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Never pay off your house?
Posted on 3/10/09 at 11:08 am
Posted on 3/10/09 at 11:08 am
I was talking to a guy this weekend who's pretty savvy with all things financial, and he made a statement that I tend to agree with, but I have a hard time bringing myself to implement:
Never pay off your house.
In fact, he suggested that one should keep his house mortgaged to the hilt.
I'm currently looking into a refi from 6 1/8% down to whatever rates are right now. I had basically decided to not to a cashout, because heading into a depression, I want to have as low of a payment as possible. There will also be a negative interest rate spread between the borrowing rate and whatever rate I can safely invest that I'd have to eat. But his suggestion has me rethinking this. First, I'm not going to be risking the cash - it'll be in something that's FDIC insured. If I ever NEED the lower payments, I could presumably dump the cash back into the house and recast the loan. Or, more simply, just use the cash to pay the house note if TSHTF. There's also another good point that he made - which house is a bank more likely to foreclose on, one that has 20% equity or one that has 80% equity? In an "oh shite" scenario, a bank would probably be far more willing to work with me if I owe more than they're likely to get in a foreclosure sale.
So, what say you? I'm interested to see what they money-gods have to say.
ETA: and a follow up question for mortgage gurus - my credit score is in the high 700s, is there anyone out there doing refis to 90% or 95%?
Never pay off your house.
In fact, he suggested that one should keep his house mortgaged to the hilt.
I'm currently looking into a refi from 6 1/8% down to whatever rates are right now. I had basically decided to not to a cashout, because heading into a depression, I want to have as low of a payment as possible. There will also be a negative interest rate spread between the borrowing rate and whatever rate I can safely invest that I'd have to eat. But his suggestion has me rethinking this. First, I'm not going to be risking the cash - it'll be in something that's FDIC insured. If I ever NEED the lower payments, I could presumably dump the cash back into the house and recast the loan. Or, more simply, just use the cash to pay the house note if TSHTF. There's also another good point that he made - which house is a bank more likely to foreclose on, one that has 20% equity or one that has 80% equity? In an "oh shite" scenario, a bank would probably be far more willing to work with me if I owe more than they're likely to get in a foreclosure sale.
So, what say you? I'm interested to see what they money-gods have to say.
ETA: and a follow up question for mortgage gurus - my credit score is in the high 700s, is there anyone out there doing refis to 90% or 95%?
This post was edited on 3/10/09 at 11:13 am
15
Posted on 3/10/09 at 11:10 am to Colonel Hapablap
I read a book called "Last Chance Millionaire" and he made some decent points about this...thought it made sense until it became apparent that his whole financial plan was to leverage the shite out of your house and overfund your life insurance policies.
ETA: He made similar arguments to those as your buddy...also focused on the tax deduction aspect...also premised on the idea that you can refi every several years and take out more cash (wonder where that approach would leave you today).
ETA: He made similar arguments to those as your buddy...also focused on the tax deduction aspect...also premised on the idea that you can refi every several years and take out more cash (wonder where that approach would leave you today).
This post was edited on 3/10/09 at 11:13 am
Posted on 3/10/09 at 11:11 am to Colonel Hapablap
I have consciously made the decision not to pay down my mortgage with extra cash for just the 'oh shite' reason....
Uniform mortgage we-works, writedowns (as Roubini talked about yesterday) are not out of the question and if such happens I would rather be more levered in that scenario.
Uniform mortgage we-works, writedowns (as Roubini talked about yesterday) are not out of the question and if such happens I would rather be more levered in that scenario.
Posted on 3/10/09 at 11:12 am to Colonel Hapablap
My old man has this philosophy. He has several million in liquid assets but cravenly refuses to pay off the remaining balance of his house note.
I'm really not sure what his reasoning is other than tax deductions.
I'm really not sure what his reasoning is other than tax deductions.
Posted on 3/10/09 at 11:13 am to Colonel Hapablap
create a corporation. Buy the house from yourself. Then rent it back to yourself for some ridiculous low amount. Make sure the lease term is long, record the lease.
Inject enough capital in the corporation to pay for the house. shite gets bad, house is foreclosed on and you can stay in it for a low lease.
Not sure if this would work or not, but I like the idea.
As for what you say...
yes, but you face interest rate risk there.
excellent point.
Why not go in the median and take some cash out? And leave some in.
Inject enough capital in the corporation to pay for the house. shite gets bad, house is foreclosed on and you can stay in it for a low lease.
Not sure if this would work or not, but I like the idea.
As for what you say...
quote:
I could presumably dump the cash back into the house and recast the loan
yes, but you face interest rate risk there.
quote:
which house is a bank more likely to foreclose on, one that has 20% equity or one that has 80% equity? In an "oh shite" scenario, a bank would probably be far more willing to work with me if I owe more than they're likely to get in a foreclosure sale.
excellent point.
Why not go in the median and take some cash out? And leave some in.
