Mortgage - Keep balance as High as Possible

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Scott S
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Re: Mortgage - Keep balance as High as Possible

Post by Scott S » Sun Mar 29, 2020 10:59 pm

dknightd wrote:
Sun Mar 29, 2020 9:17 pm
I figure there are two reasonable choices. Pay the mortgage off as soon as possible, or, have a mortgage that you will never be able to pay off (i.e. have the mortgage pay off date likely be longer than you will live - refinance for another 30 years as needed).
I guess what I'm doing is "unreasonable", then. :confused

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F150HD
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Re: Mortgage - Keep balance as High as Possible

Post by F150HD » Sun Mar 29, 2020 11:12 pm

thx1138 wrote:
Sat Mar 28, 2020 11:29 pm
For everyone giving the OP grief this in fact did happen in 2008-9 where low LTV mortgages were foreclosed on first while high LTV mortgages were left in arrears while still occupied for more than a year. The bank hates empty houses so happier to let those behind stay in the house maintaining it even if not paying the mortgage. So those with high LTV go more months living “rent free” while those with low LTV were foreclosed first.

2008-9 was a really extreme case and I don’t think I’d this concern would rank very high compared to all the other trade offs. But it isn’t “ridiculous” as some have said. It is exactly what went down in the massive foreclosure mess of 2008-9.
:happy

AussieDad
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Re: Mortgage - Keep balance as High as Possible

Post by AussieDad » Sun Mar 29, 2020 11:33 pm

Just for s$&@‘s and giggles, let’s say you think this is doomsday coming. You have a $400,000 house that you owe $100,000 on. You refinance at 80% Ltv and pocket the cash.
(220k). Real estate market takes a dump and your 400k house is worth 200k now. You decide to walk with your 220k in cash and no debt (after foreclosure). Not very ethical, but thought I would throw it out there.

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Re: Mortgage - Keep balance as High as Possible

Post by Grt2bOutdoors » Sun Mar 29, 2020 11:40 pm

ddurrett896 wrote:
Sat Mar 28, 2020 6:12 pm
Thru all this craziness got me thinking about my mortgage. The thought it to always keep the mortgage owed as close to the value of the home as long as interest rates are low.

My rational is that if you have a ton of equity and heaven forbid something happens where you can't make payments, the bank is more incentivized to foreclose and sell with a lower LTV.

For example:
Person A owes $125,000 on a $350,000 house. (35% LTV)
Person B owes $300,000 on a $350 house. (85% LTV)

Person A house could be foreclosed and sold way easier than Person B. So Person A refinances to $300,000 and sticks $175,000 in the bank for a rainy day. What do you think?
Your thinking is pure lunacy. A bank looks at its book of non performing loans, it says get rid of the problem loans - regardless of LTV, you will be foreclosed on. The higher the loan balance the greater the likelihood you are on the list - the capital charges for NPAs is too large, you are gone.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

HEDGEFUNDIE
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Re: Mortgage - Keep balance as High as Possible

Post by HEDGEFUNDIE » Sun Mar 29, 2020 11:45 pm

AussieDad wrote:
Sun Mar 29, 2020 11:33 pm
Just for s$&@‘s and giggles, let’s say you think this is doomsday coming. You have a $400,000 house that you owe $100,000 on. You refinance at 80% Ltv and pocket the cash.
(220k). Real estate market takes a dump and your 400k house is worth 200k now. You decide to walk with your 220k in cash and no debt (after foreclosure). Not very ethical, but thought I would throw it out there.
Another plus for the interest only mortgage - it’s good for society!

It’s easier to swallow paying only interest on the underwater loan instead of both interest and principal. Keeps you from strategic default.

Spirit Rider
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Re: Mortgage - Keep balance as High as Possible

Post by Spirit Rider » Sun Mar 29, 2020 11:56 pm

AussieDad wrote:
Sun Mar 29, 2020 11:33 pm
Just for s$&@‘s and giggles, let’s say you think this is doomsday coming. You have a $400,000 house that you owe $100,000 on. You refinance at 80% Ltv and pocket the cash (220k). Real estate market takes a dump and your 400k house is worth 200k now. You decide to walk with your 220k in cash and no debt (after foreclosure). Not very ethical, but thought I would throw it out there.
Just make sure you live in a non-recourse state or the bank is coming after you for $320K - the foreclosure sale price + all of their foreclosure and recovery costs.

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Harry Livermore
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Re: Mortgage - Keep balance as High as Possible

Post by Harry Livermore » Mon Mar 30, 2020 8:20 am

thx1138 wrote:
Sat Mar 28, 2020 11:29 pm
For everyone giving the OP grief this in fact did happen in 2008-9 where low LTV mortgages were foreclosed on first while high LTV mortgages were left in arrears while still occupied for more than a year. The bank hates empty houses so happier to let those behind stay in the house maintaining it even if not paying the mortgage. So those with high LTV go more months living “rent free” while those with low LTV were foreclosed first.

2008-9 was a really extreme case and I don’t think I’d this concern would rank very high compared to all the other trade offs. But it isn’t “ridiculous” as some have said. It is exactly what went down in the massive foreclosure mess of 2008-9.
I have always heard this. But it's hard to find empirical evidence of such behavior. There is a short article in Forbes that references a study that tried to parse out variables in the foreclosure data from the GFC.
Forbes article:
https://www.forbes.com/sites/danielfish ... 1c8f67c8c7
Study:
http://www.nber.org/papers/w21261
I read the study and my eyes glazed over a bit. But I think the gist is that the opposite is true in practice: the most likely homes to be foreclosed on are those with high LTV. Yes, it seems "logical" that banks won't waste their time with such loans, and go after low LTV properties where they can be made whole. But I cannot find statistics to back this up.
I'd be happy to be proven wrong, since all I did was a simple internet search, not exhaustive research on this.
Regardless, I must agree with other posters that this is not much of a "strategy"... why not just pay off the mortgage if you are afraid of foreclosure and "have the money in the bank"?
Cheers

AnyHead
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Re: Mortgage - Keep balance as High as Possible

Post by AnyHead » Mon Mar 30, 2020 9:01 am

HEDGEFUNDIE wrote:
Sat Mar 28, 2020 6:59 pm
TravelforFun wrote:
Sat Mar 28, 2020 6:47 pm
HEDGEFUNDIE wrote:
Sat Mar 28, 2020 6:27 pm
Brianmcg321 wrote:
Sat Mar 28, 2020 6:21 pm
Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
I have an interest only mortgage that does exactly what the OP is looking for.

