I fail to see your logic. If they loan me $15000 @ 0% for 14 months, and I invest it at 5%, I net nearly $1000 for using their money for free for 14 months. Its win/win for me.
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Bank Of America on crack?
- Thread starter DarnYankeeUSMC
- Start date
I fail to see your logic. If they loan me $15000 @ 0% for 14 months, and I invest it at 5%, I net nearly $1000 for using their money for free for 14 months. Its win/win for me.
It sounds like you need to go take a Finance and Econ 101 course at your local community college.
It costs money, to use money. That is what interest is. It is the vig for being able to use someone elses money. So in essense 0% , is a free loan. It would be like me giving you a free car and gas for 14 months and at the end, all you have to do is give it back. ALLWAYS Take FREE MONEY. Even if you throw it into a savings account at .25% or .025% interest, you are making money. Buying something conservitive like Bonds or Money Market's have a lower return but also little/no short term risk.
If I can make 15% on any money I invest, and I can borrow it for 5%, how much should I borrow? Thats like me saying If you hand me a $5 bill and I hand you a $20 bill right back, how many $5 bills would you give me? EVERY FUCKING ONE YOU CAN GET YOUR HANDS ON. What do you think companies do when they borrow money from the bank for a loan? Same exact thing.
And here is a little piece of advice. You down' OWN your propperty. In fact no one does but the Government. You may have unwisely paid off a house (ignoring lost oppertunity cost, time value of money,ect) but you don't own it. Miss a tax payment and let me know how that works. Let the local Country/State/Fed decide that your house would make a great exit ramp or the parking lot of a new hospital and it will taken right from under you by eminent domain. You simply have use rights for your propperty, and you aren't even at the top of the chain. You are somewhere between the utility companies and a cattle grazer.
Had you forgone paying off your house and invested it , you could have had a much higher net worth, and not most of your capital tied up into a non income producing quasi-asset(many people do not consider primary residence to be an asset).
The reality is, you are only hurting yourself. You do not have the financial literecy to understand just how (in your words) moronic what you are saying is. The best thing you could do at this point, is forgo everything you think you know about money/finance and take some remedia level finance courses at your local CC.
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There is no logic to his statements, just ignorance on the subject. Hopefully he will take the advise and learn something.
No way im taking advice from guys that think paying off my house is a dumb idea.
If you can GUARANTEE that I could borrow money at zero interest and invest it at a GUANTEED rate of return I *might* concede your point. However there is no guarantee in investing. If you mis-time the market and youre at a down cycle at the end of your zero interest term, then your principle is worth less than what you need to pay back the loan. Now you cant pay back the loan, the CC is now charging you 16 - 18 % interest on you wonderful investment youre making 6% on and youre in the hole.
CC, trying to talk sense into you is like talking to a rock, but WTF are you talking about!? If I have a house payment Im PAYING the bank money that I *could* be putting into a good mutual fund and MAKING money. How am I 'tying up my capital'? Im FREEING up ALL my capital for investing for myself!
Bottom line, for me, is I don't owe anybody anything. I can invest and give at will. And I have little financial risk in my life right now. Im good.
You guys can do what you want with your money. Good luck.
Figured you would eventually have to resort to something like that when you couldn't answer a logical question.
Don't worry you wouldnt understand anyway. Your first posts show complete lack of understanding.
Yes Paying off a house is a "dumb" idea. Dumb unless you are stupid and lazy and wish to live poorer than you could be.
That is your choice, but don't tell other people that they should do it. I don't know a competent financial advisor (I was one for a few years, interned as one for 2 years and have a BS in Finance/Investments from one of the top Business schools on the east coast) who would reccomend what you say. I hear the same stupidity all the time from people like my mother or friends or family, who just don't understand money. Then when a crissis hits or some unforseen financal expense comes alone, they are fucked. They might even lose their house and all their equity in a shitty housing market. They will lose everything. There are guys with enough money to pay for their houses 10 times over, and they still carry a note. This is done for a reason.
Thats kind of stating the obvious. If you are scared to take any ammount of risk, might as well suck start a shotgun as life is not going to get any easier.
Now I never attended B-school, I'm a dumb pilot with a degree in flying airplanes, and only made it part way through MBA classes before life got in the way...but I have to ask:
What happens when Uncle Sugar reduces or eliminates the mortgage interest deduction?
