[macfantn]

when i bought my house i did an 80/20 loan to avoid having to pay PMI, so now I want to refinance the 20 loan and take out an extra 10k to pay off some debt and buy a new macbook. What kind of rates should I look for, where is the best place to go for a loan? my bank? lending tree? other website. any suggestions or help is welcomem thanks.

[finboy]

Originally Posted by macfantn 

when i bought my house i did an 80/20 loan to avoid having to pay PMI, so now I want to refinance the 20 loan and take out an extra 10k to pay off some debt and buy a new macbook. What kind of rates should I look for, where is the best place to go for a loan? my bank? lending tree? other website. any suggestions or help is welcomem thanks.

You can try eloan or lending tree, but we got competitive rates at Bank of America (our bank). Your bank is willing to do a lot to keep you these days. Beware, though, that they're much tougher on credit score in the past few months.

Countrywide did OK with our "vacation" house loan, but BofA was pretty good.

[sdilley14]

I'd try US Bank, Bank of America, or any local independent mortgage broker. I'd avoid Countrywide, Citifinancial, Wells Fargo, Chase, or any of the larger lenders as much as possible. They usually stick it to you with rates, especially on smaller, shorter terms loans. I've found that most smaller brokerage houses are able to be much more flexible with their programs as they aren't as confined to particular guidelines as much as the larger lenders. The larger lenders work on volume and since this is a smaller loan it won't be treated with a whole lot of attention. The rate is going to depend on your credit score, income, and what the market rates are. I'd avoid any adjustable rate loans if at all possible.

That's just my two cents from being in the mortgage industry for a couple years.

[RAILhead]

Save up for and don't get further in debt with your mortgage just to get a computer?

[medicineman]

I'd rethink financing a MacBook. You'd be making payments long after the life of the new machine.

[Calimus]

I'll second Railhead's post. If it's a 30 or even 15 year mortgage, you'll still be paying interest on that Macbook long after it's gone.

[sdilley14]

Originally Posted by RAILhead 

Save up for and don't get further in debt with your mortgage just to get a computer?

Yes, that too! I kinda overlooked that part. I guess one of the selling points of a refi is to get cash out for whatever you need (want), but I'd recommend against it. Then again, you're only worth what ya owe

[RAILhead]

Not when you don't owe anything -- then you're worth everything you make.

[sdilley14]

Originally Posted by RAILhead 

Not when you don't owe anything -- then you're worth everything you make.

I like your thinking better!

[Dakarʒ]

Originally Posted by Chuckit 

In before Railroader.

Oh, you're a clever one.

I wish I had thought of that.

Edit: This post has been sent from the future, to kill John Connor.

[Chuckit]

In before Railroader.

[turtle777]

Originally Posted by Chuckit 

In before Railroader.

*sigh-conded*

-t

[MacosNerd]

By taking out 10k of equity you are trading short term debt for long term debt. This can be helpful in certain circumstances but you need to be careful. As others have said, you'll be paying the loan off long after the computer is dead and buried.

With that said, it does makes sense to make that swap. If cash is tight and you can consolidate your debt, your monthly payment will typically be lower then what you're paying now. Of course what trips most of us up is that we quickly build up that credit card debt and we're now in a worse situation. Higher mortgage payment and credit card debt.

I had some life changing events these past few years and it made more sense to take money out of the house and deal with them then any other way, so consider it as an option but one that requires careful thought

[Eug]

Laws and banking are different here in Canada, but I'll add my 2¢ anyway.

While it may make sense to refinance to pay some other debts, it seems to me that if you need to do this to get a MacBook, you might want to rethink your priorities. Given that a MacBook only costs $1099, it seems to me that your finances are too tight as it is, so the idea of a MacBook might not be the best one at this time.

[Eug]

Originally Posted by Chuckit 

I'm not a money person or anything, but taking out a loan to pay off your debt seems rather circular.

Well, traditionally one can get much better rates with your mortgage than with other debts. This is esp. true with credit card debt. So indeed it does make sense to refinance a mortgage to pay off other debts.

EDIT:

It seems I'm posting from the future.

[Chuckit]

I'm not a money person or anything, but taking out a loan to pay off your debt seems rather circular.

[MacosNerd]

Originally Posted by Chuckit 

I'm not a money person or anything, but taking out a loan to pay off your debt seems rather circular.

