Are you "lucky"if you have a secure retirement?

[ultrarunner]

Ayup Us old Vermonters are a squeaky bunch.
I've got nothing against a guy getting a mortgage on a sensible house that he houses his family in while he pays for it. He is better off then renting and has some control of how the house is maintained etc. Even a new car loan if you need a car every day for work is a wise investment.
I lose it when people take out a loan on a Mercedes or a big McMansion or vacation condo. The assets not cashed in might have covered the down payment but often the house size gets out of hand and so does the loan. It doesn't take much of a downturn in the market to put such a loan under water. Why is there even such a thing as a Jumbo mortgage? After $200K if you want more you should pay cash.
Take a couple with two professional jobs bringing in $80K each. Often they have the best of everything including Nannies and gardeners but they are the loss of just a couple of paychecks away from bankruptcy. Meanwhile the construction worker down the road and his wife working at Walmart making $60Kbetween them can weather a six month layoff, own two vehicles outright and have fifty percent equity in there house. Whose smarter?

It all goes back to philosophy...

I don't see a problem with being underwater... I was underwater on my last home... I put down 25% and I was still underwater for a few years and now I am back on top.

My mortgage payment stayed the same while rents were rising... none of the fundamentals changed... it was still the same home I willing bought even if the value had dropped for a time.

If a person should never owe more than something is worth a lot of sales would never take place... especially new items like vehicles and tractors...

Without a Jumbo loan... pickens would be very slim here in the SF Bay area. A completely original 1550 square foot 1959 ranch home closed yesterday on my street... home was in pristine condition... just all 1958 down to the formica countertops... sold for 628k with 11 offers.

I'm frugal and paid cash for the one and only new car I have ever bought...

Right now I could retire my mortgages... have one at 4% for 3 years to go and one at 2.75% with 12 years at another property... tempting as it is, both have rents that cover all the expenses and then some...

Buying on time is leveraging your investment... can be a very wise move.

 

[Parkanzky]

Ayup Us old Vermonters are a squeaky bunch.
I've got nothing against a guy getting a mortgage on a sensible house that he houses his family in while he pays for it. He is better off then renting and has some control of how the house is maintained etc. Even a new car loan if you need a car every day for work is a wise investment.
I lose it when people take out a loan on a Mercedes or a big McMansion or vacation condo. The assets not cashed in might have covered the down payment but often the house size gets out of hand and so does the loan. It doesn't take much of a downturn in the market to put such a loan under water. Why is there even such a thing as a Jumbo mortgage? After $200K if you want more you should pay cash.

I don't agree that a new car loan is a wise investment. I'm a car guy, and I'm quick to admit that very few cars are investments and then most are not good investments. A new Camry or Malibu or whatever is definitely not a great investment when you can buy a 3-4 year old example for less than half the cost of new and it will still have way more than half its life left in it. Used cars are more reliable than ever. I'm not saying that I don't buy new (or stupid) cars, but I don't do it on credit and recognize that I'm blowing money on a hobby/luxury and not an "investment."

As for the big mortgages, I don't see anything wrong with them if they're used responsibly. My wife and I recently sold our previous home for ~$185k and purchased our current home for twice that. We only put 20% down and took out a 15 year mortgage for the rest at 3.00%. I could pay a chunk of what we owe on the new mortgage off with our savings/investments, but I don't see why we'd do that when we're earning way more than 3% returns on that money where it's sitting. We'll be seriously considering retirement in about fifteen years. If the stars align and we want to retire sooner, I'll pay the mortgage off at that time. I understand that we could have paid cash for a $200k house, but it wouldn't have the features my wife wanted or the land I wanted in the location we both hoped for. Now, we have a big mortgage, but we are very happy with our home.

Take a couple with two professional jobs bringing in $80K each. Often they have the best of everything including Nannies and gardeners but they are the loss of just a couple of paychecks away from bankruptcy. Meanwhile the construction worker down the road and his wife working at Walmart making $60Kbetween them can weather a six month layoff, own two vehicles outright and have fifty percent equity in there house. Whose smarter?

