my mortgage refi application, so if that goes through I will invest the extra. It gives me 30 years worth of cash at 4.375% fixed rate (plus some points).
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This is definitely leverage on about the best terms that I have ever heard. I find it hard to come up with credible scenarios where you would lose.
Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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04-03-2009, 01:03 PM
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#25
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,911
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To me, the mortgage vs no mortgage is similar to other AA questions. If you look at your house as just another asset, and you feel comfortable with putting it at risk, it's little different than trading some bonds for stocks. It's a matter of what you are comfortable with. The timing for such a move seems ideal, but with all the caveats mentioned by other folks.
I think the question to answer was presented by DangerMouse. I'll add that you need to decide if you're willing to live with the consequences of your strategy not panning out. Could a failure put off a relatively "safe" retirement date? Are you willing to w*rk 2 more years? 5 more years? Could it mean that you'll be cutting dryer sheets in half instead of taking a couple of cruises a year (or whatever guilty pleasures you currently plan with your current AA)? That's the kind of trade-off I always look at. YMMV
__________________
Ko'olau's Law -
Anything which can be used can be misused. Anything which can be misused will be.
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04-03-2009, 03:55 PM
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#26
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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Quote:
Originally Posted by ERD50
All other pros/cons aside - does it make sense to do this if you only are comfortable with 30% in the market?
...
I'd look at your AA before/after and see if it fits your risk tolerance.
-ERD50
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That's a great point. It's pretty useless to borrow money and invest it in ANYTHING that has an expected return less than the borrowing costs. This should be money you don't need to touch for 10+ years up to 30 years. No need to limit year-to-year volatility.
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04-04-2009, 09:12 AM
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#27
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Thinks s/he gets paid by the post
Join Date: Mar 2004
Location: Dallas
Posts: 1,211
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Where is CFB when we need him?
Cheers,
charlie
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04-04-2009, 10:25 AM
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#28
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Posts: 5,381
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Take a look at your current asset allocation. If you have a big slug of money market funds earning <1%, treasury bonds earning 2-3%, etc. it makes very little sense to borrow at 5%. Why would you lend out part of your portfolio at between 1%-3% and simultaneously borrow at 5%? My advice would be to reallocate the low yielding part of your portfolio into the (hopefully) higher yielding investments you'd buy with the borrowed money. Once you've maxed out on that, only then would it make sense to borrow IMHO.
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04-04-2009, 12:39 PM
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#29
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 7,677
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Once your wife retires, how long will it be before you want to travel and enjoy life together. Oh but we need the cash flow to pay the 30-year mortgage!
Are you an opportunist or do you need the extra after tax returns to ER? If you need them then go for it. If not then forget it!
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For the fun of it...Keith
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04-04-2009, 06:21 PM
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#30
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Full time employment: Posting here.
Join Date: Mar 2005
Location: Punta Gorda, FL
Posts: 828
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I'm just looking at the historicaly low mortgage rates and think this may be a good time for a little leverage. I'm not banking on this to fund my retirement, just make alittle extra. I feel that we have a greater chance for inflation to hit and interest rates to rise, than fall in the future. It wasn't that long ago that getting 6% or better in CD's alone wasn't that hard to find. My current allocation is about 70% equities, but this does not count the value of our home or the wifes pension. We could live on the wifes pension alone and do fine.
I also like the idea of having the cash on hand instead of locked up in the house.
I need to run the numbers and talk with the bank before I chose. More than likely I will put it off and rates will rise before I pull the trigger.
I am really supprized that others arn't looking into this.
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04-04-2009, 07:32 PM
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#31
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,888
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Quote:
Originally Posted by dm
I'm just looking at the historicaly low mortgage rates and think this may be a good time for a little leverage.
....
I am really supprized that others arn't looking into this.
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Good point. Funny thing is, I bet that when people look back at this time (assuming the market recovers in the not-too-distant future), they will say "Wow, what a great opportunity, anybody with half a brain would have been all over that and made out like a bandit! Lucky bums!".
But, it is exactly those times that people feel hesitant about doing these things.
I'm tempted, but I already have bought (re-balanced) on the way down. It sure is tempting to buy more at these prices, but I'm going to stick by my rough AA guidelines for risk tolerance. I sure don't want to (and may not be able to) go back to work in case things do get far worse before they get better, so I've got to play it reasonably safe.
But if you are in a position to take on a bit more risk, this seems like the time to do it.
-ERD50
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04-04-2009, 07:40 PM
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#32
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Quote:
Originally Posted by ERD50
Good point. Funny thing is, I bet that when people look back at this time (assuming the market recovers in the not-too-distant future), they will say "Wow, what a great opportunity, anybody with half a brain would have been all over that and made out like a bandit! Lucky bums!".