As EUG posted from the future it does make financial sense if you want less monthly bills. Take a credit card, you need to pay a certain percentage of your outstanding bill and you're being assessed an interest rate which can range from 10 to 30 percent depending on your credit. An equity loan's APR is typically around 6 to 10 percent, depending on your credit. If its a refinance and not an equity loan you have 20 years to pay it off to, so its longer term and less interest which has the effect of less money leaving your checking account.

[REVBCO]

My 2 cents.

I would not recommend getting a home equity loan to buy a macbook or pay off any debt in your situation. It sounds like you are close to 100% financed in your home, and the $8500 in other debt you are going to pay of could be paid off with a little extra work.

The real problem with doing this is you will more then likely go back into debt like macosnerd posted. Then you will be stuck when a real problem hits.

MHO - Save up for the macbook, but first pay off you other debts and your 2nd mortgage first.

Doing better then I deserve.

B

[Rumor]

If possible, a Home Equity Line of Credit may be a choice. You can use it to pay off your second for possibly a better interest rate. Don't buy the Macbook with it though, for reasons stated above. Also, when you pay off the 2nd, you still have the HELOC, which works well in case of an emergency.

[macfantn]

i am not just getting the loan for a macbook, i want to refi the 20% because it's interest only and the rate is prime which is 8.5 now i think. I also want to pay off my credit card debt, and i can at least deduct the interest on the equity loan when i do my taxes which I can't do with my credit card. I figured why I'm at it get an extra 1500 for a macbook

[Eug]

If you have an interest-only mortgage, and you are only paying only interest at this time, then I would suggest to you most definitely DON'T get the MacBook.

I assume 8.5% is way better than your credit card rate, but it most definitely isn't a great one. That's a lot of money to be paying to the bank.

P.S. This is one way banking and mortgages differ in Canada. Interest-only mortgages are quite uncommon.

[macfantn]

well the 80% loan is 6.0 fixed (not interest only) so that one is great, it's the 20% loan I wanna do something with.

[shifuimam]

So...you took out two loans to pay for your house? I don't now how that works, but from what I've read, you took out a loan to make the 20% down payment, plus the mortgage for the other 80%.

I agree with the others that have recommended you not get yourself into even more debt, especially for things like getting a MacBook or paying off other debt.

Paying off debt with more debt is never a real solution. It's just covering up one problem with another.

How about you not spend money for a little while and work on paying off your debts first?

Sorry if this is harsh, but it distresses me when people in debt get themselves further into debt, with either "I'm already in debt" or "I got into debt to pay off my debt" as an excuse.

[itai195]

Your 20% loan is probably a HELOC, right? I'm guessing since it's interest-only, prime rate, and that's a common way of doing these 80/20 loans. Are you sure you don't have a prepayment penalty or any fee for closing that account early? You can shop around for some better HELOC or home equity loan rates (check bankrate.com) but most of them are going to hover around prime so I'm not sure that you'll be able to do much better. A lot of banks (e.g. citi, bofa, and wamu) offer discounts if you do the rest of your banking with them, so that's one thing to look into. Also a lot of HELOCs will let you fix portions of your loan if you want a lower fixed rate, so that may be an option. I don't personally see anything wrong with consolidating your debt and getting a MacBook if you'll save money on the lower interest rate and you need the computer.

[macroy]

I don't know if this is the case with refi's or HELOC's - but when we moved last year, both our realtors (one to sell, and one to buy) suggested against the online banks such as Lendingtree, e-loan, ditech (spelling?), etc... The main reason is that many of those had issues when the closing came up (in fact we actually turned away any contracts that were pre approved by those online backers, and we were in a buyers market). But refi's may not matter as much. You may just be better off finding someone locally, and just provide them with the rates you find online... often they can look around and match it. More often, they'll sit down with you and explain why some may not be as cheap as it looks (i.e. fees etc.). Your other alternative is check out credit unions - although I've not found them to be very competitive despite what many have said (I work for one, and I still found a better mortgage elsewhere).

Now, having said that - some of your fellow macnner's have provided sound advice on if you even should take out a new loan. Its your life and your money, but unless I misunderstood, you actually financed 100% of your home.... and now you want to give back the equity you've earned?

