We talked about this briefly on another thread, and there are many opinions on this issue. Mine is that it is better to get a short to intermediate term mortgage, such as a 15 or 20 year, and then not worry about paying down on it at that point. If that is too much of a squeeze and only a 30 year is feasible, you might want to pay down on it with "found money" or refinance to a lower term later on when your income improves.
It is really all personal opinion. Do what makes you the most comfortable.
Mortgage Paydown?? How About VP LTT's
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Re: Mortgage Paydown?? How About VP LTT's
"Machines are gonna fail...and the system's gonna fail"
Re: Mortgage Paydown?? How About VP LTT's
I think Storm's point about property taxes is more directed to the idea that our homes are on land only as long as the government says so. If taxes need to rise considerably to pay for desired services or debt, then we might actually see people with some inability to pay their property taxes without financial hardship. On this board we do quite a bit of pontificating about different financial possibilities and the importance of liquidity, and I think it's extremely important to take those risks into consideration with property that is more likely to be siezed than our Roth IRA funds.
Property tax non-payment is just another reason, among many, that a bank or government may take your home.
Many people here entered a contract with the bank to loan them money, with only thier home as collateral. If their home goes 50% in its value for some reason (the same environment, probably, where 30 year treasuries perform amazingly), then instead of a 50% less-valuable paid off home, they could have a 50%-less valuable mortgaged home that is underwater, but have more than enough to either pay it off and have plenty left over (as treasuries may very well have risen considerably in price) or they could just choose to walk away. I'm not saying it's 100% moral to walk away from debt just because you agreed to a preferable collateral arrangement beforehand, but keep in mind that the very entity you're screwing over is likely playing these arbitrage games every day. Some very responsible, wealthy individuals (not picking on them) invest in limited partnerships that shield them from individual responsibility of their malinvestments through debt that can't reach them personally... just as you and I did when we signed our mortgage documents. These people are no more dishonest for "walking away" from a rental than we are if continuing to service the debt of our home seems grossly outside our best interests.
I have yet to guide myself through what the full moral implications are of using debt arbitrage and/or walking away from a home, but when push comes to shove, Bank of America or Fannie Mae aren't going to be at the top of my list of those worth protecting.
Property tax non-payment is just another reason, among many, that a bank or government may take your home.
Many people here entered a contract with the bank to loan them money, with only thier home as collateral. If their home goes 50% in its value for some reason (the same environment, probably, where 30 year treasuries perform amazingly), then instead of a 50% less-valuable paid off home, they could have a 50%-less valuable mortgaged home that is underwater, but have more than enough to either pay it off and have plenty left over (as treasuries may very well have risen considerably in price) or they could just choose to walk away. I'm not saying it's 100% moral to walk away from debt just because you agreed to a preferable collateral arrangement beforehand, but keep in mind that the very entity you're screwing over is likely playing these arbitrage games every day. Some very responsible, wealthy individuals (not picking on them) invest in limited partnerships that shield them from individual responsibility of their malinvestments through debt that can't reach them personally... just as you and I did when we signed our mortgage documents. These people are no more dishonest for "walking away" from a rental than we are if continuing to service the debt of our home seems grossly outside our best interests.
I have yet to guide myself through what the full moral implications are of using debt arbitrage and/or walking away from a home, but when push comes to shove, Bank of America or Fannie Mae aren't going to be at the top of my list of those worth protecting.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: Mortgage Paydown?? How About VP LTT's
Right, my point is not really a philosophical one about taxes, it is more that when paying off a mortgage, don't think you will be able to own that house for the rest of your life. Here is a real world example:
Some of my relatives live in a nice house in Bellevue, Washington. They bought over 30 years ago when it was just a small bedroom community near Seattle. A lot of their neighbors grew old and retired, thinking they would live in their paid off homes for the rest of their lives. The problem is that in the 80s and 90s the property values increased dramatically along with the rise of companies like Microsoft and Boeing in the area, and now they found themselves retired on fixed incomes, with homes appraised at $1 million+. The property taxes were reassessed and many were forced to move or downsize because their pensions and retirement income could not afford the property tax on a million dollar home.