I feel great.
You feel greater if you didn't have to pay interest on that mortgage.

TravelforFun
My interest + property taxes is less than the rent I would pay to live in this house.

In the meantime I’m not forced to pump principal into an undiversified illiquid hard asset with questionable growth prospects and can use that money to invest in the beaten down stock market instead, or in OP’s case, to save it for a true emergency
I honestly hadn't heard of this type of product until now. After some initial research, it seems like rates tend to be a quarter or half point higher than jumbo rates. Is that in the ballpark of your experience?

Old Guy
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Re: Mortgage - Keep balance as High as Possible

Post by Old Guy » Mon Mar 30, 2020 9:02 am

Paying off the mortgage? Hardly an issue for me. I’m 77. I doubt I’ll be paying off the $460,000 remaining on my $500,000 loan. I refinanced it last fall down to 3.625. Nice tax deduction too.

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Bluce
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Re: Mortgage - Keep balance as High as Possible

Post by Bluce » Mon Mar 30, 2020 9:05 am

Normchad wrote:
Sat Mar 28, 2020 9:45 pm
Ric Edelman is a fan of getting the biggest mortgage you can, and never paying it off.

Personally, I disagree and paid off my house. I know there are a lot of people on each side of that issue. And I understand the math behind the “don’t pay off your mortgage camp.” But sometimes you don’t get 12% return in your money, sometimes you lose 35% in 30 days, and lose your job at the same time, and are in an environment where it’s almost impossible to get a new job.

I paid mine off early. And the biggest reason was I wanted peace of mind. I wanted to know that I didn’t owe anybody any money. And I wanted to be sure that if I did lose my job, I wouldn’t also lose my house.

But other people do it differently, and it works out well for a lot of them.
Ha, yes I've heard that self-promoting blowhard say that more than once, along with all of his rationalizations for it.

My late father (1913-2000) was a young man during the GD and I don't remember all the stories, but that experience left him as a hater of debt. I do remember hearing about one house they bought (before I was born) and he paid it off in a few years -- and was quite proud of that.

I also know that my parents lived below their means and NEVER borrowed money to buy a new car. My dad bought a new car every 3-4 years but none were loaded with options and junk -- to do otherwise would be a waste of money in his mind. After fixing up and driving old cars when he was young, he was more than happy to be able to drive a new (stripped, no options) car every few years so he didn't have to fix them all the time.

I do remember him saying "Nobody had any money back then." IMO, the generations since then have been spoiled with material goods beyond belief.

A good friend's long-dead father, who I worked with back in the '70s, was older than my dad and grew up and lived in Germany until the '60s when he moved his family here. He was also a hater of debt as was his son -- my buddy.

Being one generation removed from the GD, I am not as frugal as my dad. I do not have a mortgage, although I usually borrow maybe 1/4 of the sticker price when buying a new truck. I currently have a 2017 Tacoma but I only owe a couple thousand bucks on it. Like my dad, I buy a new one every few years so I don't have to work on them.

The rules of economics have not been overturned, no matter how much money the FED prints. Debt can be a useful tool, but not something one should strive for.

That's my story and I'm sticking to it!
"There are no new ideas, only forgotten ones." -- Amity Shlaes

jnet2000
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Re: Mortgage - Keep balance as High as Possible

Post by jnet2000 » Mon Mar 30, 2020 9:07 am

Brianmcg321 wrote:
Sat Mar 28, 2020 6:21 pm
Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
Agreed. House is paid off and I'd never get another mortgage. Ever.
"You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing" Warren Buffet

balbrec2
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Re: Mortgage - Keep balance as High as Possible

Post by balbrec2 » Mon Mar 30, 2020 9:26 am

ddurrett896 wrote:
Sat Mar 28, 2020 6:12 pm
Thru all this craziness got me thinking about my mortgage. The thought it to always keep the mortgage owed as close to the value of the home as long as interest rates are low.

My rational is that if you have a ton of equity and heaven forbid something happens where you can't make payments, the bank is more incentivized to foreclose and sell with a lower LTV.

For example:
Person A owes $125,000 on a $350,000 house. (35% LTV)
Person B owes $300,000 on a $350 house. (85% LTV)

Person A house could be foreclosed and sold way easier than Person B. So Person A refinances to $300,000 and sticks $175,000 in the bank for a rainy day. What do you think?
Keeping up your payments and taxes staves off foreclosure better than anything else

HEDGEFUNDIE
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Re: Mortgage - Keep balance as High as Possible

Post by HEDGEFUNDIE » Mon Mar 30, 2020 9:36 am

Old Guy wrote:
Mon Mar 30, 2020 9:02 am
Paying off the mortgage? Hardly an issue for me. I’m 77. I doubt I’ll be paying off the $460,000 remaining on my $500,000 loan. I refinanced it last fall down to 3.625. Nice tax deduction too.
You are my hero good sir

Normchad
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Re: Mortgage - Keep balance as High as Possible

Post by Normchad » Mon Mar 30, 2020 11:59 am

Bluce, I happen to agree with you. I'm not hugely debt-averse, but I really like not having it. I did have a mortgage for 20 years, and was very happy to be rid of it.

I will point out though that a lot has changed since the Great Depression; especially on the regulatory front. And although the laws of economics haven't changed, some important laws regarding mortgages have.

I'm too lazy to do the research, but I think during the GD, all mortgages were "callable"; meaning the bank could call you up at any time and demand full payment of the balance of the mortgage. I believe this is why so many lost their homes. Fortunately, that's not allowed any longer.

I believe there are many threads on BH about the virtues/vices of paying off a mortgage early. Personally, I've never met anybody that paid off their mortgage and regretted it. I do however know lots of people that regret buying too much house, or having a mortgage into retirement, etc.