Posted on 3/10/09 at 11:13 am to Colonel Hapablap
My head is spinning like a motherfricker right now now because I drank waaay to much coffee this morning, but why do people insist on referring to the moneyboard as "gods" or "gurus" or "geniuses" all of the time?
Posted on 3/10/09 at 11:13 am to Colonel Hapablap
explain colonel.
what's the pro's/cons of doing this? What would be the advantage of this as opposed to actually paying the whole thing off and having zero payments.
what's the pro's/cons of doing this? What would be the advantage of this as opposed to actually paying the whole thing off and having zero payments.
Posted on 3/10/09 at 11:14 am to kfizzle85
quote:
but why do people insist on referring to the moneyboard as "gods" or "gurus" or "geniuses" all of the time?
mockery? at least that's my intention
This post was edited on 3/10/09 at 11:15 am
Posted on 3/10/09 at 11:14 am to kfizzle85
quote:
Never pay off your house?
My head is spinning like a motherfricker right now now because I drank waaay to much coffee this morning, but why do people insist on referring to the moneyboard as "gods" or "gurus" or "geniuses" all of the time?
they are just talking about me. But I am so great, I get a plural.
Posted on 3/10/09 at 11:16 am to kfizzle85
quote:
gods" or "gurus" or "geniuses" all of the time?
I'm sorry, I thought we have met :P
Posted on 3/10/09 at 11:16 am to kfizzle85
quote:
but why do people insist on referring to the moneyboard as "gods" or "gurus" or "geniuses" all of the time?
I said it in mockery of people who always call me that.
Posted on 3/10/09 at 11:19 am to Powerman
I'll add that another reason could be if your house gets Katrina'd.
Example A: You live in a $500k house in Lakeview that is paid off. Your house got totalled, you got $250k in flood money, and you sold your lot for $50k. $200k of your "equity" is gone...poof. You are left with $300k.
Example B: You live in a $500k house in Lakeview that you owe $500k on, but you have $500k in the bank. Your house got totalled, you got $250k in flood money, you sold your lot for $50k. You have $800k and owe $500k. But you are holding $800k. You are in a much better position to deal with a bank, run away with the cash, put it in protected assets, etc.
Example A: You live in a $500k house in Lakeview that is paid off. Your house got totalled, you got $250k in flood money, and you sold your lot for $50k. $200k of your "equity" is gone...poof. You are left with $300k.
Example B: You live in a $500k house in Lakeview that you owe $500k on, but you have $500k in the bank. Your house got totalled, you got $250k in flood money, you sold your lot for $50k. You have $800k and owe $500k. But you are holding $800k. You are in a much better position to deal with a bank, run away with the cash, put it in protected assets, etc.
Posted on 3/10/09 at 11:21 am to MileHigh
quote:
create a corporation. Buy the house from yourself. Then rent it back to yourself for some ridiculous low amount. Make sure the lease term is long, record the lease.
Inject enough capital in the corporation to pay for the house. shite gets bad, house is foreclosed on and you can stay in it for a low lease.
Your lease would have to preexist the mortgage and the lender, at a minimum, would require your personal guaranty of the corporation's mortgage debt...and would probably require subordination of the Lease.
Posted on 3/10/09 at 11:23 am to Putty
The old sale-leaseback is a tried and true accounting fudge for corps (and previously local govs) though.
NYT just did it yesterday as a matter of fact.
NYT just did it yesterday as a matter of fact.
Posted on 3/10/09 at 11:25 am to kfizzle85
sale leaseback to a vulture lender in order to monetize assets is one thing...trying to work around foreclosure rights of a mortgage lender is different.
Posted on 3/10/09 at 11:26 am to kfizzle85
quote:
The old sale-leaseback is a tried and true accounting fudge for corps (and previously local govs) though.
NYT just did it yesterday as a matter of fact.
the wendys I worked at was previously a franchise hub that got purchased. They did this, they had this really nice office which they sold to the owner of the franchise operation. He leased it back to the franchises.
Wendys got totally fricked when they bought us out. 99 year lease with very high monthly payments. Apparently they suck at due diligence.
Posted on 3/10/09 at 11:28 am to Putty
I was just trying to display my money guru-ness.
Posted on 3/10/09 at 11:33 am to Colonel Hapablap
I'm looking at the same thing. However, I believe that at some point this year we will get that "once in a decade" equity investment opportunity. I think I'm on record saying that will happen around Memorial Day.
Posted on 3/10/09 at 11:38 am to Parliament
quote:
that "once in a decade" equity investment opportunity.
I don't think there is such a thing. People assume the market looks like a V - hits a bottom, then rockets back up, and you have only a short time to buy in at the bottom. But it doesn't have to - it can be a U, or even a \___________/. In which case you have a long time to "buy in at the bottom."
Posted on 3/10/09 at 11:47 am to Cold Cous Cous
i still don't understand the initial logic.
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