[Eug]

P.S. Anyone here with dependents and a mortgage?

I don't have any dependents yet, but who knows...

I'm considering getting life insurance and beefing up my disability insurance. That way I have everything covered, without having to resort to the very limited mortgage payment insurance. How many of you like the concept of mortgage payment insurance, over disability and life?

[Railroader]

Originally Posted by Chuckit 

In before Railroader.

Originally Posted by turtle777 

*sigh-conded*

-t

I am VERY pleased I have made a positive impression. It is impressive that other people are basically saying what I would have in this thread.

My work here is done™.

[turtle777]

Originally Posted by Railroader 

My work here is done™.

Thanks. Bye.

-t

[Railroader]

Originally Posted by turtle777 

Thanks. Bye.

-t

I'll be Bach™.

[Chuckit]

Originally Posted by Railroader 

I'll be Bach™.

Fugue you.

[shifuimam]

Originally Posted by Eug 

P.S. Anyone here with dependents and a mortgage?

I don't have any dependents yet, but who knows...

I'm considering getting life insurance and beefing up my disability insurance. That way I have everything covered, without having to resort to the very limited mortgage payment insurance. How many of you like the concept of mortgage payment insurance, over disability and life?

PMI is bad. That's about the shortest way to summarize it. PMI is forced on you if you can't make a 20% down payment, becausing making a down payment less than that makes you a higher risk to the bank you get your mortgage from. PMI is an extra fee on top of everything else that you pay to make up for that financial liability.

Making less than a 20% down payment also forces you to use escrow, which means that you have to keep extra money in a separate account so the bank can pay your homeowner's insurance for you, along with your mortgage - so you always have a big chunk of money locked into an account that you have to use.

Once you've paid off a certain percentage of your mortgage (I think it might be 20%), you can apply to have PMI removed from your mortgage. The process is long (think months or years), tedious, and sometimes fruitless. I know younger couple who has applied several times to have PMI removed, and have failed. Banks like it when their customers have an escrow account (because it means they routinely keep much more of your money than they would otherwise), and therefore make it exceedingly difficult to get out of escrow later.

I am confused as to how getting life insurance and more disability insurance (BTW why do you even have disability insurance? Is your job high-risk for personal injury?) will help you avoid PMI.

The bottom line is: Don't get an FSA mortgage (first-time buyer's deal where you can put 0% down on a house, but your interest rates go through the roof). Don't make less than a 20% down payment - it forces you into a financial headache that's hard to get out of later down the line. Don't get a variable interest rate mortgage. Your payments will start low, but will jump considerably a few years after buying the house, and unless you can refinance, you're screwed.

[turtle777]

Originally Posted by Railroader 

I'll be Bach™.

Originally Posted by Chuckit 

Fugue you.

-t

[macroy]

Originally Posted by shifuimam 

Don't get a variable interest rate mortgage. Your payments will start low, but will jump considerably a few years after buying the house, and unless you can refinance, you're screwed.

I had ARM's for my first two houses because I knew I would be moving out within a few years. So they CAN be useful at times. However, one really needs to understand the different products and compare them to their situation.... I definitely agree with you with regards to the fact that one should not blindly use an ARM ("oh hey, its cheaper, we'll take it") without understanding the long term effects.

[Eug]

Originally Posted by shifuimam 

PMI is bad. That's about the shortest way to summarize it. PMI is forced on you if you can't make a 20% down payment, becausing making a down payment less than that makes you a higher risk to the bank you get your mortgage from. PMI is an extra fee on top of everything else that you pay to make up for that financial liability.

Making less than a 20% down payment also forces you to use escrow, which means that you have to keep extra money in a separate account so the bank can pay your homeowner's insurance for you, along with your mortgage - so you always have a big chunk of money locked into an account that you have to use.

Once you've paid off a certain percentage of your mortgage (I think it might be 20%), you can apply to have PMI removed from your mortgage. The process is long (think months or years), tedious, and sometimes fruitless. I know younger couple who has applied several times to have PMI removed, and have failed. Banks like it when their customers have an escrow account (because it means they routinely keep much more of your money than they would otherwise), and therefore make it exceedingly difficult to get out of escrow later.

I am confused as to how getting life insurance and more disability insurance (BTW why do you even have disability insurance? Is your job high-risk for personal injury?) will help you avoid PMI.