But, it is exactly those times that people feel hesitant about doing these things.
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A perfect historical example would be in 1981 when long term Treasuries were yielding in the double digits. Think about it -- a U.S. government-guaranteed 10-12% return for 20-30 years...
In retrospect that looks like the ultimate no-brainer investment, doesn't it? But at the time, there was so much fear of unchecked runaway inflation that yields over 10% persisted for quite some time. Just as there are probably many opportunities today which, when viewed from the comfort of hindsight, will seem like obvious moves even as today we wallow through the uncertainty.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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04-04-2009, 08:28 PM
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#33
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Moderator Emeritus
Join Date: Dec 2002
Location: Oahu
Posts: 26,860
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Quote:
Originally Posted by ziggy29
A perfect historical example would be in 1981 when long term Treasuries were yielding in the double digits. Think about it -- a U.S. government-guaranteed 10-12% return for 20-30 years...
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I went to a Schwab timeshare sales presentation client appreciation dinner in 2004 or 2005 (can't remember exactly). I was sitting next to a man who'd bought a slug of 30-year Treasury bonds that had yielded 9%. They were maturing and he was desperately seeking someone to take him by the hand and lead him to the promised asset-allocation land.
The Schwab brokers at our table were drooling all over their napkins.
__________________
*
Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
Author of the book written on E-R.org: "The Military Guide to Financial Independence and Retirement."
I don't spend much time here— please send a PM.
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04-04-2009, 09:25 PM
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#34
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Recycles dryer sheets
Join Date: Mar 2008
Posts: 413
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04-04-2009, 09:29 PM
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#35
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Full time employment: Posting here.
Join Date: Mar 2007
Posts: 577
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I refi'd last spring, (15 yr at 4.625) at the last minute I had them rework the loan and give me some cash out which I put in stocks spring and summer as things were falling. oops!!!!!!!!!!!!!!!!!!!!!!!
Thankfully I only took a little but just one more example of (not smart) people making dumb money mistakes. Possibly a 2nd job as a poster child for what not to do.
That money should be in the market for decades and time may redeem that decision but it doesn't look very bright right now.
Investing in the stock market involves risks, past performance does not guarantee future results etc. etc. etc...
Balance your willingness, need and ability to take risks, set up an appropriate AA and follow it. Stories of testosterone damaging investment results are too numerous to mention. Disclaimer: I do not always follow my own advice.
__________________
I highjacked a rainbow and crashed into a pot of gold - Bon Jovi
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04-04-2009, 09:30 PM
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#36
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Full time employment: Posting here.
Join Date: Mar 2007
Posts: 577
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Quote:
aka "cousin to a land contract" (If law 101 from 1980's is fresh enough in my mind the buyer holds the title)
__________________
I highjacked a rainbow and crashed into a pot of gold - Bon Jovi
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04-05-2009, 08:03 AM
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#37
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 1,012
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Quote:
a purchase money mortgage is a mortgage put on a property by the buyer at the time of purchase to provide the money to the seller to fulfill the terms of the purchase contract.
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04-05-2009, 09:01 AM
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#38
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Recycles dryer sheets
Join Date: Mar 2008
Posts: 413
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Quote:
Originally Posted by jdw_fire
a purchase money mortgage is a mortgage put on a property by the buyer at the time of purchase to provide the money to the seller to fulfill the terms of the purchase contract.
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Sorry to send this thread astray, but, from how I understand your description, a " purchase money mortgage" is a standard mortgage. Just a different way of saying it.
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04-05-2009, 02:15 PM
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#40
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Thinks s/he gets paid by the post
Join Date: Oct 2006
Posts: 1,076
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Quote:
Originally Posted by DAYDREAMER
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There are perhaps several definitions of "purchase money mortgage." I would not restrict a purchase money mortgage to "seller financing." And I have no idea how it was being first used in this thread.
Bankers and lawyers might have different definitions of the term, like the term "mortgage." (For lawyers, a mortgage might mean a lien on real estate securing payment of a loan; for bankers, it might mean a loan advanced from the bank to a borrower to pay for the purchase of real property.) But from my legal perspective, a "purchase money mortgage" has certain legal attributes in many states and means under most creditor-debtor laws (e.g. Homestead laws), a loan advanced to pay for the "purchase" of residential property that the borrower will generally occupy. The significance of the definition is that several states will not permit a "deficiency judgment" to be taken against a purchase money mortgage -- or, in other words, this type of financing is nonrecourse and the lender (whether a bank or seller) cannot go beyond the collateral to satisfy payment of the obligation created by the purchase money mortgage.
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