Anybody purposely loading up on mortgage debt?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

Taking on new mortgage debt?

Yes, in the past 4 years, I have refinanced, taken significant money out, and put it into my asset allocation
19
10%
No, I have kept my mortgage as is
64
34%
No, I have paid off, or aggressively paid down my mortgage.
106
56%
 
Total votes: 189

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LH
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Anybody purposely loading up on mortgage debt?

Postby LH » Tue Feb 05, 2013 6:20 pm

Wondering if anyone was currently taking advantage of lowest rates ever, and refinancing mortgage, taking money out, and investing it.

goodoboy
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Re: Anybody purposely loading up on mortgage debt?

Postby goodoboy » Tue Feb 05, 2013 6:21 pm

LH wrote:Wondering if anyone was currently taking advantage of lowest rates ever, and refinancing mortgage, taking money out, and investing it.


Refinanced to 30 year 3.25%, and paying extra per month to pay off in 15 years.

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Re: Anybody purposely loading up on mortgage debt?

Postby Grt2bOutdoors » Tue Feb 05, 2013 6:37 pm

I can't find a savings account yielding 3.5%+ - the next best option is home debt.
I want to give myself the option of saying goodbye or not. Maximum flexibilty.
Last edited by Grt2bOutdoors on Tue Feb 05, 2013 6:49 pm, edited 1 time in total.
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sscritic
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Re: Anybody purposely loading up on mortgage debt?

Postby sscritic » Tue Feb 05, 2013 6:41 pm

I bought a house and didn't pay cash when I could have. That was on purpose, but I didn't go for the full load, only half a load (actually less than half, closer to a one-third load).

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stilts1007
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Re: Anybody purposely loading up on mortgage debt?

Postby stilts1007 » Tue Feb 05, 2013 6:42 pm

We recently refinanced to a new 30-year mortgage to take advantage of lower interest rate (went down from 5.5% to 3.25%) and get rid of our PMI. So, didn't "load up" but restarted the 30-year clock with a much lower payment, with the intent of using the savings to invest more.

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rustymutt
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Re: Anybody purposely loading up on mortgage debt?

Postby rustymutt » Tue Feb 05, 2013 6:52 pm

I don't want anything to do with mortgage debt. Thing of the past for us.
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Re: Anybody purposely loading up on mortgage debt?

Postby riverguy » Tue Feb 05, 2013 7:06 pm

Seems silly to me unless you are investing in "risk-free" assets trying to capture an interest rate spread. With the 30 year bond (Is lending to the US for 30 years risk free??) at roughly the same interest rate as a 30 yr mortgage, where are you going to find this?

Not to mention that you are likely one job loss away from risking your family's shelter. Doesn't seem worth it.

umfundi
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Re: Anybody purposely loading up on mortgage debt?

Postby umfundi » Tue Feb 05, 2013 7:19 pm

LH wrote:Wondering if anyone was currently taking advantage of lowest rates ever, and refinancing mortgage, taking money out, and investing it.


No, but this strikes me as a no brainer:

http://crr.bc.edu/wp-content/uploads/20 ... 10-508.pdf

Take out a $25,000 home equity loan at 3.5% or less. Use the $25,000 to defer Social Security for a year. Next year, use the 8% return from SS to make payments on the home equity loan.

Am I missing something?

Keith
Last edited by umfundi on Tue Feb 05, 2013 7:20 pm, edited 1 time in total.
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jriding
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Re: Anybody purposely loading up on mortgage debt?

Postby jriding » Tue Feb 05, 2013 7:19 pm

Last summer I refinanced to a 15 yr @ 3%. Was over-paying each month with goal of paying mortgage off in 10-12 years.
Recently stopped the overpay and redirected the money to tax advantaged space. A strategy I learned when I discovered Bogleheads this past December.

Won't overpay my mortgage again until I'm filling all retirement tax-advantaged space (which, as letsgobobby taught me in How much tax advantaged space available?, I'm a long way from doing).

tomd37
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Re: Anybody purposely loading up on mortgage debt?

Postby tomd37 » Tue Feb 05, 2013 7:22 pm

In this day and age, I cannot understand why anyone would want to take on more debt or lengthen their existing debt.
Tom D.

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Re: Anybody purposely loading up on mortgage debt?