Obviously having to sell a home that has gone from $50,000 to $1 or 2 million in the span of 30 years is not the worst situation to be in, but I just want to show you how paying off your mortgage because you think you own it free and clear and can live there forever is not always the reality.
Some of my relatives live in a nice house in Bellevue, Washington. They bought over 30 years ago when it was just a small bedroom community near Seattle. A lot of their neighbors grew old and retired, thinking they would live in their paid off homes for the rest of their lives. The problem is that in the 80s and 90s the property values increased dramatically along with the rise of companies like Microsoft and Boeing in the area, and now they found themselves retired on fixed incomes, with homes appraised at $1 million+. The property taxes were reassessed and many were forced to move or downsize because their pensions and retirement income could not afford the property tax on a million dollar home.
Obviously having to sell a home that has gone from $50,000 to $1 or 2 million in the span of 30 years is not the worst situation to be in, but I just want to show you how paying off your mortgage because you think you own it free and clear and can live there forever is not always the reality.
"I came here for financial advice, but I've ended up with a bunch of shave soaps and apparently am about to start eating sardines. Not that I'm complaining, of course." -ZedThou
Re: Mortgage Paydown?? How About VP LTT's
One way of getting closer to owning your home free and clear would be to set up a separate investment account just to pay the property taxes. For example, let's say you have a home that is worth $100,000 and generates a property tax bill of $2,000 per year. In order to own this home "free and clear" you would need to pay off the $100,000 purchase price and THEN you would need to put aside enough money to generate interest dividends sufficient to cover the property tax expense.
So you might need $100,000 to buy the house and another $50,000 to buy a 30 year treasury bond so that the coupon payment would cover the property tax bill.
This is obviously not a complete solution to the property tax problem, but it is a lot better than doing nothing if you are truly interested in getting closer to true ownership.
So you might need $100,000 to buy the house and another $50,000 to buy a 30 year treasury bond so that the coupon payment would cover the property tax bill.
This is obviously not a complete solution to the property tax problem, but it is a lot better than doing nothing if you are truly interested in getting closer to true ownership.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: Mortgage Paydown?? How About VP LTT's
What if instead of treasury bonds, you took the $50,000 and put it it's own mini-PP and used it to pay the taxes, rebalancing along the way? Might get a little extra yield out of the $50K...might even make a few bucks.MediumTex wrote:
So you might need $100,000 to buy the house and another $50,000 to buy a 30 year treasury bond so that the coupon payment would cover the property tax bill.
"All men's miseries derive from not being able to sit in a quiet room alone."
Pascal
Pascal
Re: Mortgage Paydown?? How About VP LTT's
That should work fine.Adam1226 wrote:What if instead of treasury bonds, you took the $50,000 and put it it's own mini-PP and used it to pay the taxes, rebalancing along the way? Might get a little extra yield out of the $50K...might even make a few bucks.MediumTex wrote:
So you might need $100,000 to buy the house and another $50,000 to buy a 30 year treasury bond so that the coupon payment would cover the property tax bill.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: Mortgage Paydown?? How About VP LTT's
Isn't that what insurance is for, or am I missing something?
I still rent, but when I eventually buy I plan to purchase homeowner's insurance with the widest possible coverage--flood, fire, earthquake, tornado, hurricane, burglary, car through the living room wall, etc. Probably all of the above, regardless of where I live.
Also, regarding lawsuits, can't people protect themselves with an umbrella policy? I've read that the coverage is usually in $1 million increments and that the premiums are relatively cheap for the coverage you get.
I still rent, but when I eventually buy I plan to purchase homeowner's insurance with the widest possible coverage--flood, fire, earthquake, tornado, hurricane, burglary, car through the living room wall, etc. Probably all of the above, regardless of where I live.
Also, regarding lawsuits, can't people protect themselves with an umbrella policy? I've read that the coverage is usually in $1 million increments and that the premiums are relatively cheap for the coverage you get.