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I don't think all debt is equal, and I don't think all debt hurts your ability to handle volatility. I have a 30 year mortgage on my house with a 2.75% interes

• galdosdi 3y ago
  The way I think about this is: You already are in "debt" by being alive. You have the huge liabilities of needing food and housing and maybe sometimes some healthcare, in order to stay alive. By buying a perpetual source of one of those you aren't investing or expanding your liabilities-- just the opposite, you are hedging against and closing out your liability by prepaying for it. To take this idea further, this is why I think buying a little bit of stock in energy and agriculture companies is "risk free" because while they could go down if those things get cheaper, you would then win out as a consumer. You will need food and energy down the line anyway, so a modest investment in those closes out that hedge rather than expanding liability
  • anon7725 3y ago
    There are lots of ways that stock in food and energy companies could go down while prices go up. A drought or pipeline disruption come to mind.
    • yowlingcat 3y ago
      Absolutely. And I think the same is true for the commodities market correlates there; if memory serves correctly, crude commodity futures went negative for a break period during the supply chain volatility spike during the beginning of the pandemic.
      • mlrtime 3y ago
        You are correct, for oil contracts near expiration. All oil containers (in certain areas) were full, so anyone taking delivery would need a place to store the oil. The market needed a way to transfer this risk (risk of delivery) so prices went negative meaning you were paid to find a place for the oil. It's really neat actually and shows how almost all of the financial system is really a big "risk transfer" mechanism.
• vlunkr 3y ago
  I tend to agree with Dave Ramsey on this point. A home loan is just about the only “good” type of debt for an individual to have. Because it tends to retain or gain value with little risk. He also recommends a 15 year loan instead of 30, which has been amazing for me.
  • tombert 3y ago
    I thought Dave Ramsey was pretty much completely wrong about student loan debt, at least if I remember his position on it being "you shouldn't have student loans". But I agree that most debt is probably bad to have.
    • CalRobert 3y ago
      It might be extreme but 15 years ago he was telling people not to be so flippant about taking on enormous amounts of debt for degrees with a questionable payback and I think he was right. I always thought the snowball method was dumb but as time goes on I can see how it makes sense psychologically, even if not mathematically.
      • tombert 3y ago
        Sure, I've said a few negative things about Ivy Leagues being overpriced here in the last few weeks, so I'm not saying you should necessarily get into $400,000 of student loan debt. What I didn't like about his take was that it also kind of also excluded getting into like $20,000-$40,000 of debt to go to a decent state school. That's a bad take; getting a degree (at least in a technical field) substantially increases your earning potential, and while $40,000 is a lot of money, it's not out of reach for virtually anyone working in tech or engineering or something adjacent, at least not in the US. I guess my frustration with his perspective is that it felt extremely reductive; he acts like the only student loan debt you can get into is Harvard-level stuff, but I think that's just not true, and not even the average case. Most people don't get into Harvard, (I think) most people who go to college end up at a state or local university, and as such they're not getting into the obscene levels of debt that you'd get from these yuppie private schools, particularly if they state within state.
• leononame 3y ago
  I think the article still holds up. A financial crisis where you lose your job, a war causing deflation, a housing bubble bursting are all events that could lead to you paying _much_ more than rent. If you can't pay, they'll take your house and everything else until they decide that the debt is paid. In case of a bubble bursting this can mean that you _still_ owe money after they took your house. This has happened to people. I also have a mortgage on my apartment and I also think it's a decent choice, especially considering that I'll have less income after retirement. But most people are only a couple of bad turns in life away of losing everything they own. All in all, I'd say the way to think this article presents does hold up to mortgage as well.
  • dmoy 3y ago
    > and everything else Unless you live in a no-recourse state, where they can't take everything else. In AZ, CA, TX, WA, and a handful of other states, banks can't go after your other assets, just the house that's mortgaged.
    • trogdor 3y ago
      Interesting. Do you know if mortgage rates in those states are higher, to compensate lenders for the increased risk?
      • dmoy 3y ago
        I think it matters a lot more for commercial mortgages. In any event, it's like 20-30bps or less according to the Fed. So higher, but not that much higher even for commercial mortgages, and even less for residential where there's a lot more federal protection going on. The bigger impact, I believe, is that housing prices can go more crazy. People will take more risk if they know they can walk and leave the bank holding the bag, so there isn't that limiting factor on prices. (Though I suspect, but obviously can't confirm, that the effect from non-recourse mortgage is absolutely dwarfed by other factors, especially out here on the west coast where we have very restrictive zoning policies, weaponized environmental policies inside urban areas, etc)
      • 3y ago
• deadbabe 3y ago
  Are you going to live in that house for 30 years? What’s your plan when you need to move?
  • coldpie 3y ago
    Sure, why not? I can't speak for OP specifically, but generally living in the same house for decades is very common. I'm coming up on 15 years in my house with no plans to move, and most of my neighbors have been there even longer. My parents lived in the house I grew up in for 40 years until my father passed away and my mom needed to downsize. In any case, if they move, then the price of the home they are selling will have gone up (or down) more or less the same as everyone else's, so it basically works out to a wash.