Postby henry » Tue Feb 05, 2013 7:24 pm

I thought about refinancing and just didn't want to do all the paperwork. Made extra payments and paid it off last year. Feels great.

555
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Re: Anybody purposely loading up on mortgage debt?

Postby 555 » Tue Feb 05, 2013 7:29 pm

umfundi wrote:
LH wrote:"Wondering if anyone was currently taking advantage of lowest rates ever, and refinancing mortgage, taking money out, and investing it."


"No, but this strikes me as a no brainer:
http://crr.bc.edu/wp-content/uploads/20 ... 10-508.pdf
Take out a $25,000 home equity loan at 3.5% or less. Use the $25,000 to defer Social Security for a year. Next year, use the 8% return from SS to make payments on the home equity loan.
Am I missing something?"


Yes, you are missing something. That 8% includes return of capital.

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interplanetjanet
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Re: Anybody purposely loading up on mortgage debt?

Postby interplanetjanet » Tue Feb 05, 2013 7:30 pm

umfundi wrote:Take out a $25,000 home equity loan at 3.5% or less. Use the $25,000 to defer Social Security for a year. Next year, use the 8% return from SS to make payments on the home equity loan.

Am I missing something?

While you can see delaying SS as getting the equivalent of an 8% increased return on an annuity, that's not quite the same thing as an 8% return on an plain asset. It's entirely possible to die before the increased return on SS compensates for your equity loan.

Qualifying for a HEL may be challenging if you have assets but not a substantial income stream.

All in all, it's probably not a bad idea if you're in the right circumstances to benefit from it, but you have to consider all the factors.

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jriding
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Re: Anybody purposely loading up on mortgage debt?

Postby jriding » Tue Feb 05, 2013 8:14 pm

LH wrote:Wondering if anyone was currently taking advantage of lowest rates ever, and refinancing mortgage, taking money out, and investing it.


It occurred to me that these are the types of investing strategies you're more likely to hear about during bull markets.

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Watty
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Re: Anybody purposely loading up on mortgage debt?

Postby Watty » Tue Feb 05, 2013 10:59 pm

umfundi wrote:
LH wrote:Wondering if anyone was currently taking advantage of lowest rates ever, and refinancing mortgage, taking money out, and investing it.


No, but this strikes me as a no brainer:

http://crr.bc.edu/wp-content/uploads/20 ... 10-508.pdf

Take out a $25,000 home equity loan at 3.5% or less. Use the $25,000 to defer Social Security for a year. Next year, use the 8% return from SS to make payments on the home equity loan.

Am I missing something?

Keith




That got me curious so I played with some rough numbers and found a few things;

1) To replace $25,000 in social security and to pay the monthly mortgage payment for the first year you would have to borrow about $26,400.

2) A 30 year fixed rate mortgage for $26,600 would have a mortgage payment of $119 a month

3) A $25,000 from social security a year would be $2,083 a month. An 8% increase would be $167 a month.

4) The different between 167 and 119 is $48 a month, or $576 a year.

5) You would have $25,000 less in home equity and net worth, so the return is only $576 is only 2.3%, but you would also be paying off a small part of the loan each year.

I didn't try to factor in the; the chances of dying in the first year, taxes, or future social security inflation adjustments. I don't see a lot of upside and there are lots of ways that it could turn out badly, like if you had to move.

This is a lot different than if you decided to spend $25,000 out of your retirement savings to delay starting social security for a year.

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Re: Anybody purposely loading up on mortgage debt?

Postby letsgobobby » Wed Feb 06, 2013 12:08 am

tomd37 wrote:In this day and age, I cannot understand why anyone would want to take on more debt or lengthen their existing debt.

I think this is exactly the day and age when people should!

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Re: Anybody purposely loading up on mortgage debt?

Postby Kuota Rider » Wed Feb 06, 2013 12:47 am

by letsgobobby » Wed Feb 06, 2013 1:08 am


tomd37 wrote:In this day and age, I cannot understand why anyone would want to take on more debt or lengthen their existing debt.

I think this is exactly the day and age when people should!


Letsgobobby,

That's what people said back in 2006. Doesn't make any sense to me.

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Re: Anybody purposely loading up on mortgage debt?

Postby grabiner » Wed Feb 06, 2013 12:54 am

riverguy wrote:Seems silly to me unless you are investing in "risk-free" assets trying to capture an interest rate spread. With the 30 year bond (Is lending to the US for 30 years risk free??) at roughly the same interest rate as a 30 yr mortgage, where are you going to find this?