If I wanted to rent, I would just rent. I think there are advantages to renting, that don't exist in home ownership. For example, if I were renting and hated my neighbor, I could move out fairly easily and without paying a commission. I can't really do that if I own a home, etc.

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Bluce
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Re: Mortgage - Keep balance as High as Possible

Post by Bluce » Mon Mar 30, 2020 12:29 pm

Normchad wrote:
Mon Mar 30, 2020 11:59 am
Bluce, I happen to agree with you. I'm not hugely debt-averse, but I really like not having it. I did have a mortgage for 20 years, and was very happy to be rid of it.

I will point out though that a lot has changed since the Great Depression; especially on the regulatory front. And although the laws of economics haven't changed, some important laws regarding mortgages have.

I'm too lazy to do the research, but I think during the GD, all mortgages were "callable"; meaning the bank could call you up at any time and demand full payment of the balance of the mortgage. I believe this is why so many lost their homes. Fortunately, that's not allowed any longer.

I believe there are many threads on BH about the virtues/vices of paying off a mortgage early. Personally, I've never met anybody that paid off their mortgage and regretted it. I do however know lots of people that regret buying too much house, or having a mortgage into retirement, etc.

If I wanted to rent, I would just rent. I think there are advantages to renting, that don't exist in home ownership. For example, if I were renting and hated my neighbor, I could move out fairly easily and without paying a commission. I can't really do that if I own a home, etc.
Thanks Norm. :D

Another point about regulations saving us from ourselves, or maybe overturning human behavior: I believe the FDIC insurance on bank accounts was a result of bank runs during the GD.

So "it can't happen again."

Well yes it can. If people get scared enough, and we may be teetering on that edge in the near future, they will withdraw their money despite the gov't guarantee. Or if inflation got out of control a lot of people would also withdraw dollars and use them to buy hard assets.

But then, how many people actually have much money in the bank? LOL, they're been convinced to go into debt to finance lifestyles that are above their income levels.

"We shall know in the fullness of time."
"There are no new ideas, only forgotten ones." -- Amity Shlaes

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celia
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Re: Mortgage - Keep balance as High as Possible

Post by celia » Mon Mar 30, 2020 12:38 pm

The BEST way to prevent FORECLOSURE is to pay off the mortgage. That’s what we did and now we never worry about any missed mortgage payments or ability to pay! It also lowered our living expenses so we could retire!

Contrast this with someone I know who refinances every 5 years or so. They keep increasing the amount owed. Heck, they probably could have it paid off by now just by using the re-financing fees.

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Bluce
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Re: Mortgage - Keep balance as High as Possible

Post by Bluce » Mon Mar 30, 2020 12:57 pm

celia wrote:
Mon Mar 30, 2020 12:38 pm
The BEST way to prevent FORECLOSURE is to pay off the mortgage. That’s what we did and now we never worry about any missed mortgage payments or ability to pay! It also lowered our living expenses so we could retire!

Contrast this with someone I know who refinances every 5 years or so. They keep increasing the amount owed. Heck, they probably could have it paid off by now just by using the re-financing fees.
:sharebeer And there you have it.
"There are no new ideas, only forgotten ones." -- Amity Shlaes

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Taylor Larimore
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Re: Mortgage - Keep balance as High as Possible

Post by Taylor Larimore » Mon Mar 30, 2020 1:01 pm

You should ask people that paid off their house how great that is.
I am 96 and have most of my money tied-up in my condominium's equity. I am currently applying for a mortgage so that I can increase my heirs inheritance before I die.

A paid off house may sound great but many homeowners would prefer less home equity and more money in the bank.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Grt2bOutdoors
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Re: Mortgage - Keep balance as High as Possible

Post by Grt2bOutdoors » Mon Mar 30, 2020 2:18 pm

Bluce wrote:
Mon Mar 30, 2020 12:29 pm


Another point about regulations saving us from ourselves, or maybe overturning human behavior: I believe the FDIC insurance on bank accounts was a result of bank runs during the GD.

So "it can't happen again."

Well yes it can. If people get scared enough, and we may be teetering on that edge in the near future, they will withdraw their money despite the gov't guarantee. Or if inflation got out of control a lot of people would also withdraw dollars and use them to buy hard assets.
It will be a controlled liquidation, the banks reserve the right to have a seven day or longer notification to redeem your account.
Most people don't read the fine print, but if you did you'd notice that unless your money was held in a demand deposit account aka checking account, all other savings products have a time requirement before the assets are to be delivered to the depositor.

But then, how many people actually have much money in the bank? LOL, they're been convinced to go into debt to finance lifestyles that are above their income levels.
You'd be surprised, go read the call report of any bank, there are significant deposits being held and many are individual or family depositors.
"We shall know in the fullness of time."
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: Mortgage - Keep balance as High as Possible

Post by Grt2bOutdoors » Mon Mar 30, 2020 2:26 pm

Taylor Larimore wrote:
Mon Mar 30, 2020 1:01 pm
You should ask people that paid off their house how great that is.
I am 96 and have most of my money tied-up in my condominium's equity. I am currently applying for a mortgage so that I can increase my heirs inheritance before I die.

A paid off house may sound great but many homeowners would prefer less home equity and more money in the bank.

Best wishes.
Taylor
Taylor,

Most people in this country have most of their wealth as you do tied up in the form of equity in their homes. It is their greatest asset. Judging from consumer behavior over my lifetime which is noticeably shorter than yours :wink: I'm sure you will agree that many people don't know how to hold onto a dollar, they will spend it the moment it hits their bank account or placed in their hands and then some, leading to consumer debts. They practice LAYM (live above your means) instead of LBYM (live beneath your means). Those who hold large mortgage balances that they can comfortably handle while maintaining their expected standard of living are far and few between. I understand that there are high prices in certain geographies, I live in a costly area of the Northeast too, however being "house poor" and having money in the bank doesn't mean anything if they can't control their ability to keep what they have instead of fritter it away on various consumables with no future asset or income generation from it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

HEDGEFUNDIE
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Re: Mortgage - Keep balance as High as Possible

Post by HEDGEFUNDIE » Mon Mar 30, 2020 4:11 pm

Taylor Larimore wrote:
Mon Mar 30, 2020 1:01 pm
You should ask people that paid off their house how great that is.
I am 96 and have most of my money tied-up in my condominium's equity. I am currently applying for a mortgage so that I can increase my heirs inheritance before I die.

