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Yes. If I had 1M in the bank and went to buy a 500k house, and was offered like a 3% APR loan, would I take it? Yes. Reasons being: 1) I can make 5-6% return
by brianwawok 5y ago
Yes. If I had 1M in the bank and went to buy a 500k house, and was offered like a 3% APR loan, would I take it? Yes. Reasons being:
1) I can make 5-6% return with my money. So I can pay the interest and still come out ahead.
2) That mortgage interest is tax deductible, so it costs a little bit less than 3%, maybe only 2.5% to me
3) Real estate market crashes and house is worth 200k? Especially in a no-recourse state, you can leave the keys and walk. The bank takes on the downside risk of your house, not you.
- SketchySeaBeast 5y agoArgument #1 is a "should", not a "will", so there's definitely risk there. Considering the average stock market gain is something like 10% and we're sitting at way over that, it would stand to reason that if that average holds at some point we're going to get below average performance. It's a gamble. Regarding #3 - doesn't that do a number on your credit? And how many states are non Recourse? As I understand it here in Canada those agencies that backed your loan (the bank or the CMHC) will attempt to recoup their losses by taking you to court if they have to.
- brianwawok 5y ago1) Sure, always a risk. 3) > Home mortgages—though generally recourse—are non-recourse in 12 states: Alaska, Arizona, California, Connecticut, Idaho, Minnesota, North Carolina, North Dakota, Oregon, Texas, Utah and Washington. If a homeowner defaults in one of these states, the lender can foreclose on the collateralized home but cannot go after the borrower’s other assets. Generally taking a credit hit for a few 100k is a fine trade off. You can even buy a new house right before you walk away from your old house..