Use the money not going to the mortgage to max out your 401(k) and IRA. You can then lend money to the government at the same rate you borrow from the bank, but you get a tax deduction on the mortgage and don't pay tax on your bond interest (no tax in a Roth, and effectively no tax in a traditional account if you just view the fund as 25% owned by the IRS if you will retire in a 25% tax bracket).
David Grabiner

umfundi
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Re: Anybody purposely loading up on mortgage debt?

Postby umfundi » Wed Feb 06, 2013 12:56 am

Watty, (and Janet and 555),

Thank you. Not such a great idea, after all.

Keith
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Re: Anybody purposely loading up on mortgage debt?

Postby letsgobobby » Wed Feb 06, 2013 1:28 am

Kuota Rider wrote:
by letsgobobby » Wed Feb 06, 2013 1:08 am


tomd37 wrote:In this day and age, I cannot understand why anyone would want to take on more debt or lengthen their existing debt.

I think this is exactly the day and age when people should!


Letsgobobby,

That's what people said back in 2006. Doesn't make any sense to me.

Housing prices are down 30-60%; risk is substantially lower, as are interest rates, thus the entire proposition is more favorable.

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Re: Anybody purposely loading up on mortgage debt?

Postby Valuethinker » Wed Feb 06, 2013 5:49 am

The main thing to understand is that a long term fixed rate debt is an inflation hedge.

When you take out the mortgage, expected inflation is priced into the interest rate.

If inflation exceeds expected inflation, then your 'short' on the fixed income market (see my discussion Nisi's recent post on the 1994 bond market rout) has come good.

If the term of the money is 15 years+ you probably have a pretty good chance it will do better in equities than in your mortgage. Good chance, but not perfect. Particularly if you can invest the money in a tax deferred way.

An important interaction is uncertainty in the labour market/ your labour income. If you think your income might fall, then having a mortgage could be a substantial problem.

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Re: Anybody purposely loading up on mortgage debt?

Postby Valuethinker » Wed Feb 06, 2013 5:52 am

umfundi wrote:Watty, (and Janet and 555),

Thank you. Not such a great idea, after all.

Keith


Keith

It depends. If you think your estate can settle the debt (in the UK the debt is effectively discharged by death-- your heirs don't carry it) then it's not a bad strategy if you think you might not outlive the debt. OK you leave less to inherit (or die bankrupt) but that's not your problem, then ;-).

However if you have to repay the debt then it's a challenge because you have to have that money, later on in life, to do it. Also there are tax effects (at what point do you start to pay tax on your SS earnings?).

I did have a relative who did something like this to get (despite 2 heart attacks) life insurance. He borrowed money and the bank required life insurance, which it arranged. It really helped his widow (debt was repaid, she still had the capital).

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C319
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Re: Anybody purposely loading up on mortgage debt?

Postby C319 » Wed Feb 06, 2013 7:15 am

Paid off the mortgage in November 2011. No regrets. We're saving extra and are less stressed about cash flow.

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Re: Anybody purposely loading up on mortgage debt?

Postby YDNAL » Wed Feb 06, 2013 7:40 am

LH wrote:Yes, in the past 4 years, I have refinanced, taken significant money out, and put it
into my asset allocation..... 6 11%

No, I have kept my mortgage as is..... 16 29%

No, I have paid off, or aggressively paid down my mortgage.... 33 60%

Wondering if anyone was currently taking advantage of lowest rates ever, and refinancing mortgage, taking money out, and investing it.

Option #1 implies that you are willing to increase expenses (interest) to invest part of your Net Worth in the Markets (AA). You must be expecting sufficient compensation for the increased cost and risk.

Option #2 - nothing changed.

Option #3 implies you believe the opposite of #1 and it makes financial sense to increase Net Worth while reducing expenses (interest) and get a guaranteed and risk-free return on your money.

It seems clear to me, and it seems also clear to poll participants thus far.
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Re: Anybody purposely loading up on mortgage debt?

Postby Grt2bOutdoors » Wed Feb 06, 2013 8:46 am

letsgobobby wrote:
tomd37 wrote:In this day and age, I cannot understand why anyone would want to take on more debt or lengthen their existing debt.

I think this is exactly the day and age when people should!


