6 Mortgage Myths

[Nords]

"Welcome back", TH!

But I'm distancing myself from that "troll" accusation. I'm just pointing out that the behavior could be mistaken for trolling, but not the person. I'll continue to value SG's ability to make us question our decisions and to reaffirm their validity. Or, if the facts change, then I'll change my mind... but without that constant prodding then I'd never reconsider.

Let me point out that if SG is indeed trolling, then you must find his bait irresistible. Every time.

David Snowball, a communications professor who posts at Brills & FundAlarm, calls this type of hand-grenade exchange a "reciprocated diatribe". As TH has pointed out, each side made up our minds long ago and our "prolonged discourse" has degenerated to "a bitter and abusive speech or writing with ironical or satirical criticism". Once we reach that reciprocated-diatribe stage then we should probably break it off an move on to another topic.

BTW, TH, I figured you were off the board to bank as much sleep as possible. In a few months you'll look back on this as the "good ol' days." In fact, next time you sit down at your keyboard you should hold a baby bottle in one hand and a 20-lb bag of rice on your arm to practice that midnight-feeding one-handed typing.

Hopefully you'll accompany your return with a birth announcement. See you next year.

While you're temporarily out of post, UncleMick & Cut-Throat have been reinspired to leapfrog your 2300+ level...

 

[Bridget]

Wow,

This topic sure did fire some people up!

For me, the key is to lower the monthly lifestyle costs. A roof over my head is important and providing that (either through rent or mortgage) is usually the highest expense on that side of the ledger. Any way in which I can minimize that cost means less money that I need to have monthly for my lifestyle. Therefore, I will pay-off the mortgage as soon as possible. My goal is to have no mortgage once I retire--plus, when I look at how much interest I save by pre-paying my mortgage, I see how much less money I have to earn over the long-term as well. I'm paying someone else for the honor of using their money - I should be in their position and not the other way around. In addition, as said by many here, crystal balls are cheap, good ones are priceless.....very few have the good ones and can tell me my money would be better off elsewhere.

I'm more risk averse when it comes to my roof----so for the poster who wanted advice on what to do with the mortgage...mine advice would be, pay it off and then go have fun doing what you want to do---thereby lessening your 'worry' list.

Bridget aka Deserat

 

[consejo]

Bridget, I'm with you but, man oh man, these things can get nasty FAST!

I just think there are some people who flame for the sport of it, better they take up dodgeball.

And, actually, the point for those in dream of ER is not to be found on the margin of shaving interest costs or earnings, one way or the other.

If you want to achieve ER ASAP the issue would be total costs of homeownership. Small houses on small lots costs a whole lot less to support and that is where you can save big money to bring down your botton line and achieve ER.

I know, even though I have no problem affording it, I have a 4K sqft home with 1/3 acre of lawn and citrus trees to maintain. It has 3 4T AC units and a pool. And there are only 3 of us living in it!

Smarter would be 1400 sq ft house on a 6000 sq ft lot. And that would bring down your cost of ER much more dramatically than whether or not the small home had a mortgage on it.

On the other hand, my home appreciated $100K last year, for all the good it does me :-/

 

[Tulsaboyw]

mortgage payoff ..

no way..

short of winning a big lottery ... I wouldnt hurry to pay off.

1. get a 30yr normal mortgage 80/20 or better.
2. payoff maybe the smaller of the 80/10/10 or 80/20.. maybe even then.
3. customize if u want to pay quicker without changing the 30yr.
(I pay my mortgage 4 times a month at 25% each week).

4. I am a partial millionair and have no intention of losing the deductions I get now.

 

[REWahoo]

I am a partial millionair...

I believe this is a true statement for anyone with a positive net worth, even if it is only $0.01.

 

[maddythebeagle]

Here we go again

 

[Tulsaboyw]

I meant that including trust $$ I have over 1mill .
And much of that was via DRIP investing and leveraging my equity.
Often using 80/xx.

I would rarely consider paying off a mortgage just for the sake of paying it off, unless I have enough cash to burn.. since all of us can invest that same $$ at much greater rate.

 

[donheff]

TBoy, why the heck did you resurrect this old thread? Why don't you just take out a mortgage and invest the proceeds and leave this topic alone.

 

[cute fuzzy bunny]

Hey, how come we cant thank someone for thanking someone?

 

[Notmuchlonger]

Im hoping that little thumb icon gets added to the smilies. That thing is awesome.

 

[Softball]

Just payed off my mortgage? was is smart?

Believe it or not this board helped me in my decesion to pay off my mortgage last week. I'm still celebrating. After reading and running numbers I realized nobody ever said they were unhappy with the decision to pay a mortgage off early.

Here is my advice... Paying off a mortage requires several areas to be handled first. This was a tall order:

1) No credit card debt
2) Max out the 401k. It is a gift
3) Max out the Roth or IRA Another gift
4) In my situation have an extra 100k available

Once you complete step 1 - 4 go and pay off your house.

Some friends get hung up on saying they have enough to pay their house off and I tell them they need to pay off their house twice before they run to the bank to set up a wire transfer.

Take your time. Good luck.

 

[Patrick]

.. since all of us can invest that same $$ at much greater rate.

Really? Where?

 

[Johnphx]

Here is my situation:

I owe 179k on my First Mortgage @ 6.125, PITI = 1400
I owe 27k on my Second Mortgage @ 8.25 P&I = 400

I bought the house for 233k in Oct 2005, I estimate its present value to be 115-120k. I currently have about 30k liquid and I have considered strongly paying off the 2nd Mortgage. 20k is sitting in savings earning about 2.2% and 10k is sitting the Vanguard Star Fund.

