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Defining "dumb"


John Ranalletta

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John Ranalletta

It's the 2nd $50k win for them; so, likely, it'd be a good bet. Even if they bought $50k of worthless tickets, it'd be better than paying $50k on a house that is decreasing in value.

 

Hell, they might even get help from Uncle Savior.

 

Fixed assets are fixed, easily findable targets for the next 10-12 years. Can't move it; can't hide it; so it'll be taxed to the teeth.

 

I'm thinking about getting a mortgage and declaring bankruptcy. There's gotta' be a way to turn this deal to my advantage. Maybe I need a lobbyist.

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Probably a bad idea if one is looking at it as a growth investment... But if one is looking for a conservative sure fire way to not lose one's home in these economic times, paying off the mortgage and other debt can't be beat.

 

Besides, as badly as housing has been the past year it still is far better than just about every stock! :cry:

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skinny_tom (aka boney)

I need some 'splainin.

 

If the couple intends to be in their home for a quite a number of years (which was not stated) what difference does it make whether the current value of their home is 500,000 or 50,000? They owe the same amount of money to the bank, plus interest regardless.

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Silver Surfer/AKAButters
I need some 'splainin.

 

If the couple intends to be in their home for a quite a number of years (which was not stated) what difference does it make whether the current value of their home is 500,000 or 50,000? They owe the same amount of money to the bank, plus interest regardless.

 

In an effort not to look dumb, I'm gonna wait for someone to respond to your post.

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I must be in the dumb camp, as I have a 7-year interest-only 4.5% mortgage that I am rapidly paying down. When I was earning >4% on other things, I let it ride. In current circumstances, that's not happening, so why not pay down the mortgage as fast as possible?

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John Ranalletta

Well, I'm happy to see that we still have good soldiers who believe that paying your bills, living within your means, and creating savings makes sense. Soon someone will build museums displaying diorama of those folks like dinosaur displays.

 

The treasurer of a $7 billion company said yesterday, "Today, it's all about the cash." During my seminar, he apologized for being distracted by his computer screen. He had no choice as he was monitoring company yield and cash burn rates. Cash is king and extinguishing future debt with today's cash is non sense.

 

Look at craigslist, ebay and motorcycle f/s threads. Sellers are begging for cash, discounting their non-cash assets, and some, refusing to pay their current debts to conserve cash.

 

We are in the midst of the greatest global garage sale in history; and, it's still not the time to start buying or paying down future debt. Hyper inflation will help borrowers expunge that debt.

 

This is not a time to let preconceived notions that worked last year dictate today's behavior.

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I must be in the dumb camp, as I have a 7-year interest-only 4.5% mortgage that I am rapidly paying down. When I was earning >4% on other things, I let it ride. In current circumstances, that's not happening, so why not pay down the mortgage as fast as possible?

 

As you know, you're doing the smart thing. The housing market going down has no effect on what you owe. (Future potential bailouts aside.) The calculation you show is the correct one. % earned on investments, vs. % interest on your mortgage.

 

One big issue that has to be in the equation is that both should be after taxes. If you're in a mid-high tax bracket, that could reduce you net mortgage interest considerably. Ditto, on investments. Both need to be looked at on an after tax basis.

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John Ranalletta
One big issue that has to be in the equation is that both should be after taxes.
That's irrelevant today. Any decision today that reduces cash unnecessarily is a bad, bad move, regardless of tax consequences. Unless, of course, one has huge amounts of cash to work with.
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An Indy couple won $50k in the lottery and said they'd pay down their mortgage with the money.

 

This post is probably going to get me in trouble but I don't really care. You guys are all really starting to sound like a lot of grumpy old farts who sit around grousing constantly. I can honestly say that everyday I am getting hammered in my profession by the current economic climate. My outlook for the future is still optimistic even if more trouble comes. I have great friends and a great motorcycle. Everything else is just noise. My worst day at the office though doesn't feel 1/10th as bad as it is to come into this area of the board lately. I read these posts because I respect you all a lot but it has gotten to the point that the interesting things are being overshadowed by drivel about how people are compared to the "old days". Please, all of you, take a moment before you hit send next time and ask. "Am I posting something to share or am I just whining?"