Your advice is akin to listening to the shoeshine boy give me stock tips.
Employment in a steady can work til I die profession may allow you to leverage up, the average common man has much more day to day risk than you do, undertaking your suggestion is like jumping out of an airplane into a cloud - your vision is obscured and you don't know what can happen.
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Re: Anybody purposely loading up on mortgage debt?

Postby Grt2bOutdoors » Wed Feb 06, 2013 8:57 am

letsgobobby wrote:
tomd37 wrote:In this day and age, I cannot understand why anyone would want to take on more debt or lengthen their existing debt.

I think this is exactly the day and age when people should!


In your next life, you can get a job on Wall Street hawking debt products.
How well did it turn out for Bear Stearns and Lehman Brothers, leverage can kill and fast!
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Re: Anybody purposely loading up on mortgage debt?

Postby Harold » Wed Feb 06, 2013 9:00 am

To me paying borrowing costs to have debt when you don’t absolutely need it is just kind of dumb – unless it’s part of a well-considered leveraging or hedging plan.

And if after serious consideration one has decided that his investment plan involves borrowing up to X when his effective cost of borrowing is less than Y – then he should borrow based on that, rather than just looking at his current mortgage balance and saying “I can make more in the markets” or “People are saying inflation’s going to skyrocket, so I’m getting in the hedging game”.

I understand human nature and all, but really -- this is an investing forum. Either load up according to your plan, or aggressively pay it down.

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Re: Anybody purposely loading up on mortgage debt?

Postby boknows » Wed Feb 06, 2013 9:08 am

I'm not sure I fit in those categories exactly.

We're refi'ing from 5% to 3.25% (this week in fact). We plan on socking away the difference in payment, for the time being, on a future potential down-payment for our next home. We're trying to have enough after-tax money to pay for 20% on a home in the event that we can't sell our current home (or don't want to due to market conditions).

If we manage to sell during our next move, we'll probably focus more on paying down the mortgage. If we have to rent out our current place, I'm not exactly sure what we'll do. It would probably be a +$700/mo positive cash flow rental as of today, but who knows what it will be like in 2-4 years.
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Re: Anybody purposely loading up on mortgage debt?

Postby rkhusky » Wed Feb 06, 2013 9:17 am

The poll should have had one more category. How many are diverting money from a 401K or Roth IRA (i.e. not making the maximum contribution) to pay down their mortgage?

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Re: Anybody purposely loading up on mortgage debt?

Postby rkhusky » Wed Feb 06, 2013 9:22 am

How low of an interest rate would entice someone to do this? How about PenFed's 1.99% HEL with a $300 appraisal fee?

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Re: Anybody purposely loading up on mortgage debt?

Postby riverguy » Wed Feb 06, 2013 9:44 am

grabiner wrote:
riverguy wrote:Seems silly to me unless you are investing in "risk-free" assets trying to capture an interest rate spread. With the 30 year bond (Is lending to the US for 30 years risk free??) at roughly the same interest rate as a 30 yr mortgage, where are you going to find this?


Use the money not going to the mortgage to max out your 401(k) and IRA. You can then lend money to the government at the same rate you borrow from the bank, but you get a tax deduction on the mortgage and don't pay tax on your bond interest (no tax in a Roth, and effectively no tax in a traditional account if you just view the fund as 25% owned by the IRS if you will retire in a 25% tax bracket).


Not even remotely worth the hassle and possible consequences of having the debt, in my opinion. You only end up netting ~25% of the mortgage interest and you are always cashflow negative when you factor in the principal portion of the payment. Get 3% from govt, pay 3% to the bank, get 3% * 25% back from the government. On a $200,000 mortgage that's $1500 in the first year, but you also had to come up with over $4k in principal. Granted this amount will increase as the mortgage is paid down, but the principal portion is still there. To cover the entire payment on a 3% 200k mortgage, you would have to buy a much much larger value of Ts. You are also at the mercy of Washington if the mortgage deduction goes away (like it should).

Plus, if rates were to ever go up, the value of your 30 year Treasurys are going to get torched and the value of your house is getting trashed as well. Not exactly the combination you want for possibly 30 years, especially if you were to lose a job, had to move, etc.

Why would you want to saddle yourself down with unnecessary debt and a mortgage payment to make $1500 a year when the consequences are disastrous if something goes wrong?

Valuethinker wrote:The main thing to understand is that a long term fixed rate debt is an inflation hedge.

