Interesting Statistic Heard Today

[Hair Trigger]

We bought our house in 1995 and had a 15-year fixed interest mortgage. We've refinanced twice, both times cutting the interest rate by at least 2-1/2 points. We also carried a home equity 2nd mortgage, which has been paid for a number of years, but we still owe on the house, after 27 years here. Not much, but I keep thinking that if we'd just paid the higher interest original loan, we'd have paid it off 12 years ago. Of course, we'd have done without a lot of stuff we managed to accumulate by saving on the interest payments. We also own a rental house that still has a mortgage, but it has paid down quite rapidly as we turn the rent over to pay the mortgage off, and only keep a small amount as profit. Hopefully both will be paid off in three more years.

My goal is to have inscribed on my headstone, "He died without a mortgage."

 

[BC38]

Paid off the mortgage on our primary residence in January. We had a CD mature that was only paying around 3% and the mortgage was around 3-1/2% so we just paid it off rather than reinvest. We still have a small mortgage on the lake place, but could pay it off any time we want.
The last BMW I owned was a 20 year old 1974 2002 that I owned in the mid 1990's. Haven't had a car loan in close to 20 years either, and don't intend to. I usually buy one 3-5 years old with around 50k on the odometer and pay around half of what it cost new.

 

[Old 44 Guy]

No mortgage & I drive a Ford pickup. Only bill I have is my VISA.

 

[raljr1]

If debt is such a bad thing, why do so many corporations, that make billions in profit, measure their management teams by working capital, which always includes using debt and other people's money to generate income?

God bless those of you who live debt fee. Must be nice not to have to pay income tax, property tax, etc. Oh, I know, you pay those debts every month. So do I, but when I have a debt that costs me 2.75% and I have an investment account and savings accounts generating 3 to 6%, it does not make sense to withdraw from those accounts to pay off a mortgage, even if that investment account is several times larger than the debt.

I sleep fine at night with a mortgage.

 

[Ed4032]

re state property taxes:

Which States Do Not Have Property Taxes in 2022 - NY Rent Own Sell

Those states with low property taxes have increased income and sales taxes that make up the difference. Same tax just a different source.

 

[BLACKHAWKNJ]

Property taxes are based on assessed value, income taxes on ability to pay, sales taxes can be avoided. Back in the 1960s I recalled hearing people saying they went to Delaware to shop-no sales tax.
Recall reading that one of the things that helped pass Proposition 13 was that people were going through annual reassessments.

 

[Golddollar]

Those states with low property taxes have increased income and sales taxes that make up the difference. Same tax just a different source.

Yes, it comes down to the total tax burden imposed by all of the governmental units. People in Maryland ask me about paying those "horrible school taxes" here in PA. I ask them if the schools in Maryland are free. It's just that PA has certain taxes that are dedicated for and paid directly to the school systems while in MD all local taxes go into a common pot and get divvied up by the governmental unit later.

 

[BC38]

If debt is such a bad thing, why do so many corporations, that make billions in profit, measure their management teams by working capital, which always includes using debt and other people's money to generate income?

God bless those of you who live debt fee. Must be nice not to have to pay income tax, property tax, etc. Oh, I know, you pay those debts every month. So do I, but when I have a debt that costs me 2.75% and I have an investment account and savings accounts generating 3 to 6%, it does not make sense to withdraw from those accounts to pay off a mortgage, even if that investment account is several times larger than the debt.

I sleep fine at night with a mortgage.

I think you may be misunderstanding the term "working capital".
Having just left a corporate management position where TWC (Total Working Capital) was one of the measures we were being graded on, "working capital" meant NOT using the company's money (or borrowed money - a.k.a. debt) to finance paying for labor and materials to perform the work.
Instead the idea is to routinely bill the customer in advance for work not completed yet, or to bill them for materials you haven't paid for yet, so that you are actually using THE CUSTOMER'S money, and/or your VENDOR'S money to pay for performing the work.
That isn't the same thing as what we all think of as debt - i.e. borrowing money and paying interest for the use of that money. Working Capital is a technique for managing cash flow to use other people's money interest-free.
In a sense it is actually the opposite of what we average folks call debt. It is more like using a credit card to get cash back on everything you buy, but paying it off at the end of every month so they don't charge you interest. Something I have been doing for decades...

 

[GypsmJim]

re state property taxes:

Which States Do Not Have Property Taxes in 2022 - NY Rent Own Sell

Interesting article. What's funny is that some of the states that have the lowest tax rates are also places you wouldn't want to live.

Also, some of the lowest tax rates have personal property taxes on cars and such. They get your money one way or the other.

The bottom line is that its not the tax rate that's important, it's the overall cost of living.

I know someone who always brags about having low taxes. They have basically the same house as mine. I pay huge taxes, but my property value is much lower. Add up the tax and mortgage and my monthly payment is actually lower.