 

Have a nice day

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I'm thinking about getting a mortgage and declaring bankruptcy. There's gotta' be a way to turn this deal to my advantage.
I was thinkin' the same thing. What's the worst thing that can happen? The government will just print a few more green-backs. I'm waiting to win the "Fifty Thousand Ameros" lottery.

 

Mike O

 

 

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One big issue that has to be in the equation is that both should be after taxes.
That's irrelevant today. Any decision today that reduces cash unnecessarily is a bad, bad move, regardless of tax consequences. Unless, of course, one has huge amounts of cash to work with.

 

John,

Who knows what one should do.. As you know I'm more confused than ever about what financial moves one should make. My daughter and her husband are closing today on a new house that is costing more than I would ever consider spending on a house. They are financing almost the entire amount for 30 years. However, assuming they are able to keep their jobs it may prove to be a very good move. Interest rates are low and my hunch is they will be paying back with MUCH cheaper dollars and they will likely be in that house for 30 years..

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An Indy couple won $50k in the lottery and said they'd pay down their mortgage with the money.

 

This post is probably going to get me in trouble but I don't really care. You guys are all really starting to sound like a lot of grumpy old farts who sit around grousing constantly. I can honestly say that everyday I am getting hammered in my profession by the current economic climate. My outlook for the future is still optimistic even if more trouble comes. I have great friends and a great motorcycle. Everything else is just noise. My worst day at the office though doesn't feel 1/10th as bad as it is to come into this area of the board lately. I read these posts because I respect you all a lot but it has gotten to the point that the interesting things are being overshadowed by drivel about how people are compared to the "old days". Please, all of you, take a moment before you hit send next time and ask. "Am I posting something to share or am I just whining?"

 

Have a nice day

 

 

10 years ago I was told by financial planners that paying off long term debt was good. :P

Now it is bad? :S

Seems like financial planners live in the here and now when the stock market is tanked.

BTW, when I pulled all of our (what little bit was left :eek:) money out of Mutual Funds I was told. "you know this really isn't a good time to do this."

Oh really, since then the value had gone down another XX%!

If I had followed my instincts 15 years ago and paid off all our long term debts, we would be sitting OK and would've accumulated a small nest egg w/very conservative investments .

Instead we listened to the experts and they made money while we got

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

educated. ;)

 

Tom, you make a good point.

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John Ranalletta

Tom, this isn't a matter of optimism, it's about being pragmatic. My original post simply posed a question (if somewhat sarcastically) for the current conditions. Given anyone had an extra $50k laying around, IMO now is not the time to pay down future debt.

 

Grumpy old farts can occasionally tender useful counsel even when it's disguised as sarcasm.

 

Personally, I'm for whatever makes people happy - drugs, sex, rock 'n roll, mortgaged houses, cars and motorcycles. I've moved from conservative to libertarian. Next stop is anarchist.

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An Indy couple won $50k in the lottery and said they'd pay down their mortgage with the money.

 

This post is probably going to get me in trouble but I don't really care. You guys are all really starting to sound like a lot of grumpy old farts who sit around grousing constantly. I can honestly say that everyday I am getting hammered in my profession by the current economic climate. My outlook for the future is still optimistic even if more trouble comes. I have great friends and a great motorcycle. Everything else is just noise. My worst day at the office though doesn't feel 1/10th as bad as it is to come into this area of the board lately. I read these posts because I respect you all a lot but it has gotten to the point that the interesting things are being overshadowed by drivel about how people are compared to the "old days". Please, all of you, take a moment before you hit send next time and ask. "Am I posting something to share or am I just whining?"

 

Have a nice day

 

I can appreciate where you're coming from, Tom. That said, I think this Board is still pretty good when compared to others, e.g., MOA Forums, for the presence of "grumpy old man" syndrome. That's one of the reasons I like it here better than the other couple of places I "visit".

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I need some 'splainin.

 

If the couple intends to be in their home for a quite a number of years (which was not stated) what difference does it make whether the current value of their home is 500,000 or 50,000? They owe the same amount of money to the bank, plus interest regardless.

Yeah, I’m with you. Unless they are planning on some how escaping from owing the debt, i.e. – defaulting on it, being bailed out of it in the future, the holder being forced to reduce the principle, or some similar; it seems to me that personally taking action to reduce the debt (pay it down), thus reducing its cost to them (saving interest) can only be a good thing. While reducing their future financial vulnerability in the process. The value of the collateralize asset is irrelevant.