When you take out the mortgage, expected inflation is priced into the interest rate.

If inflation exceeds expected inflation, then your 'short' on the fixed income market (see my discussion Nisi's recent post on the 1994 bond market rout) has come good.

If the term of the money is 15 years+ you probably have a pretty good chance it will do better in equities than in your mortgage. Good chance, but not perfect. Particularly if you can invest the money in a tax deferred way.

An important interaction is uncertainty in the labour market/ your labour income. If you think your income might fall, then having a mortgage could be a substantial problem.


I think you are trying to say this, but long term fixed rate debt is only an inflation hedge if your wages rise as well. If your wages aren't rising but the prices of goods you consume are, your mortgage payment becomes an ever growing portion of your income. Look at the past decade. Massive amounts of inflation, mainly in the things we use most, housing and energy, yet wages are flat to down.

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Re: Anybody purposely loading up on mortgage debt?

Postby riverguy » Wed Feb 06, 2013 9:59 am

rkhusky wrote:How low of an interest rate would entice someone to do this? How about PenFed's 1.99% HEL with a $300 appraisal fee?


Trading certainty for uncertainty. Why? Risking your home on a 5 year HE loan to invest in uncertain stocks or bonds or whatever? No matter what you are likely to be cash flow negative when you factor in principal repayments. If you hold back some of the funds from the loan to help with the monthly payments, you only increase the return you have to get on your investments to make the whole deal worth while.

Maybe it works out ok in the end. No one has a crystal ball right? To me, trading the certainty of a (likely) already paid off house which has one of the necessary utilities of life (shelter) for the uncertainties of the stock or bond market is insane. I guess you can argue that taking out a mortgage anyways and still investing in the markets is doing the same thing, but it seems a little different to me.

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Re: Anybody purposely loading up on mortgage debt?

Postby Jordana » Wed Feb 06, 2013 10:08 am

In the Weimar Republic, the people who had mortgages did the best. Usually, they were farmers, they paid off the mortgages with near-worthless money and owned the land. I have been thinking about that, but I presume that if the US gets into super-inflationary levels, here will be some sort of regulation made that you can't pay off old mortgages (or 2nd or 3rd mortgages) or something like that, with money that is worth less. They would also make a regulation that even fixed mortgages can increase the interest by some amount if it is too low and the inflationary level is too high. I also think that owning property takes a lot of work. I do think it makes REITS look more attractive. I have, however, stopped making any extra payments on my mortgage.

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Re: Anybody purposely loading up on mortgage debt?

Postby am » Wed Feb 06, 2013 10:13 am

Why would you load up on mortgage debt?

For my 350k 30 year at 3.5%, I was paying 1k interest a month! Where else can I get that type of risk free return so I payed it off. Less cash flow needs, more security, one step closer to financial freedom, more money to invest. No guarantees that anything will beat my mortgage. No guarantee that I will be able to use my retirement money one day. But I am much happier at this time. My house will likely go up with inflation over time and I have a guaranteed shelter in a good school district.

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Re: Anybody purposely loading up on mortgage debt?

Postby Andyrunner » Wed Feb 06, 2013 10:20 am

Yes,

We refinanced as we are looking at puchasing a bigger home in a year or two (zero closing cost to refinance). Refinance should save us about 200 bucks a month. Figure we will need money for a down payment if our current house may potentially sit on the market while we are purchasing our new home.

So our investing will be sitting in a savings account rather then investing bonds/stocks.

If anyone thinks we have the wrong idea, please speak up!

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Re: Anybody purposely loading up on mortgage debt?

Postby MathWizard » Wed Feb 06, 2013 10:21 am

No.

I voted "kept as is", but really took a no cost refinance to lower my rate 1% and did not take any money out.

I thought about taking out money, and it probably is a good idea risk/return wise, but leverage is not my style.

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Re: Anybody purposely loading up on mortgage debt?

Postby neutics » Wed Feb 06, 2013 10:52 am

Yes, just closed on a 261k loan at 2.49% if you can believe that thanks to the Texas Veterans Land Board which takes .5% off a standard VA loan for disabled veterans. (See below).

Was it intentional? Not really...we needed a house and the timing was right. But I did purposely put 20% down vs. the 40% I had originally planned, with the difference now allocated towards more efficient uses of capital (such as maxing out my wife's self-employed 401k and of course both of our Roth IRA's.)

