3 ms·

> Is that somehow "smart debt"? Really? What's so smart about it? Regarding a mortgage and 2 car loans, I'd like to offer a defense of why it's smart / good de

by kenrose 12y ago

> Is that somehow "smart debt"? Really? What's so smart about it? Regarding a mortgage and 2 car loans, I'd like to offer a defense of why it's smart / good debt. The primary reason that your mortgage is considered "good debt" is because the asset you purchase with that debt (your house) will typically appreciate faster than the interest you pay. I'm not including black swan events like the 2008 crisis. When you eventually sell, you'll be in the black. Regarding car loans, the only type of "smart" car loan is 0% financing. A 0% loan lets you keep your money in your pocket for longer (and in that time, you can invest it however you see fit). 0% loans can be found depending on when you see the dealer. End of the month? Quota wasn't reached yet? Perfect time to negotiate. I'm certain jaquesm's point is that lots of people get in over their head with their purchases, especially large purchases like homes and vehicles. However, DontBeADick's point has some validity: Taking on debt can allow you to realize further gains than you would have otherwise seen (basic leverage).

webwright 12y ago
"The primary reason that your mortgage is considered "good debt" is because the asset you purchase with that debt (your house) will typically appreciate faster than the interest you pay." Any money manager will tell you that what you just said is false. Excepting a few cities, when you look at the data and adjust for inflation, owning a house is not a particularly good investment ( http://files.foreclosureradar.com/images/foreclosuretruth/History-of-home-values.gif http://files.foreclosureradar.com/images/foreclosuretruth/Hi... ). Add in that the average home loan lasts about 6ish years before folks sell/refi, the fact that interest/fees are front-loaded into the first 5 years of the loan, and that avg. annual maintenance on a house (NOT improvements) tend to average about 1% of the value of the home per year, it gets worse. What it CAN be (if you're disciplined and lucky) is leverage and liquidity. Example: I have my house paid off. I get a mortgage on it, essentially getting a loan at 4% for $700k. Now I have $700k that I can make work for me-- a worthwhile idea if I can find a way to make more than 4% on that $700k via other investments (which are not remotely risk-free, but can pay off). Of course, what most people do when they re-fi their house is self-indulgent stuff-- buying a vacation home, a boat, home improvements that don't pay for themselves, etc.
- seanflyon 12y ago
  It is fair to count maintenance as a cost but it is also fair to count rent you don't have to pay as a savings. Compare (+equity -mortgage -maintenance -taxes) to (-rent)

by kenrose 12y ago

webwright 12y ago

"The primary reason that your mortgage is considered "good debt" is because the asset you purchase with that debt (your house) will typically appreciate faster than the interest you pay." Any money manager will tell you that what you just said is false. Excepting a few cities, when you look at the data and adjust for inflation, owning a house is not a particularly good investment ( http://files.foreclosureradar.com/images/foreclosuretruth/History-of-home-values.gif http://files.foreclosureradar.com/images/foreclosuretruth/Hi... ). Add in that the average home loan lasts about 6ish years before folks sell/refi, the fact that interest/fees are front-loaded into the first 5 years of the loan, and that avg. annual maintenance on a house (NOT improvements) tend to average about 1% of the value of the home per year, it gets worse. What it CAN be (if you're disciplined and lucky) is leverage and liquidity. Example: I have my house paid off. I get a mortgage on it, essentially getting a loan at 4% for $700k. Now I have $700k that I can make work for me-- a worthwhile idea if I can find a way to make more than 4% on that $700k via other investments (which are not remotely risk-free, but can pay off). Of course, what most people do when they re-fi their house is self-indulgent stuff-- buying a vacation home, a boat, home improvements that don't pay for themselves, etc.

seanflyon 12y ago
It is fair to count maintenance as a cost but it is also fair to count rent you don't have to pay as a savings. Compare (+equity -mortgage -maintenance -taxes) to (-rent)