A paid off house may sound great but many homeowners would prefer less home equity and more money in the bank.

Best wishes.
Taylor
Taylor! Would never have expected this out of you. Love it.

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sergeant
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Re: Mortgage - Keep balance as High as Possible

Post by sergeant » Mon Mar 30, 2020 7:07 pm

dknightd wrote:
Sun Mar 29, 2020 9:29 pm
sergeant wrote:
Sat Mar 28, 2020 8:27 pm
My dad was a trust fund baby and worked a lucrative job. He always said it is best to have as much debt as possible cause then everyone you owe is pulling for you to succeed. This reminds me of him. He died destitute.
So, I'm guessing you are not a trust fund baby.
There is a difference between
1) carrying a single debt, at low interest rate, that you could pay off if you had to, and
2) living your whole life in debt because you were spending more than you earned
I hope you learned from your dad.
Dad and his two cousins dissolved the trust when I was a teenager as it hit 100 years and that gave them the option to sell all the commercial property that was owned by the trust. Each received a couple million+, this was back in the mid 1970's. I'm definitely not a trust fund baby. I learned from my dad to do the opposite of whatever he did. It's worked out for me on a personal and financial level.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.

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sergeant
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Re: Mortgage - Keep balance as High as Possible

Post by sergeant » Mon Mar 30, 2020 7:25 pm

LFKB wrote:
Sun Mar 29, 2020 10:57 pm
sergeant wrote:
Sat Mar 28, 2020 8:27 pm
My dad was a trust fund baby and worked a lucrative job. He always said it is best to have as much debt as possible cause then everyone you owe is pulling for you to succeed. This reminds me of him. He died destitute.
Give us the details here. Leverage can work very well if you used properly. Did he take on a bunch of leverage to buy boats, cars and vacation homes?
When the trust hit 100 years he and two of his cousins dissolved the trust. Each received over two million dollars. Dad was a high ranking executive for Xerox for 25 years and made a great salary. He invested in bad business deals with shysters. Had 3 wives (at separate times) and many girlfriends, most younger than me. He spent big bucks enjoying himself. Some of his investments did pretty well. Some not so well!
In the late 70's he loaned some criminal 500k on a handshake. The 500k went bye-bye, so did the criminal. His corpse was recovered in a dumpster. My dad was questioned and released. The real killer was the criminal's prior bunk mate and was arrested a few months later. The dead guy was a big deal in the insurance industry prior to his first jail stint.
Leverage didn't destroy my dad's fortune, I guess love did. His 3rd and final wife had a large family of hillbillies. She insisted on supporting 25-30 meth heads. He gave in and went through over 5 million dollars the last decade of his life supporting a bunch of losers.
I sent money to help pay for his funeral.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.

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ray.james
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Re: Mortgage - Keep balance as High as Possible

Post by ray.james » Mon Mar 30, 2020 9:33 pm

Taylor Larimore wrote:
Mon Mar 30, 2020 1:01 pm
You should ask people that paid off their house how great that is.
I am 96 and have most of my money tied-up in my condominium's equity. I am currently applying for a mortgage so that I can increase my heirs inheritance before I die.

A paid off house may sound great but many homeowners would prefer less home equity and more money in the bank.

Best wishes.
Taylor
How does it increase inheritance?
The estate should pay the mortgage first?
Or is that the rate of return is higher with stocks?
Both house/stocks get tax basis adjustment from what I understand.

Thank you.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

Almond
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Re: Mortgage - Keep balance as High as Possible

Post by Almond » Mon Mar 30, 2020 9:39 pm

HEDGEFUNDIE wrote:
Sun Mar 29, 2020 10:40 pm
dknightd wrote:
Sun Mar 29, 2020 9:42 pm
HEDGEFUNDIE wrote:
Sun Mar 29, 2020 9:26 pm
dknightd wrote:
Sun Mar 29, 2020 9:17 pm
I figure there are two reasonable choices. Pay the mortgage off as soon as possible, or, have a mortgage that you will never be able to pay off (i.e. have the mortgage pay off date likely be longer than you will live - refinance for another 30 years as needed).
Bingo.

Interest only mortgage is like renting with none of the downsides (e.g. raised rent, unable to customize, landlord ending your lease, etc...)
There are risks to an interest only mortgage. But I'm sure you know that.
Honestly I can’t think of any.

I don’t have a 30 year fixed rate interest-only mortgage but I was quoted one recently at 3.5%, only slightly above the amortizing mortgage rate.

Yes you pay more interest over time than an amortizing mortgage, but that is an incomplete comparison without also taking into account the ROI on home equity vs stocks (where the principal would otherwise go). I’d bet on stock market returns over 30 years any day over the returns on a single house.

Yes if you can’t make payments you lose your house. But how is that different from an amortizing mortgage? With the interest-only your monthly payments are lower so you are safer if you lose your income, quite apropos for these times we are living in now.
Who quoted you that. Any other terms thank you

TropikThunder
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Re: Mortgage - Keep balance as High as Possible

Post by TropikThunder » Mon Mar 30, 2020 9:54 pm

ray.james wrote:
Mon Mar 30, 2020 9:33 pm
Taylor Larimore wrote:
Mon Mar 30, 2020 1:01 pm
You should ask people that paid off their house how great that is.
I am 96 and have most of my money tied-up in my condominium's equity. I am currently applying for a mortgage so that I can increase my heirs inheritance before I die.

A paid off house may sound great but many homeowners would prefer less home equity and more money in the bank.

Best wishes.
Taylor
How does it increase inheritance?
The estate should pay the mortgage first?
Or is that the rate of return is higher with stocks?
Both house/stocks get tax basis adjustment from what I understand.