Yes, I understand that's not the principal argument at hand here...but it is the one that most non-finance/accounting people always fall back to with "you shouldn't pay off your house". For my wife and I, losing that deduction isn't going to have a material impact on our tax liability.
As for opportunity cost...my mortgage rate is 5% and one would like to think beating that via investing to be an easy thing to do...but it may not be depending on an individual's rate, the level of risk one is willing to accept, market performance, brokerage fees, level of involvement/attention in investment management, etc. In short, for some its a way to bolster net worth while for others it becomes an unacceptable level of risk...and IMO one is not any more "right" than the other depending on an individual's objectives.
I work in a world where people and corporations buy new airplanes every 5 years for the benefit of depreciation so I get the reasoning behind it...but something something rational actors something.
What happens when Uncle Sugar reduces or eliminates the mortgage interest deduction?
Yes, I understand that's not the principal argument at hand here...but it is the one that most non-finance/accounting people always fall back to with "you shouldn't pay off your house". For my wife and I, losing that deduction isn't going to have a material impact on our tax liability.
As for opportunity cost...my mortgage rate is 5% and one would like to think beating that via investing to be an easy thing to do...but it may not be depending on an individual's rate, the level of risk one is willing to accept, market performance, brokerage fees, level of involvement/attention in investment management, etc. In short, for some its a way to bolster net worth while for others it becomes an unacceptable level of risk...and IMO one is not any more "right" than the other depending on an individual's objectives.
I work in a world where people and corporations buy new airplanes every 5 years for the benefit of depreciation so I get the reasoning behind it...but something something rational actors something.
It could happen, but it probally never will. Its one of the few things that is getting people into houses. In fact, more people are renting and rent demand is much higher beacuse buying a home is really not that attractive for alot of people. Having all your money tied up in an asset you cant liquidate without losing your shelter, and with todays mobil workforce, severely limiting your earning potential. Areas with HIGH paying jobs that are plentifull , are bat shit crazy expensive to live in. So unless you want 50%-75% of your monthly income going to a morgage payment, its a deal breaker. If they did away with the interest debduction, WAY less people would be buying houses, and the economy would crash again. The only way they were able to band-aide the housing crisis was to make interest rates almost zero while giving them the debuction.
There are many factors here and most of them point to not paying off. Its a complicated calculation to nail down, but using rough guestimates, its pretty clear. Time value of money and liquidity of assets for reinvestment are the main reasons.
Every year, inflation reduces purchasing power. Your morgage is not tied to inflation, so that $1000 payment today, is going to be a cell phone bill in 15 years. The early years where the cost is higher, you get to debduct the interest payments as the first 10 years of a 30 year note is mostly interest and not principle.
We stopped using a bank altogether. A good credit union is much better. There was a big push around here to get people to change a while back. Lots did.
PS, if you threaten to close the account, actually call them and threaten that and tell them what YOU are willing to pay, you'd be surprised at what they'll do. Not that it's the best way, the best way is to drop those motherfuckers in the gutter where they belong. But in the short term, while you pay it off, you can get lower interest. They work off the premise that you'll do what you're told, because that's what statistics say about Americans. You know, suck the tit and don't ask questions.
One last thought on that interest tax deduction...
Lets say you have 200K mortgage at 5% interest. Your yearly interest is around $10,000, leading to a tax deduction of around $2500 - $3000.
Therefore what CC is saying is that it is better to send the bank $10,000 a year to avoid sending the feds $2500 - $3000. Good plan.
I think ill send the feds $3000 and invest the other $7000 myself...
But that's just me.
Lets say you have 200K mortgage at 5% interest. Your yearly interest is around $10,000, leading to a tax deduction of around $2500 - $3000.
Therefore what CC is saying is that it is better to send the bank $10,000 a year to avoid sending the feds $2500 - $3000. Good plan.
I think ill send the feds $3000 and invest the other $7000 myself...
But that's just me.
You fail again. Take a look at an amortization table and tell me how much interest/principle you pay in the first 10 years of a 30 year note.......
It will open your eyes.
You are also ignoring both the principle and the investment income that are not tied up in an non income producing, non liquid quasi asset. Also ignoring how the time value of money will work to your benefit in years 10-30 on the note. Then there are the intangibles, but it seems you have already decided the world is flat and the earth is the center of the universe.
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