You're probably making a lot of assumptions about both families based on your preconceptions. Statistically, people at lower income levels tend to make less wise financial decisions. For example, you can see that the savings rate for a household with an income of $60k (around the 3rd quintile) is about half that of a household with an income around $160k (which would be in the upper 5th quintile). CHART: Savings Rate By Income Level - Business Insider

Obviously part of that comes from the amount of one's income that has to be devoted to paying basic living expenses (Gas is $2.25/gallon whether you make $10/hr or $100/hr) but I've read studies that attribute it to a difference in the basic attitudes the different social classes have toward personal finance.

 

[Parkanzky]

Giving to animals is not charity. It's just compassion for animals, which is not as noble or as important as compassion for people. Comparing people with animals is repugnant and sick. HS

I disagree strongly.

Those animals are creatures that feel love, pleasure, pain, and suffering just like you do. They have every bit as much right to live their lives as you and I do. They kill one-another and we kill them as part of the great natural struggle. However, we should never take ending a life (any life) lightly. And we should work just as hard to prevent the needless suffering of four-legged creatures as we should the two-legged variety.

 

[vtsnowedin]

It all goes back to philosophy...

I don't see a problem with being underwater... I was underwater on my last home... I put down 25% and I was still underwater for a few years and now I am back on top.

My mortgage payment stayed the same while rents were rising... none of the fundamentals changed... it was still the same home I willing bought even if the value had dropped for a time.

If a person should never owe more than something is worth a lot of sales would never take place... especially new items like vehicles and tractors...

Without a Jumbo loan... pickens would be very slim here in the SF Bay area. A completely original 1550 square foot 1959 ranch home closed yesterday on my street... home was in pristine condition... just all 1958 down to the formica countertops... sold for 628k with 11 offers.

I'm frugal and paid cash for the one and only new car I have ever bought...

Right now I could retire my mortgages... have one at 4% for 3 years to go and one at 2.75% with 12 years at another property... tempting as it is, both have rents that cover all the expenses and then some...

Buying on time is leveraging your investment... can be a very wise move.

By under water I'm not talking about the deprecation on a new car the moment you drove it off the lot. It is still new to you with all the miles in it and it's warranty so unless you crash it in the first six months it is immaterial what the trade in value is six days after you bought it. As to a house I would always be bothered if I was under water. You put money down on it and that should cover any slight drop in market price . It does take years though to get anywhere on the principle of the loan so if you hit a stagnate or declining market you might be underwater for a while so the question is how deep under water and will it correct itself if you just hang in there making the payments.
If there were no jumbo loans that $628K house in Sf would be more like $350K as something is worth what the banks will lend against it.
Yes buying on time does let you leverage your investment but you must be careful that your investments pay for themselves and are worth the money borrowed. Being over leveraged is why markets crash and investors go bankrupt.

 

[vtsnowedin]

I don't agree that a new car loan is a wise investment. I'm a car guy, and I'm quick to admit that very few cars are investments and then most are not good investments. A new Camry or Malibu or whatever is definitely not a great investment when you can buy a 3-4 year old example for less than half the cost of new and it will still have way more than half its life left in it. Used cars are more reliable than ever. .

I'm not looking at a new car as an investment as much as I'm computing the cheapest way to get to work and do the paid driving the job entails. Over the years I've had over thirty vehicles , some new some junk of the month. If your present car is dead or dieing and you have 40,000 miles a year of driving to do for the foreseeable future and just $800 in the checkbook a new economy car is a safer bet then buying a $500 beater and hoping it doesn't have a bearing about to go etc. I've done it both ways and when you buy a used car you buy the other guys troubles.
Now classic cars and hobby cars that is a whole nuther ball of wax.

 

[ultrarunner]

By under water I'm not talking about the deprecation on a new car the moment you drove it off the lot. It is still new to you with all the miles in it and it's warranty so unless you crash it in the first six months it is immaterial what the trade in value is six days after you bought it. As to a house I would always be bothered if I was under water. You put money down on it and that should cover any slight drop in market price . It does take years though to get anywhere on the principle of the loan so if you hit a stagnate or declining market you might be underwater for a while so the question is how deep under water and will it correct itself if you just hang in there making the payments.
If there were no jumbo loans that $628K house in Sf would be more like $350K as something is worth what the banks will lend against it.
Yes buying on time does let you leverage your investment but you must be careful that your investments pay for themselves and are worth the money borrowed. Being over leveraged is why markets crash and investors go bankrupt.

