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Old 01-20-2013, 10:35 PM   #26
fstime
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30 year mortgage is basically a death loan, good luck. You also end up paying double in interest compared to a 15 year. Have fun working for the bank. Now if that debt is from investment property which is generating a healthy 10% return fine. On a primary residence, no thanks.

American society has sold so many sheep into thinking debt is normal when that is far from the truth.

Want a car? -Debt

Want a college education? -Debt

Want a house? -Debt

It is what keeps you enslaved and working until your death to pay off.

Don't forget to give any spare cash to a investment broker, he won't lose it, trust me.
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Old 01-20-2013, 10:44 PM   #27
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Average yield for equities investing is something like 7% over the long term, if i remember right. That's including +15% years and -10% years -- no, those aren't suppose to average to 7%.

Oh, and this one always comes up:

"Save it all in case of emergencies."
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Old 01-20-2013, 10:46 PM   #28
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Originally Posted by fstime View Post
30 year mortgage is basically a death loan, good luck. You also end up paying double in interest compared to a 15 year. Have fun working for the bank. Now if that debt is from investment property which is generating a healthy 10% return fine. On a primary residence, no thanks.

American society has sold so many sheep into thinking debt is normal when that is far from the truth.

Want a car? -Debt

Want a college education? -Debt

Want a house? -Debt

It is what keeps you enslaved and working until your death to pay off.

Don't forget to give any spare cash to a investment broker, he won't lose it, trust me.
You know you don't have to take 30 years to pay a 30 year mortgage right? You can pay it off in 15 years just the same as a 15 year mortgage, but if something comes up, you have the option to make the smaller payment.
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Old 01-20-2013, 10:50 PM   #29
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You know you don't have to take 30 years to pay a 30 year mortgage right? You can pay it off in 15 years just the same as a 15 year mortgage, but if something comes up, you have the option to make the smaller payment.
That's what they all say they plan on doing, rarely ends up being the case.

The entire "everyone should own a home American dream" is a scam.

When purchasing a primary residence, you look at the numbers logically like you would any other business transaction.

Unfortunately, the sheep mentality had people earning $10/Walmart thinking they should purchase a $400,000 home during the bubble.
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Old 01-20-2013, 11:04 PM   #30
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I have about 750K debt at under 5.

My goal is make my money make more money for me. I'll be retiring before age 50.

I laugh at suckers doing a 15 year mortgage or paying down their home.

Fool and his money they say.
I'm skeptical that I would come out ahead by investing.
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Old 01-20-2013, 11:12 PM   #31
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OP, If I was you, I would do this. First of all. Get an emergency fund pronto.

Then pay off the highest % loan then the one behind it (% speaking) until you are done. Then save your money and here is why.

The highest return with FDIC insurance is around 4.xx% (reward checking accounts) IIRC so if your loan rate is higher than that, you are losing money.
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Old 01-21-2013, 01:35 AM   #32
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Except that now I own my home outright and should my situation change and I have no job, I no longer have to worry about how I'm going to afford my mortgage, a bank foreclosing on my house, how I'm going to pay the bills, etc.

I have $0 debt at under anything, and I'll be retired at 40...well, I'd be able to. I like working so it'll probably be 50-55. I laugh at suckers with debt.
Ugh, if you are going to default on your mortgage if you lose your job you probably shouldn't have bought the house in the first place.
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Old 01-21-2013, 02:03 AM   #33
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I would pay off your loans first because 6% and 8% is nothing to scoff at, and the amount you owe is not that much to justify this dilemma over whether to pay it off or not.
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Old 01-21-2013, 08:40 AM   #34
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Pay off the 1k. Make minimum payments on the 4k and put the difference in your 401k or IRA.

When I graduated I had the same question. I searched a lot and found that minimum payments on the student loans and the difference in my 401k or IRA was best. That's what I've done. I'm glad I did. Year by year my returns have been 2.5~3.2x greater then my student loan interest rates. Since inception my returns have been 3x greater overall then my student loans. When I look at the interest I paid versus the gains I've had I'm so glad I followed that advice which was the general consensus of financial sites.

Your 6.8% will be lower too when you deduct the interest paid in your taxes. I pay off all the interest before the end of the year for claim it in taxes. FYI, I didn't even take that into consideration when figuring 3x greater.

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Old 01-21-2013, 12:39 PM   #35
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Ugh, if you are going to default on your mortgage if you lose your job you probably shouldn't have bought the house in the first place.
I kind of agree, but the problem is that there are places in the US where one employer has virtually all of the jobs of a certain type. If that employer goes under or consolidates offices, it can be very difficult to find equally gainful employment elsewhere in the area.
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Old 01-21-2013, 12:45 PM   #36
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Ugh, if you are going to default on your mortgage if you lose your job you probably shouldn't have bought the house in the first place.
Most likey, but my point is...the unexpected could happen and your once comfy situation - even with that 6-12mo emergency fund - could change quickly and dramatically placing you in a situation where you can't pay your debts. I see paying off your debts the same as insurance, except you aren't throwing money away.
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Old 01-21-2013, 01:09 PM   #37
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I say be debt free first then invest the disposable income.
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Old 01-21-2013, 01:21 PM   #38
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And what is your secret to making money when you have 3 quarter million in debt? This sounds more like bankruptcy material than money making material. I don't even know how one manages to get that deep into debt in first place. At some point, banks say no.
You can borrow $1M at 5% and invest it at 8%, and you're making 3% on $1M for doing nothing.

You can do better if you can get your hands on a $10M loan. Yes, you are $10M in debt, but you have $10M in assets to offset it.

Spidey may owe $750k, but he likely has more than that in assets. It's not like he owns nothing and owes some loan shark $750k.