Thank you.
Not speaking for Taylor, but my family’s case, it was to accelerate the inheritances by annual gifting.

HEDGEFUNDIE
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Re: Mortgage - Keep balance as High as Possible

Post by HEDGEFUNDIE » Tue Mar 31, 2020 12:52 am

Almond wrote:
Mon Mar 30, 2020 9:39 pm
HEDGEFUNDIE wrote:
Sun Mar 29, 2020 10:40 pm
dknightd wrote:
Sun Mar 29, 2020 9:42 pm
HEDGEFUNDIE wrote:
Sun Mar 29, 2020 9:26 pm
dknightd wrote:
Sun Mar 29, 2020 9:17 pm
I figure there are two reasonable choices. Pay the mortgage off as soon as possible, or, have a mortgage that you will never be able to pay off (i.e. have the mortgage pay off date likely be longer than you will live - refinance for another 30 years as needed).
Bingo.

Interest only mortgage is like renting with none of the downsides (e.g. raised rent, unable to customize, landlord ending your lease, etc...)
There are risks to an interest only mortgage. But I'm sure you know that.
Honestly I can’t think of any.

I don’t have a 30 year fixed rate interest-only mortgage but I was quoted one recently at 3.5%, only slightly above the amortizing mortgage rate.

Yes you pay more interest over time than an amortizing mortgage, but that is an incomplete comparison without also taking into account the ROI on home equity vs stocks (where the principal would otherwise go). I’d bet on stock market returns over 30 years any day over the returns on a single house.

Yes if you can’t make payments you lose your house. But how is that different from an amortizing mortgage? With the interest-only your monthly payments are lower so you are safer if you lose your income, quite apropos for these times we are living in now.
Who quoted you that. Any other terms thank you
Wells Fargo

Almond
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Re: Mortgage - Keep balance as High as Possible

Post by Almond » Tue Mar 31, 2020 5:01 am

HEDGEFUNDIE wrote:
Tue Mar 31, 2020 12:52 am
Almond wrote:
Mon Mar 30, 2020 9:39 pm
HEDGEFUNDIE wrote:
Sun Mar 29, 2020 10:40 pm
dknightd wrote:
Sun Mar 29, 2020 9:42 pm
HEDGEFUNDIE wrote:
Sun Mar 29, 2020 9:26 pm


Bingo.

Interest only mortgage is like renting with none of the downsides (e.g. raised rent, unable to customize, landlord ending your lease, etc...)
There are risks to an interest only mortgage. But I'm sure you know that.
Honestly I can’t think of any.

I don’t have a 30 year fixed rate interest-only mortgage but I was quoted one recently at 3.5%, only slightly above the amortizing mortgage rate.

Yes you pay more interest over time than an amortizing mortgage, but that is an incomplete comparison without also taking into account the ROI on home equity vs stocks (where the principal would otherwise go). I’d bet on stock market returns over 30 years any day over the returns on a single house.

Yes if you can’t make payments you lose your house. But how is that different from an amortizing mortgage? With the interest-only your monthly payments are lower so you are safer if you lose your income, quite apropos for these times we are living in now.
Who quoted you that. Any other terms thank you
Wells Fargo

Thank you 🙏. What were closing costs and is it a relationship mortgage.

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alpenglow
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Re: Mortgage - Keep balance as High as Possible

Post by alpenglow » Tue Mar 31, 2020 7:30 am

sergeant wrote:
Mon Mar 30, 2020 7:25 pm
LFKB wrote:
Sun Mar 29, 2020 10:57 pm
sergeant wrote:
Sat Mar 28, 2020 8:27 pm
My dad was a trust fund baby and worked a lucrative job. He always said it is best to have as much debt as possible cause then everyone you owe is pulling for you to succeed. This reminds me of him. He died destitute.
Give us the details here. Leverage can work very well if you used properly. Did he take on a bunch of leverage to buy boats, cars and vacation homes?
When the trust hit 100 years he and two of his cousins dissolved the trust. Each received over two million dollars. Dad was a high ranking executive for Xerox for 25 years and made a great salary. He invested in bad business deals with shysters. Had 3 wives (at separate times) and many girlfriends, most younger than me. He spent big bucks enjoying himself. Some of his investments did pretty well. Some not so well!
In the late 70's he loaned some criminal 500k on a handshake. The 500k went bye-bye, so did the criminal. His corpse was recovered in a dumpster. My dad was questioned and released. The real killer was the criminal's prior bunk mate and was arrested a few months later. The dead guy was a big deal in the insurance industry prior to his first jail stint.
Leverage didn't destroy my dad's fortune, I guess love did. His 3rd and final wife had a large family of hillbillies. She insisted on supporting 25-30 meth heads. He gave in and went through over 5 million dollars the last decade of his life supporting a bunch of losers.
I sent money to help pay for his funeral.
Thank you for sharing that unfortunate story. What a shame.

dknightd
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Re: Mortgage - Keep balance as High as Possible

Post by dknightd » Tue Mar 31, 2020 7:38 am

sergeant wrote:
Mon Mar 30, 2020 7:07 pm
I learned from my dad to do the opposite of whatever he did. It's worked out for me on a personal and financial level.
:sharebeer

edit: I was lucky to have have learned some good things from my dad. I also learned some things I would do differently.

I hope my kids have learned to do the same thing. Think for themselves. Take from me what was good, learn from my mistakes.
Last edited by dknightd on Tue Mar 31, 2020 7:48 am, edited 1 time in total.
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.

smitcat
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Re: Mortgage - Keep balance as High as Possible

Post by smitcat » Tue Mar 31, 2020 7:46 am

celia wrote:
Mon Mar 30, 2020 12:38 pm
The BEST way to prevent FORECLOSURE is to pay off the mortgage. That’s what we did and now we never worry about any missed mortgage payments or ability to pay! It also lowered our living expenses so we could retire!

Contrast this with someone I know who refinances every 5 years or so. They keep increasing the amount owed. Heck, they probably could have it paid off by now just by using the re-financing fees.
We will pay off the mortgage now because the math is most favorable for that. Until this time it was best to continue to have a mortgage which we have had for many years - at any time we could have paid it down.
When we pay the mortgage there will still be taxes, insurance , utilities and maintenance costs that exist for the home.
Except for the math calculation that determines a best path for us having no mortgage will feel no different than having one.