-http://www.glo.texas.gov/vlb/veterans-benefits/veteran-loans/index.html

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Re: Anybody purposely loading up on mortgage debt?

Postby portney » Wed Feb 06, 2013 11:28 am

I don't know where all these "no-cost" refi's are coming from. When I refinanced 2 years ago(3.375%, 15y)) to take out some equity (2 weddings, one in Italy) there were unending fees, including appraisal, all kinds of insurances, taxes, etc, and I'd estimate that about 3% of my equity disappeared in this "no-points" (as opposed to "no-cost") refinance...

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Re: Anybody purposely loading up on mortgage debt?

Postby boknows » Wed Feb 06, 2013 11:40 am

portney wrote:I don't know where all these "no-cost" refi's are coming from. When I refinanced 2 years ago(3.375%, 15y)) to take out some equity (2 weddings, one in Italy) there were unending fees, including appraisal, all kinds of insurances, taxes, etc, and I'd estimate that about 3% of my equity disappeared in this "no-points" (as opposed to "no-cost") refinance...


We're paying 1% origination fee to our Credit Union to stay with them. I think the option of a no-cost loan is out there on some of the internet lenders, but we feel better sticking with the credit union that has all of our business anyways. (Which is somewhat ironic to me, being a "younger" IT guy who usually never sticks with a brick and mortar place). Plus, we'll recoup the difference in just 2 years.
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Re: Anybody purposely loading up on mortgage debt?

Postby Grt2bOutdoors » Wed Feb 06, 2013 12:35 pm

Andyrunner wrote:Yes,

We refinanced as we are looking at puchasing a bigger home in a year or two (zero closing cost to refinance). Refinance should save us about 200 bucks a month. Figure we will need money for a down payment if our current house may potentially sit on the market while we are purchasing our new home.

So our investing will be sitting in a savings account rather then investing bonds/stocks.

If anyone thinks we have the wrong idea, please speak up!


Do not purchase a new home before selling your old one - make purchase contigent on sale of old home. No one needs to pay two sets of property taxes, maintainance, become an involuntary landlord, etc. I am an involuntary landlord - the condo market by me is deader than a doorknob unless you are willing to unload at beyond firesale prices (I'm not) - sometimes it can be a real PIA.
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Re: Anybody purposely loading up on mortgage debt?

Postby letsgobobby » Wed Feb 06, 2013 1:45 pm

I bought a house with a mortgage instead of cash, buying in November 2011. Zillow claims our home is up 25% since then, which I don't believe - but we certainly bought at a generational low in terms of $ per sf, etc. That offers lots of opportunities for leverage, and while leverage works both ways it is a mistake to focus on 'debt repayment' as opposed to 'wealth generation.' When both prices and interest rates are low, and sentiment is negative, expected returns improve and taking on leverage makes more sense.

I did make a nod to debt payoff by taking a 15 yr instead of 30 yr mortgage, but only because I am sure this is not my forever house. If I thought i was going to be here in years 15-30, I would have taken the 30 year mortgage.

MP173
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Re: Anybody purposely loading up on mortgage debt?

Postby MP173 » Wed Feb 06, 2013 1:54 pm

Paid off our mortgage one month ago. Yesterday would have been our monthly automatic mortgage payment.

It feels really good to be debt free.

Ed

Andyrunner
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Re: Anybody purposely loading up on mortgage debt?

Postby Andyrunner » Wed Feb 06, 2013 1:55 pm

Grt2bOutdoors wrote:
Andyrunner wrote:Yes,

We refinanced as we are looking at puchasing a bigger home in a year or two (zero closing cost to refinance). Refinance should save us about 200 bucks a month. Figure we will need money for a down payment if our current house may potentially sit on the market while we are purchasing our new home.

So our investing will be sitting in a savings account rather then investing bonds/stocks.

If anyone thinks we have the wrong idea, please speak up!


Do not purchase a new home before selling your old one - make purchase contigent on sale of old home. No one needs to pay two sets of property taxes, maintainance, become an involuntary landlord, etc. I am an involuntary landlord - the condo market by me is deader than a doorknob unless you are willing to unload at beyond firesale prices (I'm not) - sometimes it can be a real PIA.


Yeah, Im just thinking for worst case senerio. We shouldn't have a problem selling our current home.