But then I’m likely looking at it too simplistically. :S

 

When did we get to it being an acceptable concept that we should only have to pay our mortgage if our property is worth more than we owe on it? If it goes down in value somehow our obligation (at least morally if not legally) to pay the loan we signed is nullified? Walking away from the obligation is not only acceptable but smart?

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Dave McReynolds

When did we get to it being an acceptable concept that we should only have to pay our mortgage if our property is worth more than we owe on it? If it goes down in value somehow our obligation (at least morally if not legally) to pay the loan we signed is nullified? Walking away from the obligation is not only acceptable but smart?

 

That's a good point. When you finance a car or motorcycle, you kind of expect to owe more on it than it's worth, and in some cases that condition may persist until your last payment is made. We have come to expect the opposite for a house, but unless conditions make it impossible to continue to make the payments, I think people should make the same effort to continue making payments on a mortgage that they would on a car or motorcycle.

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There are now judges who are lowering your mortgage debt for you. Find the right judge, tell him your house has dropped a hundred K in value, and he'll erase that much from your mortgage. Guess who pays the difference to the Bank. Can you say toxic debt?

 

 

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One big issue that has to be in the equation is that both should be after taxes.
That's irrelevant today. Any decision today that reduces cash unnecessarily is a bad, bad move, regardless of tax consequences. Unless, of course, one has huge amounts of cash to work with.

 

How is looking at it after taxes irrelevant? Even with the downturn, many people still have cash and at least a modicum of security in their jobs. Certainly fewer than pre-crisis, but it shouldn't stop people from making intelligent financial decisions. There are many people who would be better off with lower debt levels.

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Dave McReynolds

And the only certain investment with no risk is paying down debt.

 

I've been wondering about that "no risk" with respect to my desire to pay off my mortgage early, before I retire.

 

These are the risks I see in pre-paying my 4 3/4% mortgage, as opposed to accumulating the funds in CD's, that yeild maybe 2% at the moment:

 

1. I might need the money between now and the time I retire, and there is a risk that I might not be able to refinance or might have to do so at a higher rate (doesn't "needing the money" and "not being able to refinance" sort of go hand-in-hand?).

 

2. There might be rampant inflation between now and the time I retire, and I'm risking tying up my money at 4 3/4% by pre-paying my mortgage, as opposed to investing it at ??% in a CD (I think CD rates got as high as 18% at one point in the early '80's).

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John Ranalletta
But if one is looking for a conservative sure fire way to not lose one's home in these economic times, paying off the mortgage and other debt can't be beat.
Oh? Would you like to talk to fixed-income, older Americans who are being driven out of their "sure fire" investments due to escalating real estate taxes? In Indy, last year, r/e taxes in some neighborhoods rose 100%+.

 

How about those folks in Florida and elsewhere who are sitting in their "sure fire" investments in planned communities where the maintenance levies are being concentrated upon the few owners who are left to pay?

 

Real estate is a sitting target. That's why I'm going to San Antonio to live in Whip's RV.

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John Ranalletta
How is looking at it after taxes irrelevant?
Taxes are irrelevant in the context of the argument I'm making. I never said the couple should try to walk out on their debt. My only point is that no one, not one person on this board is smart enough to know when this downturn will end; how long assets will deflate or when the business cycle will turn up.

 

My point and my only point is that in times of uncertainty, when one's economic prospects are threatened (loss of income, etc.), it is smart to hold a couple of year's worth of living expenses in reserve. The old "six month" reserve rule is outdated. I am meeting more and more highly-qualified business professionals who have and will be out of work longer than that.

 

Anyone who pays out their reserve fund to gain what is usually a small tax advantage would be ill advised to do so.

 

I didn't recommend one should skip out on the debt (except in jest).

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There are now judges who are lowering your mortgage debt for you.

No, there isn't. There is proposed legislation to permit judges to adjust mortgage debt during bankruptcy proceedings, but it's not law yet, and very controversial so no one knows what the final form will look like, or if it will pass at all for that matter.