260chrisb
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Re: Mortgage - Keep balance as High as Possible

Post by 260chrisb » Tue Mar 31, 2020 8:04 am

Taylor Larimore wrote:
Mon Mar 30, 2020 1:01 pm
You should ask people that paid off their house how great that is.
I am 96 and have most of my money tied-up in my condominium's equity. I am currently applying for a mortgage so that I can increase my heirs inheritance before I die.

A paid off house may sound great but many homeowners would prefer less home equity and more money in the bank.

Best wishes.
Taylor
I need to understand this; by taking out a mortgage you increase their inheritance now by giving them the amount of the cash out now?

I've given a lot of thought to the topic at hand over the past month and being 2 years from retirement (as of tomorrow technically!!) :happy but with 8-9 years left on my 15 year mortgage at that point I want to focus on ridding myself of this over my next two earning years to the best of my ability. Debate what the best investment scenario may be all you want, I get it. My greatest expense in retirement right now two years away is my mortgage. I've saved plenty for retirement separate from my home equity and needing less of it for a mortgage will hopefully make retirement easier. Yesterday I increased my monthly payment by $200.00 thus reducing the amount of payments left by 11 and will save $4500.00 over the term. I hope to lump sum the mortgage at least once per year over the next three years which will help as well and save me more in interest over the term. My home was expensive but will never be my largest asset and I'll sleep well at night knowing it's paid off and not needing the money.

ScubaHogg
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Re: Mortgage - Keep balance as High as Possible

Post by ScubaHogg » Tue Mar 31, 2020 8:14 am

HEDGEFUNDIE wrote:
Mon Mar 30, 2020 4:11 pm
Taylor Larimore wrote:
Mon Mar 30, 2020 1:01 pm
You should ask people that paid off their house how great that is.
I am 96 and have most of my money tied-up in my condominium's equity. I am currently applying for a mortgage so that I can increase my heirs inheritance before I die.

A paid off house may sound great but many homeowners would prefer less home equity and more money in the bank.

Best wishes.
Taylor
Taylor! Would never have expected this out of you. Love it.
If Mr Larimore AND Hedgefundie agree on this I need to at least give serious reconsideration to my future plans.
“There is no problem so bad you can’t make it worse.” - Chris Hatfield, Astronaut mantra

vested1
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Re: Mortgage - Keep balance as High as Possible

Post by vested1 » Tue Mar 31, 2020 8:18 am

sergeant wrote:
Sat Mar 28, 2020 8:27 pm
My dad was a trust fund baby and worked a lucrative job. He always said it is best to have as much debt as possible cause then everyone you owe is pulling for you to succeed. This reminds me of him. He died destitute.
My mom and dad were poor all of their lives, had 5 children whom they didn't send through college, were never out of debt, and died in their 90's destitute while still having a mortgage. They had tens of thousands in credit card debt at any given time, and how they were able to continue to get credit is beyond me. It didn't stop them from going to the casino several times a week though. This proves that you don't need to be a trust fund baby or have a lucrative job to be financially clueless, as it is an equal opportunity malady.

dknightd
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Re: Mortgage - Keep balance as High as Possible

Post by dknightd » Tue Mar 31, 2020 8:20 am

Taylor Larimore wrote:
Mon Mar 30, 2020 1:01 pm

I am 96 and have most of my money tied-up in my condominium's equity. I am currently applying for a mortgage so that I can increase my heirs inheritance before I die.

A paid off house may sound great but many homeowners would prefer less home equity and more money in the bank.

Best wishes.
Taylor
That sounds risky. What if YOU need that equity one day?
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.

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Meaty
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Re: Mortgage - Keep balance as High as Possible

Post by Meaty » Tue Mar 31, 2020 8:35 am

Brianmcg321 wrote:
Sat Mar 28, 2020 6:21 pm
Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
+1.
"Discipline equals Freedom" - Jocko Willink

vested1
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Re: Mortgage - Keep balance as High as Possible

Post by vested1 » Tue Mar 31, 2020 8:50 am

Brianmcg321 wrote:
Sat Mar 28, 2020 6:21 pm
Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
I'll bite. Is there a stronger word than ridiculous? There certainly are, but I don't wish to be insulting to the OP.

I can't imagine how it would feel to have the added burden of a mortgage right now and be out of work, especially for a couple who both lost their jobs, like my granddaughter and her husband with a 1 year old and a brand new house, newly constructed with a nice fat mortgage. She had a good job, he had a great one, now what? They should be OK for 4 months until unemployment runs out, even though that income is far less than they were making before.

A lot of people who decide to carry a large mortgage instead of paying it off or paying extra against it do so with the intention of banking or investing all that cash they didn't fork over to increase their equity in the home. Very few actually do increase their rate of savings. Instead they simply increase their discretionary spending. Kind of like the people who say they are taking SS early so they can invest more money in the stock market with that extra check from the government, yet never actually do that.

And then something like this happens. Having fewer bills gives you more options.

dknightd
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Re: Mortgage - Keep balance as High as Possible

Post by dknightd » Tue Mar 31, 2020 8:56 am

Scott S wrote:
Sun Mar 29, 2020 10:59 pm
I guess what I'm doing is "unreasonable", then. :confused
I do not know what you are doing. What is reasonable for you could be completely different than what is reasonable for me. And both could be considered reasonable to somebody else. Or perhaps some consider both "unreasonable". Heck, I do not know.
My situation. I'm 62 and recently retired. I plan to claim SS at 70. If I pay my 3.25% mortgage on schedule it will be done when I'm 68. Yes I'll still have to pay property taxes, etc. I have what I think is enough cash like things to carry me through to 70. Some of those cash like things earn less than 3.25%. Unless I remortgage my house, which is not likely, it will be paid off before I claim SS. I could pay off my mortgage today, but that would bump me up from 12% tax to 22% tax. My plan for now, and it could change, is pay off mortgage as fast as possible and stay in the 12% tax bracket.
My brother has a mortgage that he will not pay off till he is 80. So he is paying it according to schedule. He might refinance, or decide to move if required.
No right or easy answer.
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.

smitcat
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Re: Mortgage - Keep balance as High as Possible

Post by smitcat » Tue Mar 31, 2020 9:00 am

vested1 wrote:
Tue Mar 31, 2020 8:50 am
Brianmcg321 wrote:
Sat Mar 28, 2020 6:21 pm
Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
I'll bite. Is there a stronger word than ridiculous? There certainly are, but I don't wish to be insulting to the OP.

