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 Replies: 39 / Views: 3,035 |
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Rest in Peace
United States
9104 Posts |
Debt is good, IF it is used to create wealth. Examples would include:
Borrowing to create a factory/products/jobs.
Borrowing to pay for education.
Borrowing to build a house.
Too much debt is for things that are either non-productive or unnecessary:
Vacations
Eating out
Big screen tvs
Expensive cars
Gubmint programs of questionable value
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Pillar of the Community
United States
4008 Posts |
I could not agree more, Fred. PMs are an appreciating asset. Using them to buy another appreciating asset is fine. Using them to buy a depreciating asset is not fine. Same with debt.
I borrowed money to buy a house in 1994. Even with the crummy real estate market today, it has appreciated to some extent. The numbers show about an 84% gain but that does not include inflation, lost opportunity cost of the money, taxes, maintenance, etc. Plus, we HAD to live somewhere. If, after all is said and done, we have broken even on the house, then we have lived here for the past 17 years for free. Not too shabby a deal.
Other and better examples of this would be: don't borrow money to buy cars, boats, RVs, vacations, etc. but do borrow if you can get good terms for things like land, the expansion of a successful business, an affordable home, etc.
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Pillar of the Community
United States
4008 Posts |
If any wealth is to be "redistributed", then let those who created it see to the redistribution as they see fit. (yes, you may quote me on this!)  |
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Pillar of the Community
 United States
1450 Posts |
You got an AMEN from this corner Ed-B.
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Rest in Peace
United States
9104 Posts |
Quote:
The numbers show about an 84% gain but that does not include inflation, lost opportunity cost of the money, taxes, maintenance, etc. What cost $100 in 1994 would cost $145.19 in 2010. There were tax bennies on the interest, and you got to live as you wanted. |
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Pillar of the Community
United States
3592 Posts |
Quote:
I borrowed money to buy a house in 1994. Even with the crummy real estate market today, it has appreciated to some extent EdB, does the appreciation cover what you paid,including interest ? That is the biggest thing overlooked by 99% of the population and the mainstream likes it that way. |
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Rest in Peace
United States
9104 Posts |
There are a bunch of things to factor in, including the deduction on taxes from a mortgage.
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Pillar of the Community
United States
3592 Posts |
True biggfredd, and the deduction is another area that is exagerated because you only gain the percentage of your tax rate, not the whole amount. My recommendation is to never get a mortgage for more than 12 years. The 30 year plan is complete foolishness.
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Rest in Peace
United States
9104 Posts |
Depends on the interest rate. Locking yourself in for 30 years when you can almost be 100% guaranteed interest rates will skyrocket or you'll be able to pay back with money worth cents on the dollar is wise.
In German hyperinflation, all debt was wiped out, and borrowers still had the "stuff" they bought.
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Pillar of the Community
United States
3294 Posts |
Yup, that was my strategy when I got a fixed 4.75% for 30 years on my house. If we get nasty inflation, I get a free house.
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Pillar of the Community
United States
1450 Posts |
You are assuming that wages keep up with inflation!
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Pillar of the Community
United States
3294 Posts |
I am assuming they at least stay in the ballpark yes. Businesses can't function without employees (at least not most of them) and if wages got too far behind, people would rather have their 9 hours a day back then the $1 worth of goods.
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Pillar of the Community
United States
4008 Posts |
Quote:
You got an AMEN from this corner Ed-B. Thanks, Hock. It only stands to reason that those who produce should also be the ones who decide where their money goes. Unfortunately, our politicians seem to have lost this thought. Quote:
There were tax bennies on the interest, and you got to live as you wanted. Indeed so, Fred. The tax bennies were nice but living in our own space and being able to do what we wanted with the house was also of great benefit. I'm not sure that a price can be attached to this aspect but it has considerable personal value. Quote:
EdB, does the appreciation cover what you paid,including interest ? No, Maineman, it doesn't. I haven't felt the need to massage the numbers that closely. Also not deducted was the cost for a decent apartment or rental house. If we did not live here, then we would have to live elsewhere at some other cost. If it cost $1100 a month to buy a 3700 sq. ft. house but only $800 a month to rent a place 1/3 the size, it would take some tricky figuring to know the relative values. I'm sure that a CPA would have no problem figuring all this out but as a matter of idle curiosity, it is not worth my time to nail it down to the last dollar. Quote:
The 30 year plan is complete foolishness. Not necessarily. When one is young and cash-poor but still in need of a home and a way to build equity, the 30-year mortgage is not necessarily a bad place to start. If mortgage rates drop significantly, one can always re-fi to a 15-year loan. We did this in 2003 and chopped 7 years off our loan. Yes, it would be ideal to be able to pay cash for a home but very few people are able to do that. We would have done that if we could. |
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Pillar of the Community
United States
3592 Posts |
Let me explain my position...30 yr loan 5% fixed for 150K...after 5 years you've paid 36K in interest and reduced your loan by 12K...not very good... When you're young, best to go with what you need, not want. I've paid off two mortgages since the age of 30...one on my house after 8 years, one on investment property for 12 years.Having spent 24 years in the housing business, I saw the bubble coming with the advent of the 30 and 40 year mortgage along with the 4000 sf house.None of the upper management would listen when I started warning back in 05, and only two have given me credit after the fact.
Maybe it sounds a little difficult, but retiring without a pension at 51 was worth every sacrifice...getting to spend lots of time with my family now..priceless.
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Pillar of the Community
United States
5832 Posts |
About 7 yr on a 30 yr loan is 99% interest. Is that about the right number Maineman?
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Replies: 39 / Views: 3,035 |
First Page
Posted 07/19/2011 5:23 pm
