Home buying thread

Cad · Feb 4, 2016

Noodlemod_sl said:
I know that's the current theme but if there's anything to celebrate it's paying off a mortgage. I know with money bags in your vault it's tough to relate to the common folk

Its the smart thing to do either way it just makes more difference when you have a lot more home equity to toss around. I'd get a home equity loan and invest the proceeds if my viet-jew immigrant-brain wife would let me. At least she hasn't insisted we pay off the mortgage early even though we could.

Eomer · Feb 4, 2016

I paid off my mortgage as quickly as I could back in the 2005-2009 time frame by raising my weekly payments 15% a year and prepayments of up to 15% a year. I didn't have a huge mortgage, it was around 180k I believe. In hindsight I regret not investing that money, although given what happened in 2008, a good chunk of that money would have taken a pretty big hit. Roughly half was paid off before the market bottomed, the other half after. So I'd probably have come out in pretty good shape. I think my rate at the time was 4.25%, so it's not like I'd have needed crazy returns to be ahead. I sometimes kick around the idea of taking out money on my home line of credit and investing it. I think I'm approved for up to 225k or something like that, and the rate is around 3-4%, so again I wouldn't have to get amazing returns to be further ahead. But on the other hand, even if I manage to make a 2-3% premium that's not really going to make a significant difference to my finances in the long run, so why take the risk?

That being said, it really is nice not having to worry about a weekly or monthly mortgage payment. But on the other hand, should I end up upgrading to a house or buying a vacation/recreation property down the road, no question that I'll be putting the least amount down I can if rates are still pretty reasonable. May as well use someone else's money if you can.

Cad · Feb 4, 2016

Eomer_sl said:
I paid off my mortgage as quickly as I could back in the 2005-2009 time frame by raising my weekly payments 15% a year and prepayments of up to 15% a year. I didn't have a huge mortgage, it was around 180k I believe. In hindsight I regret not investing that money, although given what happened in 2008, a good chunk of that money would have taken a pretty big hit. Roughly half was paid off before the market bottomed, the other half after. So I'd probably have come out in pretty good shape. I think my rate at the time was 4.25%, so it's not like I'd have needed crazy returns to be ahead. I sometimes kick around the idea of taking out money on my home line of credit and investing it. I think I'm approved for up to 225k or something like that, and the rate is around 3-4%, so again I wouldn't have to get amazing returns to be further ahead. But on the other hand, even if I manage to make a 2-3% premium that's not really going to make a significant difference to my finances in the long run, so why take the risk?

That being said, it really is nice not having to worry about a weekly or monthly mortgage payment. But on the other hand, should I end up upgrading to a house or buying a vacation/recreation property down the road, no question that I'll be putting the least amount down I can if rates are still pretty reasonable. May as well use someone else's money if you can.

So just for recreational purposes calculate how much you'd have now if you had invested 50k on July 1 each year from 2006-2009 and still held it now in your index fund of choice, and subtract out [your mortgage rate minus the percentage you'd get to deduct for taxes] and see how much you'd have today.

Cad · Feb 4, 2016

Lets just say you bought VTI.

50k of VTI on July 1 2006 = $63/share = 793.65 shares
50k of VTI on July 1 2007 = $74/share = 675.68 shares
50k of VTI on July 1 2008 = $63/share = 793.65 shares
50k of VTI on July 1 2009 = $44/share = 1,136.36 shares

= 3399.34 shares

Price today = 97.27 = $330,653.80

Figure you'd pay 4% on your HEL lets just do simple interest 4% on 200k for 7 years. Thats $56000 but you probably pay 35% tax like me so with tax credits you'd pay $36,400.

Pay $36,400 in interest to get $130k

I mean it's not a gigantic windfall but it's not a punch in the head either. It's a free 911 every 7-8 years for investing your home equity. Imagine if you had a million or two in home equity...

TJT · Feb 4, 2016

So I've learned that the sellers of the house I offered on are in the midst of a divorce and basically have to sell fast. Their realtor raised the listing price 3 times since Monday. But I've held firm at my offer, as I refuse to pay anymore for that place. Appraisal would fuck them over anyway I think.

But oh well if it falls through, 3 others to look at.

Eomer · Feb 4, 2016

Cad_sl said:
Lets just say you bought VTI.

50k of VTI on July 1 2006 = $63/share = 793.65 shares
50k of VTI on July 1 2007 = $74/share = 675.68 shares
50k of VTI on July 1 2008 = $63/share = 793.65 shares
50k of VTI on July 1 2009 = $44/share = 1,136.36 shares

= 3399.34 shares

Price today = 97.27 = $330,653.80

Figure you'd pay 4% on your HEL lets just do simple interest 4% on 200k for 7 years. Thats $56000 but you probably pay 35% tax like me so with tax credits you'd pay $36,400.