 

 

My point and my only point is that in times of uncertainty, when one's economic prospects are threatened (loss of income, etc.), it is smart to hold a couple of year's worth of living expenses in reserve. The old "six month" reserve rule is outdated. I am meeting more and more highly-qualified business professionals who have and will be out of work longer than that.

I would tend to agree. Well, except for the part about that being your only point... :Wink:

 

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skinny_tom (aka boney)

Oh? Would you like to talk to fixed-income, older Americans who are being driven out of their "sure fire" investments due to escalating real estate taxes? In Indy, last year, r/e taxes in some neighborhoods rose 100%+.

 

Two words:

 

proposition 13. :rofl:

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But if one is looking for a conservative sure fire way to not lose one's home in these economic times, paying off the mortgage and other debt can't be beat.
Oh? Would you like to talk to fixed-income, older Americans who are being driven out of their "sure fire" investments due to escalating real estate taxes? In Indy, last year, r/e taxes in some neighborhoods rose 100%+.

 

How about those folks in Florida and elsewhere who are sitting in their "sure fire" investments in planned communities where the maintenance levies are being concentrated upon the few owners who are left to pay?

 

Real estate is a sitting target. That's why I'm going to San Antonio to live in Whip's RV.

 

 

Following your logic, you would still have the drain on cash from your mortgage, plus additional real estate taxes? I fail to see how this is positive.

 

The day after I hit 59 and 1/2 and my IRA money becomes available, my mortgage will be paid off and I will have zero debt. As long as the interest on my mortgage is significantly more than anything I'm earning with my savings, it makes complete sense to me to pay the mortgage.

 

Besides, being debt free feels great.

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An Indy couple won $50k in the lottery and said they'd pay down their mortgage with the money.

 

This post is probably going to get me in trouble but I don't really care. You guys are all really starting to sound like a lot of grumpy old farts who sit around grousing constantly. I can honestly say that everyday I am getting hammered in my profession by the current economic climate. My outlook for the future is still optimistic even if more trouble comes. I have great friends and a great motorcycle. Everything else is just noise. My worst day at the office though doesn't feel 1/10th as bad as it is to come into this area of the board lately. I read these posts because I respect you all a lot but it has gotten to the point that the interesting things are being overshadowed by drivel about how people are compared to the "old days". Please, all of you, take a moment before you hit send next time and ask. "Am I posting something to share or am I just whining?"

 

Have a nice day

 

 

I agree Tom. Good friends, opportunities to ride and get together, good health, that is what matters.

 

I must admit that I don't read many post dealing with "grumpy old men topics". I'm sure I miss some thoughtful posts and good ideas, but I guess I rather read a ride tale, upcoming event, or have fun picking on someone.

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I am think of paying off our mortgage due to the high price of wind insurance in this state. Wind alone costs me $312 a month. I live in a 105 year old Victorian house that has seen all the bad canes Fl has to offer. Every window in the house has the original wavy glass, 30 of them. Now throw in the interest on the loan and we see a savings adding up. Is there some risk to this, yes but many here are being run out of their homes because of the ever increasing wind insurance. Put that savings in a account and shoot the dice and I feel the odds are in my favor. As for the beach home owners, Im tired of my insurance rebuilding their straw houses.

 

David B

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How is looking at it after taxes irrelevant?
Taxes are irrelevant in the context of the argument I'm making. I never said the couple should try to walk out on their debt. My only point is that no one, not one person on this board is smart enough to know when this downturn will end; how long assets will deflate or when the business cycle will turn up.

 

My point and my only point is that in times of uncertainty, when one's economic prospects are threatened (loss of income, etc.), it is smart to hold a couple of year's worth of living expenses in reserve. The old "six month" reserve rule is outdated. I am meeting more and more highly-qualified business professionals who have and will be out of work longer than that.

 

Anyone who pays out their reserve fund to gain what is usually a small tax advantage would be ill advised to do so.

 

I didn't recommend one should skip out on the debt (except in jest).

 

I'm not saying that you do this to gain a tax advantage. The point is, when making the decision you must calculate your returns after tax if it is to make any sense. I still have no clue how anyone can look at these decisions any way other than after taxes. PRE-tax calc's are meaningless when deciding whether or not to pay off mortgages. It's what you get to keep that is the only thing that matters.