I can't imagine how it would feel to have the added burden of a mortgage right now and be out of work, especially for a couple who both lost their jobs, like my granddaughter and her husband with a 1 year old and a brand new house, newly constructed with a nice fat mortgage. She had a good job, he had a great one, now what? They should be OK for 4 months until unemployment runs out, even though that income is far less than they were making before.

A lot of people who decide to carry a large mortgage instead of paying it off or paying extra against it do so with the intention of banking or investing all that cash they didn't fork over to increase their equity in the home. Very few actually do increase their rate of savings. Instead they simply increase their discretionary spending. Kind of like the people who say they are taking SS early so they can invest more money in the stock market with that extra check from the government, yet never actually do that.

And then something like this happens. Having fewer bills gives you more options.
"A lot of people who decide to carry a large mortgage instead of paying it off or paying extra against it do so with the intention of banking or investing all that cash they didn't fork over to increase their equity in the home."
And sometimes the math for this makes sense and its the beat way to proceed.

"Very few actually do increase their rate of savings. Instead they simply increase their discretionary spending"
Of course this would be comparing apples to oranges, there are also folks who pay off their mortgage and then get a huge HELOC.

"I can't imagine how it would feel to have the added burden of a mortgage right now and be out of work, especially for a couple who both lost their jobs,"
A very fair example and a good comparison ... in a number of cases in our neighborhood during 2008-2010 folks who prepaid their mortgages and had little EF savings ended up in much worse shape then those that had mortgages and modest savings. Again apples to apples it is not always best to pay down a mortgage early - its I best done with planning and following the math.

vested1
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Re: Mortgage - Keep balance as High as Possible

Post by vested1 » Tue Mar 31, 2020 9:03 am

Taylor Larimore wrote:
Mon Mar 30, 2020 1:01 pm
You should ask people that paid off their house how great that is.
I am 96 and have most of my money tied-up in my condominium's equity. I am currently applying for a mortgage so that I can increase my heirs inheritance before I die.

A paid off house may sound great but many homeowners would prefer less home equity and more money in the bank.

Best wishes.
Taylor
No disrespect Taylor, but I hope your lender isn't reading this.

AZAttorney11
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Re: Mortgage - Keep balance as High as Possible

Post by AZAttorney11 » Tue Mar 31, 2020 9:09 am

vested1 wrote:
Tue Mar 31, 2020 9:03 am
Taylor Larimore wrote:
Mon Mar 30, 2020 1:01 pm
You should ask people that paid off their house how great that is.
I am 96 and have most of my money tied-up in my condominium's equity. I am currently applying for a mortgage so that I can increase my heirs inheritance before I die.

A paid off house may sound great but many homeowners would prefer less home equity and more money in the bank.

Best wishes.
Taylor
No disrespect Taylor, but I hope your lender isn't reading this.
Why? Lenders do cash-out loans all of the time. What's so different about this? If the lender deems his ability to repay and the LTV ratio acceptable, who cares what he does with the money?

dknightd
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Re: Mortgage - Keep balance as High as Possible

Post by dknightd » Tue Mar 31, 2020 9:18 am

Loopty doopty diddly do. Do what feels right to you :)
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.

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Bluce
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Re: Mortgage - Keep balance as High as Possible

Post by Bluce » Tue Mar 31, 2020 9:31 am

vested1 wrote:
Tue Mar 31, 2020 8:50 am
Brianmcg321 wrote:
Sat Mar 28, 2020 6:21 pm
Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
I'll bite. Is there a stronger word than ridiculous? There certainly are, but I don't wish to be insulting to the OP.

I can't imagine how it would feel to have the added burden of a mortgage right now and be out of work, especially for a couple who both lost their jobs, like my granddaughter and her husband with a 1 year old and a brand new house, newly constructed with a nice fat mortgage. She had a good job, he had a great one, now what? They should be OK for 4 months until unemployment runs out, even though that income is far less than they were making before.

A lot of people who decide to carry a large mortgage instead of paying it off or paying extra against it do so with the intention of banking or investing all that cash they didn't fork over to increase their equity in the home. Very few actually do increase their rate of savings. Instead they simply increase their discretionary spending. Kind of like the people who say they are taking SS early so they can invest more money in the stock market with that extra check from the government, yet never actually do that.

And then something like this happens. Having fewer bills gives you more options.
Great post and great example of why debt isn't something to strive for -- despite modern "thinking."

I'll stick with the WWII generation's thinking (see my previous post) on this. Many of them suffered through much worse than people today have, and most of them ended up hating debt. I wonder why?

I see so many people today taking on debt because of historically low rates. "Free money!" No, it isn't free. You still have to pay the principle back. If you don't you can lose your house; it doesn't matter what the interest rate on your mortgage is. And not sure how property taxes got mixed into this thread. Taxes are not debt, unless one is in so far over their head that they have to borrow money to pay their taxes.

And 0% car loans have been around a long time. Having run a business for 35 years now, trust me the money isn't "free." The cost of it is built into whatever price you agree to pay for the car.

In the mid-'70s I worked for an Austrian immigrant who had been in this country less than 10 years. He was a young boy during WWII and saw a LOT of things that no American has ever seen. His rule of thumb for mortgage payments was: You should be able to pay your mortgage with ONE paycheck and still have enough left over to buy that week's groceries.

I can hear it now: "Ha! That's 'old school' nonsense! Who cares about that? Get the biggest mortgage your bank will give you! You can 'write off' all the interest!" As if having more "write offs" means you are somehow better off. (I hate that term because most of the people who use it don't even understand it). My nephew learned this lesson thirty years ago after I pointed out how much interest he was paying every year to the bank.