  • tombert 3y ago
    Even if I don't stay in the house for thirty years, it's still better as long as I stay for awhile. When I'm paying my mortgage payments, I'm building some degree of equity into the house, so the only "wasted" money is whatever I pay to interest. So my plan if I move is exactly what it sounds like: I sell the house and then buy a new one wherever I'm moving to. As long as I'm staying for like 5+ years at that location I think it's still worth it.
  • psunavy03 3y ago
    The purpose of a 30-year fixed mortgage is to build up equity in a home you otherwise couldn't afford. If OP moves, they now only have to take on a smaller mortgage for their new home and then keep paying that new mortgage off. The goal is that by the time you reach retirement age, you have paid off the mortgage and own your home free and clear. Thus, you only have to pay the property taxes and have more financial security than someone who never built up equity because they always paid rent. Furthermore, if you have children, that home is potentially a source of generational wealth. They can sell it after you pass and invest the proceeds, or live in it themselves if they want. Worst case, if you find you didn't save enough for retirement, you can tap into the home equity to keep food on the table, although this is not optimal.
    • 3y ago
• francisofascii 3y ago
  People don't realize how risky housing is compared to other investments. It is risky because it is SO MUCH MONEY and it is not diversified at all. If your house loses half its value, that represents hundreds of thousands in losses. And don't think that can't happen. You buy a penny stock for $2K and lose half, no big deal compared to your house. BUT, we need housing, we need a stable school for our kids, or a comfortable place for our partner, etc. So we have to take this risk.
  • dehrmann 3y ago
    If you ask a financial advisor for advice on investing half your net worth on 5x leverage in an liquid asset with one customer and one location, they'd think you're crazy.
    • edmundsauto 3y ago
      But most of them would not think you’re crazy once it’s specified to real estate. This means either financial professionals are blind to the similarities or there is something critical missing from your description.
      • dehrmann 3y ago
        It's that people have an irrational emotional attachment to homes and financial advisors know they wouldn't be in business if they told prospective homeowner to put the money in an index fund. Where owning a home wins is it forces people to set aside income and put it in an asset rather than spend it, but there are other ways to do this.
        • edmundsauto 3y ago
          I think it’s a lot more nuanced than that. Leverage is great, being able to do what you want to your living space has value. It also locks in your housing costs. There are tax advantages. It’s not just a forced savings plan. That isn’t to say it’s for everyone, but it’s important to get the nuance. (Also, it’s not really fair to say an “irrational” emotional attachment - that attachment can generate great joy and a sense of ownership, those are real things and not irrational even if they don’t make someone more money. It’s totally rational to optimize for things outside of money!)
• throw0101d 3y ago
  > I have a 30 year mortgage on my house with a 2.75% interest rate. The author on paying down his mortgage: > It just increased our independence, even if it made no sense on paper. So that's another element of debt that I think goes misunderstood. And a lot of that for both of those points is this idea that people don't make financial decisions on a spreadsheet. They don't make them in Excel. They make financial decisions at the dinner table. That's where they're talking about their goals and their own different personalities and their own unique fears and their own unique skills and whatnot. So that's why I kind of push people to say like, it's okay to make financial decisions that don't make any sense on paper if they work for you, if they check the boxes of your psychology and your goals that makes sense for you. And for me, extreme aversion, what looks like an irrational aversion today, and I would say is an irrational aversion to debt, is what works for me and what makes me happy, so that's why I've done it. * https://rationalreminder.ca/podcast/128 https://rationalreminder.ca/podcast/128 * https://www.youtube.com/watch?v=NSaRb-iFwPA https://www.youtube.com/watch?v=NSaRb-iFwPA
• eadmund 3y ago
  > outside of a potential rise of property taxes, my "rent" payment will not exceed a certain number of dollars And home insurance, too. But generally, yes: over the course of decades an American fixed-rate mortgage really is a wonderful thing. There is also the possibility of deflation to worry about, although deflation comes with many other problems. I personally think that worrying about deflation is like worrying about a meteor, or the collapse of the local government: if it happens, so many other bad things will also happen that my mortgage will be the least of my concerns.
  • fire_lake 3y ago
    You probably paid more for the house due to the government intervention in the mortgage market, although that likely raised the rents similarly.
• recursivedoubts 3y ago
  debt for housing, which is a depreciating asset in normal times (housing wears out, land may become more expensive) is not a great idea, but it has been normalized and when you have negative real rates & inflationary policies, as we had for over a decade, it can make a lot of sense debt for productive activity in general makes sense if it isn't compounding (mortgages act like simple interest, btw, although it's complicated since you pay more interest at the start of the loan and so if you move within the first five years you've paid almost entirely interest on the home) debt for consumption is always parasitic that's why it's insane how hard it is to get a business loan and how easy it is to get a credit card: usurers want suckers, not shared risk on productive investments
  • anon7725 3y ago
    > debt for housing, which is a depreciating asset in normal times (housing wears out, land may become more expensive) is not a great idea, but it has been normalized and when you have negative real rates & inflationary policies, as we had for over a decade, it can make a lot of sense Has there been a 20 year stretch of time in the US in which housing is broadly a depreciating asset? Seems that land is definitely, and housing for the most part, an appreciating asset over time due to scarcity.