The bottom line is: Don't get an FSA mortgage (first-time buyer's deal where you can put 0% down on a house, but your interest rates go through the roof). Don't make less than a 20% down payment - it forces you into a financial headache that's hard to get out of later down the line. Don't get a variable interest rate mortgage. Your payments will start low, but will jump considerably a few years after buying the house, and unless you can refinance, you're screwed.

I think you misunderstand.

I don't need PMI on my mortgage. Actually, it's CMHC insurance here in Canada but the idea is the same, and I don't need that either.

What I was talking about was insurance on my mortgage that benefits my family. If I die, the mortgage gets paid off. However, the problem with it is that it's only good for the mortgage, and only for the term of the mortgage (5 years or whatever). Furthermore, as the mortgage gets smaller, the payoff is less obviously.

What I'm thinking instead is to get basic term life insurance, as well as beefing up my disability insurance. BTW, I think disability is EXTREMELY important. I have an "own occupation" rider on my plan so if I get hit with something disabling that prevents me from doing my job, then I get paid my disability insurance. For example, I could be blinded by an explosion or I could get a stroke. In that situation I would not be able to do my desk job, but I'd be a huge financial drain on my family... unless I had disability insurance. One guy I met was a doctor, and got schizophrenia. Luckily he had disability insurance so all the extra costs needed to care for him are borne by his insurance company, not his family. You never know.

In fact, I think you're better off with disability insurance than life insurance in many instances. Let's say you have neither: If you die, your family grieves, and then moves on, albeit with less earned income. If you have a stroke, not only does your family have less earned income, they have to spend more to take care of you.

I would get enough life insurance to cover the entirety of my mortgage, and then some. I would get enough disability insurance to cover my monthly mortgage payments, and then some.

P.S. I don't think PMI is necessarily a bad thing. My GF has a CMHC-financed mortgage, which she got 4.5 years ago. She has continued to pay diligently over these years, but the value of her home has increased 35% during that time. Had she waited to get that 20-25% downpayment she would have much, much less equity than she does now. In fact she might not even have that downpayment because rents are so high here. If you're gonna be paying that much money monthly, you may as well be putting it toward a mortgage, even if you have to use CMHC.

BTW, I don't know what PMI rates are like in the US, but they are a one time fee here in Canada, with rates as follows:

Loan size up to and including 65% of sale value - Insurance cost 0.50% of sale value
Up to and including 75% - 0.65%
Up to and including 80% - 1.00%
Up to and including 85% - 1.75%
Up to and including 90% - 2.00%
Up to and including 95% - 2.75% - 2.90%
Up to and including 100% - 3.10%

Usually if you have 20%, the fee is waived, unless the mortgage is huge.

[macroy]

Originally Posted by Eug 

......
In fact, I think you're better off with disability insurance than life insurance in many instances. Let's say you have neither: If you die, your family grieves, and then moves on, albeit with less earned income. If you have a stroke, not only does your family have less earned income, they have to spend more to take care of you.

Agreed. Many financial consultants will say the same thing. Its all minimizing risk and liability. And that's one thing many people do not consider when looking at their company paid insurance.... you should always pay the extra to supplement your disability and life. Those are the cheapest insurance you'll see (generally)... most companies will give you like 2x or 3x your salary.. but its like a few bucks more to get 4x or 5x. And if your org. take out your deductions before tax, its even more savings.

Oh, and get a will, especially if you have dependants.

[anonymac]

To hell with these naysayers. Refinance, pull your money out, and buy the mac. Buy the macbook pro and two 30 inch apple monitors. You can afford it. Money is just paper. A mac is something you'll never forget.

The benefits of homeownership are way overrated. And don't get a will. Wills just encourage greed and are a way for lawyers to take your money.

[Eug]

Originally Posted by macroy

Agreed. Many financial consultants will say the same thing. Its all minimizing risk and liability. And that's one thing many people do not consider when looking at their company paid insurance.... you should always pay the extra to supplement your disability and life. Those are the cheapest insurance you'll see (generally)... most companies will give you like 2x or 3x your salary.. but its like a few bucks more to get 4x or 5x. And if your org. take out your deductions before tax, its even more savings.

Oh, and get a will, especially if you have dependants.