With upwards of 40% of single family homes sold in the SF Bay Area selling for cash... I don't know if lower lending limits would make a huge difference... as for high end homes... many are going to overseas buyers... some buying sight unseen with many wealthy buyers residing in China where private ownership is almost unheard of...

The East Bay Area was hit hard during the slump... homes with 500k no money down mortgages were foreclosed... sometimes several on one block and I can show you some that dropped as much as 80% with 50% more typical...

Many opted for strategic foreclosure... even well paid high level executives... I work with folks that bought identical or better homes in their neighborhoods and then let their highly mortgaged home go to foreclosure... it never was a question of being able to afford it...

With so many homes being sold for cash or large downs... it does seem the lender risk is less this time around...

Only once did I buy with no down... it was a FHA assumption in a down market... basically, just wanted someone to come in and take over the payments... worked like a charm.

 

[ovrszd]

By under water I'm not talking about the deprecation on a new car the moment you drove it off the lot. It is still new to you with all the miles in it and it's warranty so unless you crash it in the first six months it is immaterial what the trade in value is six days after you bought it. As to a house I would always be bothered if I was under water. You put money down on it and that should cover any slight drop in market price . It does take years though to get anywhere on the principle of the loan so if you hit a stagnate or declining market you might be underwater for a while so the question is how deep under water and will it correct itself if you just hang in there making the payments.
If there were no jumbo loans that $628K house in Sf would be more like $350K as something is worth what the banks will lend against it.
Yes buying on time does let you leverage your investment but you must be careful that your investments pay for themselves and are worth the money borrowed. Being over leveraged is why markets crash and investors go bankrupt.

Back when I had a house mortgage and was trying to raise a family I never thought about the value of my property. My loan was thru the local bank. A couple times they said if you'll get a current appraisal on your property and update your file with us you will be eligible to borrow more money. After the first time of that I realized that my small hometown bank was NOT the partner that I had always thought them to be. They wanted me to be against the ceiling in regards to my debt ratio. As I gained ground, they felt like they were losing ground. Their loss. I continued to make payments and later double up on payments until payoff. Will never borrow money against the property again.

So, with all that said, the only reason to care where you are in regards to debt ratio is if you are intending to make changes, i.e., move, sell, buy, etc. The home/acreage I live on hasn't been appraised or valued since I built the house in 1979.

HEY, wait a minute,,,,,, maybe I'm a millionaire like those other guys and don't even know it....

 

[murphy1244]

Back when I had a house mortgage and was trying to raise a family I never thought about the value of my property. My loan was thru the local bank. A couple times they said if you'll get a current appraisal on your property and update your file with us you will be eligible to borrow more money. After the first time of that I realized that my small hometown bank was NOT the partner that I had always thought them to be. They wanted me to be against the ceiling in regards to my debt ratio. As I gained ground, they felt like they were losing ground. Their loss. I continued to make payments and later double up on payments until payoff. Will never borrow money against the property again.

So, with all that said, the only reason to care where you are in regards to debt ratio is if you are intending to make changes, i.e., move, sell, buy, etc. The home/acreage I live on hasn't been appraised or valued since I built the house in 1979.

HEY, wait a minute,,,,,, maybe I'm a millionaire like those other guys and don't even know it....

The Tax man reminds me of my value once a year when I have to pay my Ransom.

 

[ultrarunner]

The Tax man reminds me of my value once a year when I have to pay my Ransom.

For all California's faults... the one modicum of stability for homeowners is property tax... 37 years ago the voters approved Prop 13 limiting State wide Property tax a 1% of value at the time of transfer with a max 2% annual inflation increase possible... plus voter approved assessments...

The value of stabil property tax cannot be overestimated when planning a secure retirement.

 

[TomSeller]

For all California's faults... the one modicum of stability for homeowners is property tax... 37 years ago the voters approved Prop 13 limiting State wide Property tax a 1% of value at the time of transfer with a max 2% annual inflation increase possible... plus voter approved assessments...

The value of stabil property tax cannot be overestimated when planning a secure retirement.

So 1% of what you bought it for plus a max 2% increase per year?