Sorry, ain't buying the "new thinking." (see my signature below)
"There are no new ideas, only forgotten ones." -- Amity Shlaes

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Scott S
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Re: Mortgage - Keep balance as High as Possible

Post by Scott S » Tue Mar 31, 2020 9:50 am

dknightd wrote:
Tue Mar 31, 2020 8:56 am
Scott S wrote:
Sun Mar 29, 2020 10:59 pm
I guess what I'm doing is "unreasonable", then. :confused
I do not know what you are doing. What is reasonable for you could be completely different than what is reasonable for me. And both could be considered reasonable to somebody else. Or perhaps some consider both "unreasonable". Heck, I do not know.
My situation. I'm 62 and recently retired. I plan to claim SS at 70. If I pay my 3.25% mortgage on schedule it will be done when I'm 68. Yes I'll still have to pay property taxes, etc. I have what I think is enough cash like things to carry me through to 70. Some of those cash like things earn less than 3.25%. Unless I remortgage my house, which is not likely, it will be paid off before I claim SS. I could pay off my mortgage today, but that would bump me up from 12% tax to 22% tax. My plan for now, and it could change, is pay off mortgage as fast as possible and stay in the 12% tax bracket.
My brother has a mortgage that he will not pay off till he is 80. So he is paying it according to schedule. He might refinance, or decide to move if required.
No right or easy answer.
We've got a 15-year mortgage, at 3.5% or so. We're 5 years in and just paying it off on schedule. I expect money in excess of that to do better in stocks, over the long-term, so that's where it goes.

Seems bizarre not to consider the standard payoff rate as a "reasonable" plan. :)

mmcmonster
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Re: Mortgage - Keep balance as High as Possible

Post by mmcmonster » Tue Mar 31, 2020 9:50 am

ddurrett896 wrote:
Sat Mar 28, 2020 6:12 pm
Person A house could be foreclosed and sold way easier than Person B. So Person A refinances to $300,000 and sticks $175,000 in the bank for a rainy day. What do you think?
Since you're asking ...

When times aren't good, you take on (long term) debt. When times are good, you pay it off. I think that debt is something you take on when you need it, and pay off so that you have the ability to take it on again in the future.

When I was younger, we took on debt to buy our house and our cars. Now the house and cars are paid off. The lack of usable liquidity to buy during the downturn is offset by the piece of mind in knowing that I just have to pay taxes on the house, rather than rent or mortgage payments.

And if something happened and I needed liquidity? I can always use the home equity line of credit I have with the bank. But I'd surely not use that to buy into the stock market.

But buying during the downturn in the market is a "rich person" problem. It's not something I would suggest anyone taking a loan out to do (regardless of their earning potential).

HEDGEFUNDIE
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Re: Mortgage - Keep balance as High as Possible

Post by HEDGEFUNDIE » Tue Mar 31, 2020 9:52 am

ScubaHogg wrote:
Tue Mar 31, 2020 8:14 am
HEDGEFUNDIE wrote:
Mon Mar 30, 2020 4:11 pm
Taylor Larimore wrote:
Mon Mar 30, 2020 1:01 pm
You should ask people that paid off their house how great that is.
I am 96 and have most of my money tied-up in my condominium's equity. I am currently applying for a mortgage so that I can increase my heirs inheritance before I die.

A paid off house may sound great but many homeowners would prefer less home equity and more money in the bank.

Best wishes.
Taylor
Taylor! Would never have expected this out of you. Love it.
If Mr Larimore AND Hedgefundie agree on this I need to at least give serious reconsideration to my future plans.
I know right?! Coronavirus bringing out some strange times indeed...

DB2
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Re: Mortgage - Keep balance as High as Possible

Post by DB2 » Tue Mar 31, 2020 10:11 am

I'm in the middle of refinancing my home loan (will be going from 4.5% to 3.37%). FYI, I am almost 48 years old and will be working 20 more years. I was going to do a 20-year fixed, but decided to go to 30 year fixed. Only about 1/8th difference in rates, but wanted the extra liquidity and cash flow from the 30-year fixed and I am not even going to be living here in 20 years, so I didn't see the point on paying it off. The extra money can be used toward other bills and investments. I still like the idea of paying a little down along the way until I finally move (maybe 10 years or so) with the 30-yr so I didn't want to do interest only. In addition, if we get more notable inflation over the upcoming decade (which I believe we will) that is going to help 'inflate' some of this mortgage debt away.

Dottie57
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Re: Mortgage - Keep balance as High as Possible

Post by Dottie57 » Tue Mar 31, 2020 10:17 am

Toons wrote:
Sat Mar 28, 2020 6:22 pm
Pay Off The Mortgage
:mrgreen:
+1

Dottie57
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Re: Mortgage - Keep balance as High as Possible

Post by Dottie57 » Tue Mar 31, 2020 10:17 am

HEDGEFUNDIE wrote:
Sat Mar 28, 2020 6:27 pm
Brianmcg321 wrote:
Sat Mar 28, 2020 6:21 pm
Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
I have an interest only mortgage that does exactly what the OP is looking for.

I feel great.
Aren’t you essentially renting then?

Dottie57
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Re: Mortgage - Keep balance as High as Possible

Post by Dottie57 » Tue Mar 31, 2020 10:21 am

HEDGEFUNDIE wrote:
Sun Mar 29, 2020 11:45 pm
AussieDad wrote:
Sun Mar 29, 2020 11:33 pm
Just for s$&@‘s and giggles, let’s say you think this is doomsday coming. You have a $400,000 house that you owe $100,000 on. You refinance at 80% Ltv and pocket the cash.
(220k). Real estate market takes a dump and your 400k house is worth 200k now. You decide to walk with your 220k in cash and no debt (after foreclosure). Not very ethical, but thought I would throw it out there.
Another plus for the interest only mortgage - it’s good for society!

It’s easier to swallow paying only interest on the underwater loan instead of both interest and principal. Keeps you from strategic default.
Are you saying mortgage company can’t sue or otherwise force payment?

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