    • aworks 3y ago
      I'm not answering your direct question but for reasons, I'm interested in Indiana farm land in the 1920s and 1930s. From a peak in 1920, price per acre was down 2/3rds and didn't fully recover until 1948. The Great Depression started early for farmers... https://ag.purdue.edu/commercialag/home/resource/2023/08/the-index-of-indiana-farm-real-estate/ https://ag.purdue.edu/commercialag/home/resource/2023/08/the...
      • pixl97 3y ago
        Not sure if farmland to housing land is a 1:1 comparison in many places. Where you can dig well (and hopefully get safe water) and use septic it may be as you can get power almost anywhere, but some places require utilities which increases prices significantly
• phaedrus 3y ago
  Besides taxes, there is another sense in which outside circumstances can break your "rent control" model of home ownership with 30 year mortgage. Here in Oklahoma, insurance rates have skyrocketed in the last couple years. I now pay more in homeowner's insurance monthly than either my principle or interest payment (though perhaps not both together - yet). And I have a 4.something% mortgage. I suspect it has or will soon reach the point where the Kelly criterion says mathematically I'd be better off to self-insure - if I didn't have a bank loan. It's not just insurance (which is likely also weather-related); after a fluke super-cold Winter we had, our natural gas companies incurred a huge wholesale market bill which they've passed on to customers. I have a family member who owns his house free and clear whose gas bill went up so much he could no longer afford to heat his house. The gas company still tried / is trying to assess a one-time very large retroactive fixed fee even though he turned off his gas. My point, I guess, being even homeowners are not totally insulated from being screwed over by outside market forces.
  • GenerocUsername 3y ago
    You don't HAVE to carry home insurance do you? You can also change policies for different levels of insurance at any time. It's not exactly a debt, but an ongoing service
    • dhosek 3y ago
      If you have a mortgage, you are required to insure the building at the least.
    • quadyeast 3y ago
      Banks want to insure the collateral.
      • HeyLaughingBoy 3y ago
        To the point where if they're notified that your insurance has lapsed, they will warn you to get replacement coverage, or they will and then bill you for it. I had a not so fun experience with switching insurance providers at about the same time that my bank was about to make the insurance payment out of escrow.
• oooyay 3y ago
  > I have a 30 year mortgage on my house with a 2.75% interest rate. That has effectively given myself "rent control" This only works in places with fixed property tax. When I lived in Texas my property tax went up hand over fist every year as my property increased in value and automatic reassessments occurred. If your salary remains relatively stagnant and does not increase with cost of living (most salaries are subject to this) then you can certainly find yourself being subject to nuevo rent rates as a long time mortgage holder. I do agree with you that different types of debt should be classified differently.
  • milkytron 3y ago
    I've experienced this. My property taxes have gone up maybe 30% in the past few years. My income has increased pretty substantially, so it's not like I'm unable to pay for the increases. Compared to rent though, and having a mortgage where every month the amount of principle paid off increases, it still seems like the better option. Rent has increased 30-50% where I live over the same time period. At least when my property tax increases, it's because I have an asset that has increased in value. If I am at some point forced to sell because I can no longer afford the property taxes, then I'll walk away with more money than if I had been paying rent for those same years. Property taxes can force the same type of relocation that rent increases cause, but I think the typical outcome from someone being forced out by rising property taxes will be better than the person forced out by rising rents.
  • tombert 3y ago
    Fair enough, there’s a maximum that they are allowed to raise property taxes in NYC (6% in a year, 20% over five years); my rates will eventually go up, but not super fast.
    • oooyay 3y ago
      Yeap! We're subject to a similar maximum in Portland. It was one of the aspects of government I specifically shopped for before we relocated. I did wish I'd looked more into the ever-expanding income tax we have at the city, county, and state levels but that's a different cost structure that's only significantly worse when factoring in Trump era tax reform.
• chinchilla2020 3y ago
  Covid is one example. The PPP loans provided by the federal government to businesses were forgiven. That sort of stimulus, combined with massive inflation, is favorable to a debtor, not a saver. For many, taking on debt in 2018 to buy a house for 200k would have paid off greatly by selling in 2022 for 500k. In an inflationary environment, you should grab as much cheap debt as possible.
• hndamien 3y ago
  Australia is practically all variable rates after 3 years, so not much is really "locked in"
• throwaway2037 3y ago
  You are overlooking the scenario where home prices fall. Yes, your monthly payments will be fixed, but your asset will be falling in value.