OK, you can say I have less equity. But that only counts if I sell. In the meantime, my investments are increasing at a faster rate.

 

[Mike SC Hunter]

Yes, too many people don't understand debt, see it as unavoidable. Or they think inflation will allow them to pay it off in cheaper dollars.
The German Empire financed WWI through loans, the Weimar Republic repaid those debts with paper marks that wiped out their value.
I live debt-free, I find it gives tremendous peace of mind.

I live your last sentence. No matter what any here say. If I want something now I just pay cash for it. Like my last pkp.

 

[llowry61]

One thing that has had an impact on attitudes regarding debt is the low interest rate environment we have been in for many years. Debt was much more of a burden when interest rates were where they are headed.

Responsible use of credit to leverage your purchasing power is a tool that can be used to build wealth.

Attitudes toward credit have changed. When I was a kid credit was used for 2 things cars and houses and even then, cars loans usually required up to 50% down.

The revolving debt credit card changed the way credit is used. Purchasing vacations, meals and items on credit cards then revolving the debt was like giving crack to addicts in some ways.

3 rules to live by -

Put as much of your money in appreciating assets as you can.

Live below your means.

Understand the difference between needs and wants.

 

[BLACKHAWKNJ]

A big part of the sub-prime mortgage fiasco was people taking on more debt than they could handle, housing costs 50% -or more-of take home pay, relying on 2 or 3 incomes, using Grandma's Social Security check. Then she gets called home to the Lord and..."Creative financing", i.e. gimcracks, shenanigans, etc. And as noted, all those mortgages bundled up and sold as "gilt edged" investments.

 

[llowry61]

A big part of the sub-prime mortgage fiasco was people taking on more debt than they could handle, housing costs 50% -or more-of take home pay, relying on 2 or 3 incomes, using Grandma's Social Security check. Then she gets called home to the Lord and..."Creative financing", i.e. gimcracks, shenanigans, etc. And as noted, all those mortgages bundled up and sold as "gilt edged" investments.

Collateralized Debt Obligations - Derivatives are dangerous to everyone in the market.

 

[Bald1]

If you need to ask, you don't have the ability to grasp the concept.

Stay in your lane pal. Don't make a fool of yourself

 

[BLACKHAWKNJ]

Then there's the home equity loan. I recall a call-in radio program I heard on WCBS-AM back in 1987, the host and the in-studio guest, a financial expert, he said he was totally opposed to the home equity loan-"people were using their house as a bank". The advertising was so seductive-"Put your money to work for you !" and too many people though it turned a 20 year mortgage into a 40 year one.

 

[BC38]

Then there's the home equity loan. I recall a call-in radio program I heard on WCBS-AM back in 1987, the host and the in-studio guest, a financial expert, he said he was totally opposed to the home equity loan-"people were using their house as a bank". The advertising was so seductive-"Put your money to work for you !" and too many people though it turned a 20 year mortgage into a 40 year one.

I see the same kind of advertising today.

"Why borrow from a bank - borrow from yourself instead (your home equity)".

Problem is, if you fall on hard times you still have to make that mortgage payment - or you lose your house.

If you have other kinds of loans that you can't pay due to hard times, and you have to declare bankruptcy they don't take your house, and you at least still have somewhere to live.

That's why we paid off the mortgage on our primary residence first, instead of the mortgage on our vacation place at the lake, even though the mortgage on the lake place has a slightly higher rate (0.25% higher to be exact).

If things completely fell apart we could always sell the lake place at a loss to settle the debt and still have our primary residence paid off free and clear. So we'd still have a place to live, no matter what.

At least that's the way we see it...

 

[Travis Montana]

My goal was mortgage paid off by the time I was 50. Girls college was more than I expected. Took me till I was 54. Glad that debt is gone.

 

[Golddollar]

There is a joker in the deck with home equity loans, frequently called HELOCs for Home Equity Line of Credit. That is the requirement that the dwelling be owner occupied during the life of the mortgage/deed of trust. I can't begin to count the number of times the homeowner takes out a HELOC, and then becomes ill or otherwise unable to live alone, and ends up in a nursing home. That causes a default under the terms of the HELOC, full payment of the outstanding balance is required, nobody in the family has that kind of cash available, and the mortgage/deed of trust goes into foreclosure. Without some sort of intervention, the homeowner/borrower loses a major asset, and the lender probably ends up with a nonperforming loan on an empty house that has to be maintained so the security of the loan doesn't deteriorate. Not passing judgement, just mentionong something that hasn't been brought up.

 

[BLACKHAWKNJ]

I've lost track of the number of cases I've heard of where the spouse/head of household dies, the survivors are left with a home equity loan to repay.
Only cases I know of where a home equity loan did any good, several guys I knew, their marriages were on the rocks, one, his wife threw him out of the house, they went down to the bank, cashed the check for the home equity loan, took off......