Banks won't say no if you have the collateral. If Warren Buffet wanted to borrow $500M from a bank, they'd all line up to give it to him. Sure, he goes into debt for $500M, but it's not like he'd be poor, or about to go bankrupt.
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Old 01-21-2013, 01:23 PM   #39
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You can borrow $1M at 5% and invest it at 8%, and you're making 3% on $1M for doing nothing.

You can do better if you can get your hands on a $10M loan. Yes, you are $10M in debt, but you have $10M in assets to offset it.

Spidey may owe $750k, but he likely has more than that in assets. It's not like he owns nothing and owes some loan shark $750k.

Banks won't say no if you have the collateral. If Warren Buffet wanted to borrow $500M from a bank, they'd all line up to give it to him. Sure, he goes into debt for $500M, but it's not like he'd be poor, or about to go bankrupt.
It's still a stupid ass idea to take a loan for money to invest.
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Old 01-21-2013, 01:55 PM   #40
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It's still a stupid ass idea to take a loan for money to invest.
Well, the trick would be to find some way to get a good return. I've gotten lucky before, buying Sirius XM stock at $0.14 (unfortunately I didn't buy much, but I thought about dropping $10K on it), but that's really rare.

If Spidey can get an 8% return, more power to him. I'm not willing to bet my savings.
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Old 01-21-2013, 01:55 PM   #41
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It's still a stupid ass idea to take a loan for money to invest.
It's called leverage. Virtually every business in the world does this. It's risky yes, and banks won't generally loan you $50k to invest in stocks without some collateral behind it, but it can be done if you take out an equity loan on your house.
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Old 01-21-2013, 01:59 PM   #42
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You can borrow $1M at 5% and invest it at 8%, and you're making 3% on $1M for doing nothing.
Where are you going to get a 8% return for sure? I am listening. And the stock market is risky and not a given 8%.
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Old 01-21-2013, 02:21 PM   #43
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Where are you going to get a 8% return for sure? I am listening. And the stock market is risky and not a given 8%.
That's what I'm wondering. I'd prefer to invest if I could find something reasonably safe.
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Old 01-21-2013, 02:22 PM   #44
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Where are you going to get a 8% return for sure? I am listening. And the stock market is risky and not a given 8%.
Nothing is for sure. In general, the stock market returns 10% over a long time. You have to be able to ride out the slow years, but over time you'll get 10% on average.

Also, the more money you have, the more certain you can be of your returns as you'll be diversified and be able to access investing instruments that us commoners don't have access to.
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Old 01-21-2013, 02:24 PM   #45
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It's called leverage. Virtually every business in the world does this. It's risky yes, and banks won't generally loan you $50k to invest in stocks without some collateral behind it, but it can be done if you take out an equity loan on your house.
That's like taking a loan out to go to the casino and play blackjack with and putting your house as collateral.
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Old 01-21-2013, 02:53 PM   #46
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I recently had this same situation pretty much. Two debts and an unexpected bonus that would cover both and leave money on the table. I chose to pay the debts including my student loans.

Investment money is great and all, but not having to may the federal government every month for my education was well worth the payout.
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Old 01-21-2013, 03:02 PM   #47
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That's like taking a loan out to go to the casino and play blackjack with and putting your house as collateral.
Actually, it's more like taking out a loan to start a casino. Which people do.

With the stock market, if you hold long enough, you are pretty much guaranteed to get a positive return. When you play blackjack, you are pretty much guaranteed to lose over time (and the casino wins).

This is why people who "invest" and do okay think they are smarter than they are. If you aren't beating the S&P500, you are doing poorly. If you are beating the S&P500, you are probably just a little lucky. If you consistently outperform the S&P, you are doing well.
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Old 01-21-2013, 03:47 PM   #48
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Nothing is for sure. In general, the stock market returns 10% over a long time. You have to be able to ride out the slow years, but over time you'll get 10% on average.

Also, the more money you have, the more certain you can be of your returns as you'll be diversified and be able to access investing instruments that us commoners don't have access to.
I'm pretty sure the long-term average is more like 8% (in the U.S.), and then you have to factor in inflation and taxes to calculate a net rate of return.

Paying off the 8 and 6.8% loans ASAP is pretty much a no-brainer unless the OP is a strong stock-picker. In which case he probably wouldn't be asking us the question.

Finally, buy and hold really takes decades to be successful. Over say the past 14 years, you would've had to absorb two market crashes.
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Old 01-21-2013, 06:49 PM   #49
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Nothing is for sure. In general, the stock market returns 10% over a long time. You have to be able to ride out the slow years, but over time you'll get 10% on average.

Also, the more money you have, the more certain you can be of your returns as you'll be diversified and be able to access investing instruments that us commoners don't have access to.
10% per year? The S&P 500 is at 1485.98 right now. For it to return 10% per year over the next 30 years, it would have to end up at 25929.46 in 2043. I just can't believe that will happen barring some massive inflation. I can't see the US economy growing that much.
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Old 01-21-2013, 07:05 PM   #50
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I'm pretty sure the long-term average is more like 8% (in the U.S.), and then you have to factor in inflation and taxes to calculate a net rate of return.

Paying off the 8 and 6.8% loans ASAP is pretty much a no-brainer unless the OP is a strong stock-picker. In which case he probably wouldn't be asking us the question.

Finally, buy and hold really takes decades to be successful. Over say the past 14 years, you would've had to absorb two market crashes.
So given that. Why wouldn't you mortgage 30 year at 3.5%, not even counting tax deductions? It's like free money.

I maxed out a non jumbo loan and a fat heloc.

The name of the game is net worth and making your money make more for you.
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