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Meg77
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Re: Anybody purposely loading up on mortgage debt?

Postby Meg77 » Wed Feb 06, 2013 4:50 pm

I'm debating it currently. I have a paid off rental property and I could get $175K out of it at 4% for 30 years. The effective rate after taxes is 3.08% at my current income level. Surely over 30 years I can do better than that?!

I plan to hold this property forever (I'm in my late 20s) for appreciation and cash flow, and I just feel like in 5 years or so when savings accounts are paying more than 4% again and mortgage rates are back up to 8%+ I'll kick myself for not having done this when I could have. I could use the money to invest and tilt my asset allocation away from real estate; I could save it to pad my liquidity and pay down debt if I get spooked at any point; I could use it to pay for my next homestead in cash (planning to move in 5-7 years) instead of taking on a mortgage which will likely be far more expensive at that point...or I could invest it directly with investors at 8-10% as I have done with some other cash over the last few years.

Of course I don't really *need* the money which is why I haven't done this yet. But I am seriously considering it. :confused
"An investment in knowledge pays the best interest." - Benjamin Franklin

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Re: Anybody purposely loading up on mortgage debt?

Postby MathWizard » Wed Feb 06, 2013 5:01 pm

portney wrote:I don't know where all these "no-cost" refi's are coming from. When I refinanced 2 years ago(3.375%, 15y)) to take out some equity (2 weddings, one in Italy) there were unending fees, including appraisal, all kinds of insurances, taxes, etc, and I'd estimate that about 3% of my equity disappeared in this "no-points" (as opposed to "no-cost") refinance...


Mine was a 7 year HEL from a local Credit Union. 3.875% vs the 4.875 I had.
I originally wanted to refinance to 2.75% 15 year, at the Credit Union where I normally bank, but they
quoted $1600 closing costs, and due to a small balance ($45K) bumped the interest to 2.875%.
They wanted an even higher interest if I took money out.

There were absolutely no costs (though we did have to open a $25 savings acount to be members of the
credit union.) I checked with them if I could pay of the note the next day if I wanted to do, and
they said absolutely.

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Re: Anybody purposely loading up on mortgage debt?

Postby markcoop » Wed Feb 06, 2013 5:11 pm

I kindda did.

I refinanced to a 15 year 2.75% rate. I took out an extra $50K. For now, I put the $50K to work in a cash value account associated with my group universal life insurance. That account is paying 4% (that's the documented floor for the account and hasn't gone lower than that the past few years). I do think I will need the money over the next 15 years, which was my real motivating reason to do this, but I couldn't pass up the opportunity to make money on it while I wait. In addition, it also made life a little easier knowing the money was there when I need it.
Mark

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Hub
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Re: Anybody purposely loading up on mortgage debt?

Postby Hub » Wed Feb 06, 2013 5:18 pm

rkhusky wrote:The poll should have had one more category. How many are diverting money from a 401K or Roth IRA (i.e. not making the maximum contribution) to pay down their mortgage?
Or the opposite of that. We refinanced from a 15 to a 30 and increased 401k contributions by the exact monthly cash flow savings. I wanted the cash flow flexibility, but was cautious to make sure I didn't consume any of the difference. I didn't consider taking any cash out.
Last edited by Hub on Wed Feb 06, 2013 5:25 pm, edited 2 times in total.

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Re: Anybody purposely loading up on mortgage debt?

Postby ResNullius » Wed Feb 06, 2013 5:21 pm

Why would anybody prefer to be in debt? All my adult life, I have worked to avoid debt. The only time I've ever gone into debt was to purchase a house, then I paid it off as quickly as possible. Debt is a curse, and don't let anyone convince you otherwise. If you have no other means to live, then debt is something to consider, but otherwise....

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Re: Anybody purposely loading up on mortgage debt?

Postby zotty » Wed Feb 06, 2013 5:27 pm

It doesn't get mentioned much, but outright home ownership of your family home is one of the best asset protection moves you can make with taxable money.
Nadie Sabe Nada

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boknows
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Re: Anybody purposely loading up on mortgage debt?

Postby boknows » Wed Feb 06, 2013 5:29 pm

zotty wrote:It doesn't get mentioned much, but outright home ownership of your family home is one of the best asset protection moves you can make with taxable money.


Explain this to me like I'm young and ignorant? :confused
35 - Married - Aiming for FI/ER in early 40s.


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