Pay $36,400 in interest to get $130k

I mean it's not a gigantic windfall but it's not a punch in the head either. It's a free 911 every 7-8 years for investing your home equity. Imagine if you had a million or two in home equity...

Yup, that's about what I figured it would be. Stupid hindsight.

In any case, thanks for the advice. Ima go leverage the living fuck out of my condo and business equity and put it on black.

Khane · Feb 4, 2016

Eomer_sl said:
Yup, that's about what I figured it would be. Stupid hindsight.

In any case, thanks for the advice. Ima go leverage the living fuck out of my condo and business equity and put it on black.

Stupid in hindsight if the price never falls back to 2009 levels. Smart in hindsight if it does.

Though actually, hindsight doesn't mean jack shit when long term investing in an ETF like the Vanguard Total Market Index. Just dump your money in it and let it ride for 30 years. Wait until close to retirement and hope what happened in 2008/2009 doesn't happen right before you're ready to cash it out.

Cad · Feb 4, 2016

Khane_sl said:
Stupid in hindsight if the price never falls back to 2009 levels. Smart in hindsight if it does.

Though actually, hindsight doesn't mean jack shit when long term investing in an ETF like the Vanguard Total Market Index. Just dump your money in it and let it ride for 30 years. Wait until close to retirement and hope what happened in 2008/2009 doesn't happen right before you're ready to cash it out.

I mean you're just arguing against investment in general. Yes crashes happen. Yes VTI would be volatile in a crash situation.

VTI returns > mortgage costs so it almost always makes sense to leverage that investment at a low interest rate.

Eomer · Feb 4, 2016

Khane_sl said:
Wait until close to retirement and hope what happened in 2008/2009 doesn't happen right before you're ready to cash it out.

People who were "close to retirement" in 2008/2009 with more than 20-30% of their retirement funds in equities were dumbasses. If you're close to retirement the majority of your money should be in various forms of fixed income with little or no market risk. I remember my purchaser at the time asked me what I thought he should do, and my advice was "it's too late, you're already screwed, you got bad investment advice if your shit is down anywhere close to what the general markets are. Your best bet at this point is to ride it out until it recovers." He didn't actually end up retiring until last summer, so he should have had plenty of time to recover, but I never did discuss it with him again. I'd be willing to bet he sold everything or went to GIC's or some shit and then missed the recovery.

Cad_sl said:
I mean you're just arguing against investment in general. Yes crashes happen. Yes VTI would be volatile in a crash situation.

VTI returns > mortgage costs so it almost always makes sense to leverage that investment at a low interest rate.

True, but volatility could potentially really hurt you at some points if you don't have a sufficient cushion. VTI is only going to pay around 2% a year in a dividend, otherwise the spread between the yield and whatever your mortgage rate is needs to be made up by selling shares in VTI. Obviously that would really ding you after a large market correction.

Cad · Feb 4, 2016

Eomer_sl said:
True, but volatility could potentially really hurt you at some points if you don't have a sufficient cushion. VTI is only going to pay around 2% a year in a dividend, otherwise the spread between the yield and whatever your mortgage rate is needs to be made up by selling shares in VTI. Obviously that would really ding you after a large market correction.

I'm assuming you're working with income here and the only difference is between parking your money long term in your house or parking it in VTI. In the case of a large market correction you'd rely on your income more. I'd never advocate (hopefully the banks wouldn't allow you to.. ) leverage yourself beyond your income's ability to pay. I know.. once we stop laughing about that one... yea, you shouldn't leverage yourself beyond your income to pay.

Eomer · Feb 4, 2016

Cad_sl said:
I'm assuming you're working with income here and the only difference is between parking your money long term in your house or parking it in VTI. In the case of a large market correction you'd rely on your income more. I'd never advocate (hopefully the banks wouldn't allow you to.. ) leverage yourself beyond your income's ability to pay. I know.. once we stop laughing about that one... yea, you shouldn't leverage yourself beyond your income to pay.

Oh yeah, for me it wouldn't be an issue. I was more referring to a more "average" homeowner who might attempt to do that.

Khane · Feb 4, 2016

Cad_sl said:
I mean you're just arguing against investment in general. Yes crashes happen. Yes VTI would be volatile in a crash situation.

VTI returns > mortgage costs so it almost always makes sense to leverage that investment at a low interest rate.