Everyone I've talked to says to get disability insurance with after tax dollars, at least here in Canada. Why? Cuz if you have to make use of it, then it's all tax free (since you've already been taxed on it). If you pay disability insurance with pre-tax dollars, then if you get any benefits from it, it's fully taxable (here in Canada at least).

P.S. I'm getting a will by the end of the year.

Originally Posted by anonymac 

To hell with these naysayers. Refinance, pull your money out, and buy the mac. Buy the macbook pro and two 30 inch apple monitors. You can afford it. Money is just paper. A mac is something you'll never forget.

Heh. Ironically, back in the day when I had basically very few debts and a few extra thousand bux left over to play with, a financial planner told me to just go ahead and get the $2000 stereo I wanted. I was surprised by his answer, but he said you can't save every penny. You've got to treat yourself once in a while.

The difference there though is that my money wasn't super tight at the time. I could afford it. It really sounds like macfantn can't afford it.

[Stella12]

There are two main types of homeowner credit offerings:

1) a fixed-rate home loan is offered at a set interest rate, and is a lump sum payment to the borrower. The borrower repays the loan over a set time period.

2) a home equity line of credit, or HELOC, is a variable-rate loan that works much like a credit card and sometimes comes with one. Borrowers are pre-approved for a certain spending limit and they can withdraw money when they need it, using a credit card or special checks. The monthly payments can change; based on the amount of money borrowed and current interest rates.

Both of the above types of credit are available with terms that typically range from five to 15 years, and both have to be repaid fully if the home on which they are borrowed is sold.

Stella
Home Equity Loans

[Sealobo]

100% financing is crazy. No one should be allowed to do that. It's too risky for the lender and it's too expensive for the borrower.

If one cannot afford at least the down payment then he really shouldn't be buying anyway. Home ownership is a privilege.

[Eug]

Originally Posted by Sealobo 

100% financing is crazy. No one should be allowed to do that. It's too risky for the lender and it's too expensive for the borrower.

If one cannot afford at least the down payment then he really shouldn't be buying anyway. Home ownership is a privilege.

What do you consider "the down payment"?

My GF only put down 5% for a downpayment because she couldn't afford anything more. However, there was zero risk for the lender because she had to buy mortgage insurance.

Sure, it cost extra money for the insurance and the interest, but her interest rate was low, she had a stable job, and over the last several years she's made lots of money in equity on the place. And in the meantime, she avoided paying for a rental place.

I think mortgages with low downpayments make sense... for some people. However, the issue is that some people look at mortgages almost as free money. ie. I don't think it's a good idea to take out a second mortgage or a HELOC to buy luxury items.

[Cold Warrior]

I agree with Eug. You also have VA loans -- also carrying very limited risk to the lender and no down payment. Veterans with good credit should certainly have the opportunity to own a home.

[Dork.]

Regarding PMI, when we bought our house we didn't have the full 20% down, but we were both starting out with pretty good jobs. We chose to pay the PMI instead of getting a loan for the down payment (which would have been at a higher interest rate), but paid extra toward principal for the first few years.

About 2 1/2 years into it, between the additional principal we paid and the rising housing market, we got to the point where we had the magic 20% equity. Since rates were even lower, instead of playing "Mother, May I" and waiting months to get the bank to take us off PMI, we just refinanced with another lender. We ended up with a 20-year loan paying roughly the same per month as our first 30-year loan (saving us 7+ years of payments), and got out of PMI and escrow.

We ended up forking over less in PMI than we would have paid in interest if we had taken the Home Equity loan for the down payment (and applied the extra principal to that), but we got a bit lucky with the interest rates and were able to refinance our way out of it. If I were buying a home now, I wouldn't count on being able to refinance to a lower rate in three to five years....

[CreepDogg]

Originally Posted by Dork. 

Regarding PMI, when we bought our house we didn't have the full 20% down, but we were both starting out with pretty good jobs. We chose to pay the PMI instead of getting a loan for the down payment (which would have been at a higher interest rate), but paid extra toward principal for the first few years.

About 2 1/2 years into it, between the additional principal we paid and the rising housing market, we got to the point where we had the magic 20% equity. Since rates were even lower, instead of playing "Mother, May I" and waiting months to get the bank to take us off PMI, we just refinanced with another lender. We ended up with a 20-year loan paying roughly the same per month as our first 30-year loan (saving us 7+ years of payments), and got out of PMI and escrow.

