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Note that this will be capped at interest on a value of $750k for houses bought starting this year, so less than before. I think the leverage angle is ignoring

Note that this will be capped at interest on a value of $750k for houses bought starting this year, so less than before. I think the leverage angle is ignoring the fact that your equity can be wiped as well in a downturn. It's unlikely my index fund will go to zero (and if it does, we'll probably have bigger problems on our hands).

phamilton 8y ago
> leverage angle is ignoring the fact that your equity can be wiped as well in a downturn I call that out when talking about "no recourse". If you leverage 5X in the stock market and invest $1M in index funds and the market drops by 30%, you are on the hook for the $100k beyond your $200k you lost. If you leverage 5X in a personal residence and the market drops by 30% (and you live in a no-recourse state), then you mail the keys to the bank and walk away. Very unique situation.
- dash2 8y ago
  > If you leverage 5X in a personal residence and the market drops by 30% (and you live in a no-recourse state), then you mail the keys to the bank and walk away. Very unique situation. But that seems dishonest.
  - Redoubts 8y ago
    Why? Lending is a risk on both ends.
  - phamilton 8y ago
    I absolutely agree it seems dishonest. But at the same time, it's in the contract. I'm aware of it, the bank is aware of it. They won't hesitate to foreclose on me if it's in their best interest according to the terms of the contract. Should I hesitate to take the action that is in my best interest?
  - rlpb 8y ago
    > But that seems dishonest. It's not. The bank has calculated and accepted the risk and factored it into your interest rate and other charges. Considering it to be dishonest is financially equivalent to considering a (not fraudulent) insurance payout to be dishonest. Think about it this way. The bank has effectively bought an insurance policy to protect itself against this event and is paying the premium out of your interest charges. Now does it seem dishonest?
    - zrail 8y ago
      In the US if you put down less than 20% the bank literally takes out an insurance policy called Primary Mortgage Insurnace for this risk and makes you pay for it.
    - rsync 8y ago
      "It's not. The bank has calculated and accepted the risk and factored it into your interest rate and other charges. Considering it to be dishonest is financially equivalent to considering a (not fraudulent) insurance payout to be dishonest." That's not a true equivalency. Unless your loan has language or provisions for "mailing back the keys", doing so is an act of default and regardless of how well (or poorly) the lender(s) has/have hedged against the default you are breaking the agreement. A real equivalency is stealing from walmart "because they can afford it". You shouldn't do that and you also shouldn't default on agreements you enter into.
      - phamilton 8y ago
        > A real equivalency is stealing from walmart "because they can afford it" That's not a real equivalent at all. Walmart could press charges and recoup their loss through legal action. Stealing from Walmart is illegal. Defaulting on a contract is not illegal. That's precisely why we have contracts in the first place. It spells out what would happen in a default, and both parties voluntarily enter into the agreement. If one party is not happy with the terms of default then they shouldn't sign the contract. In a no recourse default, it is literally spelled out in the contract: "If you default, the lender will not be come after your other assets".
      - 8y ago
  - hueving 8y ago
    It's called a put option in the stock market. In this case its priced into the risk of your loan and you bought it by being in the state and taking a loan there.

phamilton 8y ago

> leverage angle is ignoring the fact that your equity can be wiped as well in a downturn I call that out when talking about "no recourse". If you leverage 5X in the stock market and invest $1M in index funds and the market drops by 30%, you are on the hook for the $100k beyond your $200k you lost. If you leverage 5X in a personal residence and the market drops by 30% (and you live in a no-recourse state), then you mail the keys to the bank and walk away. Very unique situation.

dash2 8y ago
> If you leverage 5X in a personal residence and the market drops by 30% (and you live in a no-recourse state), then you mail the keys to the bank and walk away. Very unique situation. But that seems dishonest.
- Redoubts 8y ago
  Why? Lending is a risk on both ends.
- phamilton 8y ago
  I absolutely agree it seems dishonest. But at the same time, it's in the contract. I'm aware of it, the bank is aware of it. They won't hesitate to foreclose on me if it's in their best interest according to the terms of the contract. Should I hesitate to take the action that is in my best interest?
- rlpb 8y ago
  > But that seems dishonest. It's not. The bank has calculated and accepted the risk and factored it into your interest rate and other charges. Considering it to be dishonest is financially equivalent to considering a (not fraudulent) insurance payout to be dishonest. Think about it this way. The bank has effectively bought an insurance policy to protect itself against this event and is paying the premium out of your interest charges. Now does it seem dishonest?
  - zrail 8y ago
    In the US if you put down less than 20% the bank literally takes out an insurance policy called Primary Mortgage Insurnace for this risk and makes you pay for it.
  - rsync 8y ago
    "It's not. The bank has calculated and accepted the risk and factored it into your interest rate and other charges. Considering it to be dishonest is financially equivalent to considering a (not fraudulent) insurance payout to be dishonest." That's not a true equivalency. Unless your loan has language or provisions for "mailing back the keys", doing so is an act of default and regardless of how well (or poorly) the lender(s) has/have hedged against the default you are breaking the agreement. A real equivalency is stealing from walmart "because they can afford it". You shouldn't do that and you also shouldn't default on agreements you enter into.
    - phamilton 8y ago
      > A real equivalency is stealing from walmart "because they can afford it" That's not a real equivalent at all. Walmart could press charges and recoup their loss through legal action. Stealing from Walmart is illegal. Defaulting on a contract is not illegal. That's precisely why we have contracts in the first place. It spells out what would happen in a default, and both parties voluntarily enter into the agreement. If one party is not happy with the terms of default then they shouldn't sign the contract. In a no recourse default, it is literally spelled out in the contract: "If you default, the lender will not be come after your other assets".
    - 8y ago
- hueving 8y ago
  It's called a put option in the stock market. In this case its priced into the risk of your loan and you bought it by being in the state and taking a loan there.