I definitely did not argue against investment. I made a point that "hindsight" means nothing when talking about a long term investment like VTI because if we were having this same conversation in 2009, when the price was $44/share he'd be thanking his lucky stars he paid his mortgage instead. And if we have this conversation again in 10 years, a still different outcome would occur

VTI has traditionally seen stronger returns (for the last 7 years) than mortgage interest rates (at their stupidly low current APR/APY, which you're comparing his 2004 mortgage to for some reason). That could change at any time. Mortgage loans used to be 6, 7, even 8,9 or 10% in the not so distant past. I'm not arguing against investing but paying down your debt is NEVER a bad move. Ever. And "kicking" yourself because the current market trend (which is ludicrous when you look at the historical graphs of the DJIA) is bullish is foolish. You made a good decision and saved yourself a lot of money. You could have made more money had you put it all into VTI and pulled it out today. You could have made even more money if you pulled it out in June when it was $109/share. But investing is never a sure thing. Paying off your debt is. Don't feel bad or foolish about that decision. It was wise.

Eomer · Feb 4, 2016

To be clear, when I said "stupid hindsight", I didn't mean that my decision in hindsight was stupid. I was just jokingly cursing at hindsight for making me aware of the fact that I could well have done much better financially had I not paid the mortgage down given the specific market conditions in that time period. But yes, you're absolutely right, it could have just as easily gone the other way, or been a wash. Next time I buy property and end up with a mortgage, I likely won't be anywhere near as eager to pay the mortgage down.

Regardless, I think we've beaten this one to death at this point.

edit: actually, here's a good story relating to commercial real estate. My dad and grampa owned a few commercial warehouses. Gramps was in his mid to late 80's, and they decided it would be a good idea for my dad to buy him out of them so that if/when he gets ill or passes away, it simplifies things with taking care of his estate. My dad HATES banks and the financial industry in general. Most of his wealth is tied up in real estate, very little in anything "financial", whether that be equities, mutual funds, bonds, GIC's, whatever. So when he had to come up with however much money it was to buy gramps out, instead of taking out a loan or mortgage, he sold a few couple cars. One was a 2008 911 GT2. That one in hindsight wasn't too bad. It's held it's value, but hasn't really appreciated significantly if you ignore the CDN/USD exchange rate. The other was a Carrera GT. This was about 3 years ago. I think the dealership got 400k CDN for it, give or take. Fucking things are selling for upwards of 600-800k USD these days. With the decline in the exchange rate, he probably sold that car for a third of what he could have today.

So yeah, he should have gotten a mortgage. Thanks Paul Walker.

Khane · Feb 4, 2016

Just so everyone is aware. I am heavily invested in VTI. It's my ETF of choice. I am not anti-investment at all. I just think a lot of the country has rose colored glasses on when comparing mortgage interest to market investments because 1) The market has done historically well in the past 7 years and 2) Mortgage interest rates are historically low.

It's a perfect storm of "This always works! Do it!"

Cad · Feb 4, 2016

Khane_sl said:
Just so everyone is aware. I am heavily invested in VTI. It's my ETF of choice. I am not anti-investment at all. I just think a lot of the country has rose colored glasses on when comparing mortgage interest to market investments because 1) The market has done historically well in the past 7 years and 2) Mortgage interest rates are historically low.

It's a perfect storm of "This always works! Do it!"

Well no fucking shit dude its not like we're robots that would say do this if mortgage rates were 16% like it's 1981. But they're not.

Khane · Feb 4, 2016

Cad_sl said:
Well no fucking shit dude its not like we're robots that would say do this if mortgage rates were 16% like it's 1981. But they're not.

I was being purposefully obtuse. Because you were doing the same thing with my original statement.

Unidin · Feb 4, 2016

So you take out a HELOC at Prime + .25 and invest it. Then interest rates start going up and the market corrects downwards because of it. Now you're in a situation where the rate has jumped and your returns are negative on your investments. What do you do? Taking out a HELOC to invest is risky and not for the average investor.

Khane · Feb 4, 2016

Yea... betting your home equity just sounds crazy to me but to each their own.

Picasso3 · Feb 4, 2016

I thought cad was the guy telling everyone if they couldn't put down 20% they couldn't afford it and you should pay off mortgage asap about 4 years ago. I must have educated him.

Khane · Feb 4, 2016

Picasso_sl said:
I thought cad was the guy telling everyone if they couldn't put down 20% they couldn't afford it and you should pay off mortgage asap about 4 years ago. I must have educated him.

No, that was me.

Though it was "If you can't afford a 15 year mortgage you can't afford that house, and you shouldn't buy if you need to insure with PMI to get a loan" as a rule of thumb.

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