We ended up forking over less in PMI than we would have paid in interest if we had taken the Home Equity loan for the down payment (and applied the extra principal to that), but we got a bit lucky with the interest rates and were able to refinance our way out of it. If I were buying a home now, I wouldn't count on being able to refinance to a lower rate in three to five years....

That's exactly what I did (30-year to 20-year refi), and same story with PMI. A couple of years later, I was able to refi again down to a 15-year loan, with payments about the same as the original 30-year loan. Of course it helped to have the benefit of falling rates.

If you're only putting 0-5% down, this approach probably wouldn't help because it will take a long time to get to 20% equity, so you'd be paying PMI for a long time (unless there's another runup in home values).

As for 2nd mortgages and HELOCS, I agree with what others have said - do you really want to put your home up as collateral for luxury items. You've got a great laptop, but if you can't pay you're on the street. I have a HELOC, which was used to finish my basement, basically doubling the living space in my house and adding a 2nd bathroom. I put about half the cost on the HELOC (having saved for the other half), so the increase in value on my home more than makes up for the loan and any after-tax interest.

It generally makes sense to use these vehicles for investments in appreciating assets, but you're playing with fire if used for cars, TV's, etc. I have seen people use a HELOC in lieu of a car loan, which CAN make some sense depending on interest rates, but the fact remains that you're putting your home up as collateral. If you have a conventional car loan and you can't pay, you lose the car. If you use a HELOC and can't pay for your car, you lose your home. Everyone gets to decide what risks they want to take!

[Sealobo]

Originally Posted by Eug 

What do you consider "the down payment"?

My GF only put down 5% for a downpayment because she couldn't afford anything more. However, there was zero risk for the lender because she had to buy mortgage insurance.

Sure, it cost extra money for the insurance and the interest, but her interest rate was low, she had a stable job, and over the last several years she's made lots of money in equity on the place. And in the meantime, she avoided paying for a rental place.

I think mortgages with low downpayments make sense... for some people. However, the issue is that some people look at mortgages almost as free money. ie. I don't think it's a good idea to take out a second mortgage or a HELOC to buy luxury items.

Before I further elaborate, please let me say that I have been specializing in credit risk at work (in a bank) for almost three years now; and property financing is one area I covered.

Property is an interesting topic. One can see a mortgage as an investment tool and by having a debt component in your asset, you're leveraging. Getting to live in your investment (a house, an apartment, what have you) isn't exactly free; you're forgoing the rent you could have collected if you had the place leased out.

The US housing market has been doing well in recent years; it's glorious to be a home-owner especially if one had gotten in early. I mean, what's better than not having to do much but the value of your asset keep getting higher and higher? And since it's leveraged, the return-on-equity is yummy.

But guys, the market is most vulnerable when more and more people are BORROWING to INVEST. This is not a debatable item. And the small down-payment meaning high leveraging that immediately implies higher sensitivity to adverse market movement. If the property market heads south, a lot of people will take a hard hit because the leveraging works both way.

Home-ownership is cool. But if the market screwed up, you're fcuk3d. And the market does screw up from time to time.

[Eug]

Originally Posted by Sealobo 

Before I further elaborate, please let me say that I have been specializing in credit risk at work (in a bank) for almost three years now; and property financing is one area I covered.

Property is an interesting topic. One can see a mortgage as an investment tool and by having a debt component in your asset, you're leveraging. Getting to live in your investment (a house, an apartment, what have you) isn't exactly free; you're forgoing the rent you could have collected if you had the place leased out.

That last statement makes no sense at all. How are you forgoing the rent you could have collected? People need to live somewhere. They can:

1) Freeload
2) Pay rent
3) Buy a place, with a mortgage
4) Live on the street

However, we are in agreement that taking out that extra home equity loan may be a bad idea for many people. It may be easy to get, but that doesn't mean one should get it.

The US housing market has been doing well in recent years; it's glorious to be a home-owner especially if one had gotten in early. I mean, what's better than not having to do much but the value of your asset keep getting higher and higher? And since it's leveraged, the return-on-equity is yummy.