Oh and last but certainly not least, my wife is about 3 months pregnant. I figure the addition of a child will cost about 1k per month in additional expenses ($850 just for daycare). I have currently figured the higher level of spending to put our household expenditures at $4100 per month (this includes a modest level of spending money).

As you can see, paying down the 2nd would pretty much wipe out my current level of savings and save me about $400 per month which helps to offset the additional cost of the child.

At my current level of liquidity I have about 7 months of reserves at what I figure will be the higher level of spending. Unfortunately I am paying a price for that liquidity in the difference between the 8.25% loan and the 2.2% interest rate (half of the level of inflation perhaps?) I am getting on my money (the Star fund is negative so far for the year).

So what do you guys think?

 

[DblDoc]

I'd pay of the second unless that is your emergency fund.
my 2C worth

DD

 

[maddythebeagle]

I bought the house for 233k in Oct 2005, I estimate its present value to be 115-120k.

If you are saying that you are substantially underwater, I would consider NOT paying down at this point...

 

[cute fuzzy bunny]

Yeah, I'd be packing my bags right about now...

 

[Johnphx]

If you are saying that you are substantially underwater, I would consider NOT paying down at this point...

Why not?

 

[Ronnieboy]

Yeah, I'd be packing my bags right about now...

So are you saying that after you purchased your house for what you considered a fair value at the time, if there is a downturn you would just walk away? No matter if you gave your word to the bank that you would pay as agreed?

 

[cute fuzzy bunny]

Yes, absolutely. I'd suggest you walk a mile in this fellows shoes.

Then you'd have gotten some exercise and you'd be a frickin mile away from me.

 

[Johnphx]

Ronnie,

I have already tossed the idea around about walking away. Does it seem ethical, of course not. Then again do you think the banks care?

Given my wife's and my income and the fact we have zero (non-mortgage) debt, they would loan to us again. The interest rate would change because of a new level of percieved risk. But its not like they would turn around and say "hey, you gave us your word and you didn't keep it, we don't like you anymore."

I am not the only person this far upside down, my entire neighborhood didn't exist until 2005. So every single person who bought then is upside down unless they put more than 50% down on their homes.

It has occurred to me that staying and paying like "a good boy" is extremely financially detrimental. I can rent this same property (actually I can rent a bigger one) for half or less of my current payments.

In the end, do you think the bank cares about what is in my financial best interest? I don't. This is a business transaction.

When banks determine interest rates to charge people it is a function of percieved risk of prepayment or default, etc on that loan. My wife however is very much dead set against moving. She, like alot of others, is emotionally attached to our first home and sees it through that lens. She doesn't care if moving would make us financially more stable in the long run.

 

[brewer12345]

Why not?

If you are into the bank for considerably more than the house is worth, I would stay liquid. Paying it off is chucking meringues into a black hole: you reduce the options available to you and you will not pay down to what the house is worth. Instead, keep your cash/liquid assets so you have options. That goes quadruple with a kid on the way.

 

[Ronnieboy]

Yes, absolutely. I'd suggest you walk a mile in this fellows shoes.

Then you'd have gotten some exercise and you'd be a frickin mile away from me.

fade in-

Your basically saying that your word and signature aren't worth the paper they are printed on.

I guess I could see if the issue involved losing a job or major medical expenses but it seems the op didn't mention any of these, just the addition of a baby.

I admit is sucks for the value of the house to go down, but if I agreed to pay an amount then I would do it.

--fade out

 

[Johnphx]

If you are into the bank for considerably more than the house is worth, I would stay liquid. Paying it off is chucking meringues into a black hole: you reduce the options available to you and you will not pay down to what the house is worth. Instead, keep your cash/liquid assets so you have options. That goes quadruple with a kid on the way.

Thanks Brewer,

That is where I am at now. I hate servicing the loan month in and month out knowing I am house trapped, but there are worse places I could be. Of course isn't there a common rule about not paying interest on a depreciating asset?

Now lets hope that the large number of empty homes that are accumulating in my subdivision begin clearing and don't begin to deteriorate too badly.

My worst fear is that we get ourselves into a Japanese style housing deflation.

 

[brewer12345]

fade in-

Your basically saying that your word and signature aren't worth the paper they are printed on.

I guess I could see if the issue involved losing a job or major medical expenses but it seems the op didn't mention any of these, just the addition of a baby.

I admit is sucks for the value of the house to go down, but if I agreed to pay an amount then I would do it.

--fade out

If we are just talking about financial gain or loss, I would also meet my commitment. But in OP's case, he is seriously underwater, doesn't have a lot of liquid assets, and has a kid on the way. If things went pear-shaped and I were in his shoes, I would not hesitate to walk away if it were necessary. Same thing a business does when the commode hits the windmill: default on its debt.

 

[Ronnieboy]

Ronnie,

I have already tossed the idea around about walking away. Does it seem ethical, of course not. Then again do you think the banks care?

No it isn't ethical and no I don't think the banks care. I suppose it is what your core beliefs and values are.

It is the "big business has big pockets" theory, they make a lot of money so it won't hurt them. In the end everybody pays more.

If it were me, I would stay and wait for the market to rebound, it will eventually or at least you won't be upside down in a few decades.
And it doesn't seem like you are in a hell hole type of place where you need to get out for the safety of your family. It is a pleasant place to live and it will be a little tight for the next few years.

I can only assume that you would not be to happy if you loaned money to 5 people and 2 of them walk away and decide no to pay you back.

JMO