If you don't have a 15 year mortgage, you're living beyond your means?

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07/28/2022 11:20

Subject: Re:If you don't have a 15 year mortgage, you're living beyond your means?

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Anonymous wrote:We refinanced to a 2.875% 30 year conforming mortgage during the first year of the pandemic. It's still a great decision because there are very few areas where we can get that kind of leverage and invest the rest in the stock market. Oh and we have a PITI ~$3K and nearly $1 million in home equity ($1.5 million home). With inflation where it is, having low cost, long term fixed debt is a great "investment". Right now, I can invest our cash in a high earning account! It has nothing to do with living beyond our means. It's the equivalent of shorting Treasuries.

I’m one that is absolutely in favor of the 15 year route. That being said, well played…assuming you’re being truthful. I refinanced with a cash-out refinance mortgage from a 15 year to a 30 year with the sole objective of having money to invest in growth equities post-COVID crash. My monthly payment didn’t change, but I walked away with more than $1M in cash that I turned around and invested in the market a few months back. Portfolio is already up from $1M to $1.7M.

I'm the PP. I think a 15 year is fine but it reduces your flexibility and only provided 40-50 bps of interest rate savings relative to a 30-year (at least at the time I was considering a refi). For some, a 15-year is a good way to create forced savings if you lack discipline elsewhere in your financial budget. While I could save a little on interest, I figured having the flexibility to accelerate the paydown on a 30-year (to make it a 15) was better optionality. However, since inflation spiked, I've stopped all prepayments. I am happy to make my minimum fixed payment each month and if inflation continues at an elevated rate, it will look better and better with time That's our only debt and with a PITI of ~$3K, it's lower than we'd ever get for an equivalent apartment in our area of Montgomery County.

Our 15 year payment was lower than the 30 we originally had when we refinanced as the interest rate was lower. We always pay extra to principal. Cannot wait to pay it off.

Why? If it's a good rate, you're better served saving the excess cash and using it to invest in the market long term. For us, paying a 2.875% interest rate that is also tax deductible is much lower than the long-term return on other investments. I get that there is a psychology benefit to being completely debt free. However, "good" debt with modest leverage can actually enhance your returns.

It’s not really tax deductible depending on how much you pay in interest. We don’t see any benefit in our taxes. We also max out retirement, good amount in college funds and integer. Why not do it all? Out interest at this point Is a few hundred a month. Why not pay it off and take the entire payment and invest!

OK PP, I agree with you that if you have unlimited funds, you should not have a mortgage.

Seriously, it's a stupid question if you have so much money that you don't need to finance a home. That said, even the ultra wealthy use low cost debt to finance real estate, private equity, and even their market equity investments. Berkshire and other insurance companies do the same with float on liabilities because it enhances returns. I don't see what is so hard to understand. OP and the PP just don't like the fact that paying down debt isn't always a good investment strategy.

Actually, I think it’s more like OP and PP don’t like the fact that so many people in DMV are taking out unnecessarily large and long duration mortgages to advance their own financial positions at the expense of MC and UMC people that truly depend on these financial instruments. While honest, hardworking people were struggling to get the attention of loan officers and underwriters, the D.C. elite rich was monopolizing all available bandwidth and funds at the banks and, in turn, driving demand and available rates into an upward spiral.

I’m not willing to borrow more money than I need just because I can and because it’s best for me me me. These smug 30 year advocates are the same ones that emptied grocery stores in early 2020; stocked their homes with toilet paper, hand cleaner, and face masks so none was available to those in need; and hoarded and stockpiled 55 gallon drums of gasoline when the colonial pipeline was hacked in 2021. Absolutely disgusting. And you’re all on here bragging about your lack of moral compass. It’s amazing how much more wealth you can create when you’re willing to take opportunities away from the less fortunate in our society.

Is there a limited supply of 30 year mortgages? This makes no sense. Rates are driven by the gap between how much a bank can make investing the money vs. lending it, not supply and demand.

Totally understand if you can’t see past your own needs. It takes courage and integrity to do the right thing. We’re not all there yet. Someday you’ll be comfortable enough with your decisions to start caring about those in need.

This truly makes no sense. There are lots of things rich people should do to help the world, but voluntarily switching their 15-year mortgage to a 30-year in order to free up 30-year mortgages for the less wealthy (???) is not one of them.

Some of the logic in this thread makes me really wonder about the state of critical thinking skills.

For the record, we bought using a 10-year ARM since the rate was lower than both the 15 and 30 year options. And we expected to move in the 10 year horizon so it seemed to be the right call. Though we ended up refinancing to a standard 30-year when those rates hit the low 2% range and put the savings in I-bonds/equities to get essentially 'free' money.