But guys, the market is most vulnerable when more and more people are BORROWING to INVEST. This is not a debatable item. And the small down-payment meaning high leveraging that immediately implies higher sensitivity to adverse market movement. If the property market heads south, a lot of people will take a hard hit because the leveraging works both way.

That doesn't make sense either. You still have to live somewhere.

Home-ownership is cool. But if the market screwed up, you're fcuk3d. And the market does screw up from time to time.

I know lots of people who had purchased a home to live in when the market was near a peak, with the market value later on being worth somewhat less than they paid for it. So what? They just continue living there and weather the storm. It's not as if they're forced to sell the place just because the market has taken a downturn. IOW, there is no margin call here.

The point here is they are not necessarily borrowing to invest, at least not in usual sense of the word. They are borrowing to buy a place to live. That's the whole point of a mortgage after all.

[Sealobo]

Originally Posted by Eug 

That last statement makes no sense at all. How are you forgoing the rent you could have collected? People need to live somewhere.

This is where people usually get confused.

From a technical point of view, when you've bought a house and you live in there, you're basically paying rent to yourself; It's just so happen that the tenant and the landlord are the same person.

If a mortgage is involved, you're paying rent to yourself and the landlord (also you) is paying interest and repayment to the lender.

When you're a freeloader, the landlord is subsidizing you by not collecting the rent.

By living in a house that you own, the opportunity cost would be having the place leased out for rent. Yes you're right people need to live somewhere but it doesn't change the fact that people are leveraging with a mortgage even though they might not be fully aware of it. If you only rent, you're not investing. But if you own, then you are. I think everything makes sense.

[Eug]

Originally Posted by Sealobo 

This is where people usually get confused.

From a technical point of view, when you've bought a house and you live in there, you're basically paying rent to yourself; It's just so happen that the tenant and the landlord are the same person.

If a mortgage is involved, you're paying rent to yourself and the landlord (also you) is paying interest and repayment to the lender.

When you're a freeloader, the landlord is subsidizing you by not collecting the rent.

By living in a house that you own, the opportunity cost would be having the place leased out for rent. Yes you're right people need to live somewhere but it doesn't change the fact that people are leveraging with a mortgage even though they might not be fully aware of it. If you only rent, you're not investing. But if you own, then you are. I think everything makes sense.

That's just technical mumbo jumbo, to be quite honest. You are not paying rent to yourself in any way, shape, or form. You can say it's similar in some ways from a theoretical point of view, and you can talk about the opportunity cost, but saying that doesn't help the home buyer at all.

It's always easier to own everything outright. However, for 99% of the population, that's just not possible with a home purchase. So it's pointless to argue that it's better to do that. One needs to be practical about these things. Being overly dogmatic about it helps nobody.

I don't know what the laws in Hong Kong are with home ownership. However, in both Canada and the US, the laws are structured in such a way to favour home ownership. Again, home ownership isn't for everyone, but I think it's probably for far more people than your negative take on it might suggest.

You still haven't said what you think a "downpayment" is. Do you define it as something to avoid having to pay insurance? Cuz that varies of course, as you probably already know. Some lenders might want 20%. Some lenders might want 25%. Some lenders might want 35% (particularly for high value homes). However, even that will vary depending on the buyer's credit risk as you also likely already know.

Where I live, it's extremely common for young couples to buy million-dollar homes, even when they have only say 10-15% of the price of the home for a downpayment. I think that is perfectly justified, if both are low credit risks and have stable jobs with high incomes, and they are conservative with their finances. Some have advocated that couples in this situation instead buy a $500000 home, so that $100000-150000 downpayment becomes 20-30% of the value of the home. That suggestion has some merit, but personally I think following a rule like that religiously is foolish. Everyone's financial and personal situations are different.

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And for the record, for both my home purchases, I had reasonable downpayments and did not need to purchase insurance to finance the mortgages. I just get annoyed when people suggest that people with less cash shouldn't be buying homes.

[CreepDogg]

You can say living in your leveraged house is the opportunity cost to renting it out. As Eug said, that's only half the story - if you rent it out, you then pay rent to live somewhere else, negating your rental income. Most people look at purchasing real estate as a practical living solution, with some additional benefits in the form of using an appreciating asset. It has to serve both purposes, so the concept of 'opportunity cost' doesn't apply.