 

Even though nobody knows when the downturn will end, we all still have to make financial decisions every day. Good times and bad. The world does not end, and the math does not change. Some people do have safety net living expenses, while others have relatively secure good paying jobs.

 

My point is, paying off a high interest mortgage can be a good thing for some people, even in this market; and when trying to make that decision, the person can only do it on an after tax basis.

 

 

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An Indy couple won $50k in the lottery and said they'd pay down their mortgage with the money.

 

This post is probably going to get me in trouble but I don't really care. You guys are all really starting to sound like a lot of grumpy old farts who sit around grousing constantly. I can honestly say that everyday I am getting hammered in my profession by the current economic climate. My outlook for the future is still optimistic even if more trouble comes. I have great friends and a great motorcycle. Everything else is just noise. My worst day at the office though doesn't feel 1/10th as bad as it is to come into this area of the board lately. I read these posts because I respect you all a lot but it has gotten to the point that the interesting things are being overshadowed by drivel about how people are compared to the "old days". Please, all of you, take a moment before you hit send next time and ask. "Am I posting something to share or am I just whining?"

 

Have a nice day

 

 

I agree Tom. Good friends, opportunities to ride and get together, good health, that is what matters.

 

I must admit that I don't read many post dealing with "grumpy old men topics". I'm sure I miss some thoughtful posts and good ideas, but I guess I rather read a ride tale, upcoming event, or have fun picking on someone.

 

+1

 

Eddd, you are not a grumpy old man, regardless of what Whip says. ;):thumbsup:

 

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I don't think Jon is arguing the advantage or dis-advantage of being debt free, I think he is suggesting that if, as in your example, you are close to 59 1/2, and you have paid your mortgage for a good number of years, you have paid mostly interest and now it is principal, there is little advantage other then the feel good part to paying it off vs. keeping a cash reserve. He is advocating that if you don't have enough cash reserve build it, if you do have it hang on to it. If you have credit cards that are charging high interest there is a point to be made for paying them down , as David pointed out, however in this current world, having cash reserves may be a smarter alternative. Certainly paying part of your home down is not smart as the bank is still your partner. If you lost your job, the partnership gets ugly. In my practice we try to balance that argument, paying debt or having cash reserves. We tilt to cash reserves now, and in fact have extended it to no less then 1 years expenses in liquid accounts up from 6 months, if we have a husband and wife employed by the same firm it is two years! These are trying times where cash is king!

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I don't think Jon is arguing the advantage or dis-advantage of being debt free, I think he is suggesting that if, as in your example, you are close to 59 1/2, and you have paid your mortgage for a good number of years, you have paid mostly interest and now it is principal, there is little advantage other then the feel good part to paying it off vs. keeping a cash reserve...

 

In my particular case, I paid off two previous mortgages early on other houses. I'm only 2.5 years into this new house, so my payment is almost all interest. Not having to pay all that money every month for interest will go a long way to make me "cash rich".

 

 

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Joe Frickin' Friday
In my particular case, I paid off two previous mortgages early on other houses. I'm only 2.5 years into this new house, so my payment is almost all interest. Not having to pay all that money every month for interest will go a long way to make me "cash rich".

 

No, it won't. Unless you've got some really unique mortage terms, your monthly payment is not allowed to decrease; you'll just end up paying it off sooner. You will not begin to move toward a cash-rich situation until you finish paying off the mortgage several years down the road.

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In my particular case, I paid off two previous mortgages early on other houses. I'm only 2.5 years into this new house, so my payment is almost all interest. Not having to pay all that money every month for interest will go a long way to make me "cash rich".

 

No, it won't. Unless you've got some really unique mortage terms, your monthly payment is not allowed to decrease; you'll just end up paying it off sooner. You will not begin to move toward a cash-rich situation until you finish paying off the mortgage several years down the road.

 

I must not be making myself clear. At the end of October 2009, I will pay off my mortgage...in full.

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I lived debt free for many years, until I built a new house in 2004. I had to borrow a bit of money to do this, so now my favorite pseudo on-line gambling site is a mortgage calculator. I pay a couple thousand off on principle and then take a look at how much money I will save, and how soon I will have the loan payed off. Then like an gambling addict, I go back and do it again. It's all just a big waste of time though, because my numbers are sure to be drawn for tonight's lottery.

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