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

[Anonymous]

Anonymous wrote:Home many in DMV actually have a 30 year mortgage?!? DH and I have a 15 year at 2.25%. Of course, we could have gone with a 30 year and invested the savings in the stock market, but how many people actually do this? Most of my friends have homes worth twice ours, but they have an HHI that is maybe 1/2. Most of our neighbors with similar home values are sporting used Toyotas, unkempt yards, IKEA furniture, and vacations to Rehoboth. Meanwhile, we have BMWs, several millions in savings, well manicured gardens and maintained home, heirloom Stickley furniture, and multiple int'l vacations per year in first class. One of our neighbor's trees fell down 2 years ago near the edge of our property line and they still haven't removed it. They want to split the $800 cost for removal. For real?!? Are we way off base, here?

It seems like you should move closer to your friends, instead of looking down on your neighbors.

We have no mortgage on our million dollar home. We have a couple million in savings and a lot of high end inherited heirloom furniture. We travel internationally to exotic locations often, but never first class, which is a waste of money to me.

I drive a 13 yo F150, buy clothes at Walmart, and shop sales for groceries. Never buy organic. Cars are not important to me and I grew up farming so I understand what should be organic.

I find your spending on conspicuous consumption odd. Spend on what you love, not what makes you look good to others. In addition to my Walmart clothes, I have a nice selection of Dutch Warmblood dressage horses…because I adore them.

[Anonymous]

We have a 30 year mortgage for, originally, a $450k loan, and at HHI around double that. I think it’s stupid not to take full advantage of those super low rates, but I guess if you’re incredibly conservative with money you choose differently.

[Anonymous]

Anonymous wrote:Let’s make this nice and simple. Assume we buy a new home that costs $Y with a down payment of 20%. At the 2.5% APR that everyone on DCUM seems to have, this means a mortgage of $0.8*Y over either 15 or 30 years. At 30 years, the fixed monthly principal + interest payment is $0.003160*Y. At 15 years, the fixed monthly principal + interest payment is $0.005334*Y. Monthly property taxes might be around $0.0009*Y. Monthly homeowners insurance might be around $0.0001*Y.

PITI for a 30 year mortgage ends up at $(0.003160 + 0.0009 + 0.0001)*Y = $0.004160*Y

PITI for a 15 year mortgage ends up at $(0.005334 + 0.0009 + 0.0001)*Y = $0.006334*Y

The rule of 28% tells us that PITI should be no more than 28% of gross monthly HHI (MHHI).

Now, let’s solve for Y as a function of monthly gross HHI (MHHI) and annual HHI (12*MHHI):

30 year mortgage: $0.004160*Y < 0.28*HHI: Y < 67.31*MHHI: Y < 5.61*HHI

15 year mortgage: $0.006334*Y < 0.28*HHI: Y < 44.21*MHHI: Y < 3.69*HHI

Multiple your HHI by 3.69. If your house cost more than this when you bought it, and you’re dependent on a mortgage for financing, you’re living beyond your means. These people can’t get approved for 15 year mortgages, so they regress to buying a home with a 30 year one. Now, according to the bank, you can afford a home that is 5.61X your HHI. Buy, of course! Awesome way to impress your friends and family until you realize you didn’t budget for a 1.5X increase in maintenance costs and now can’t afford to spend a few hundred dollars to even remove a fallen tree.

Please tell me who removes a tree for “a few hundred dollars.”

[Anonymous]

Anonymous wrote:A $500K 30 year mortgage at 2.5% generates $213,323 in interest payments over 30 years. A $500K 15 year mortgage at the same rate generates $100,146 in interest. This is a $111,177 savings over 30 years. Furthermore, most 30 year mortgages carry higher APRs, thereby increasing the value of a 15 year even more.

If the plan is to just pay extra principal...why not get the 15 year to begin with?!? Answer: the obsession with living beyond ones means. Proof: the fact that so many other expenses incurred are for substantially lower quality goods and services. Look at me ma! I live in a 5000 sqft plastic palace. Oh, BTW, we're eating Kraft mac and cheese for dinner on cheap plates from walmart. And don't mind the air matress on the floor in the guest bedroom....

People are smarter than you. They spend beyond their means on housing. That’s very smart. Homes are assets that appreciate in value. They spend the minimum on goods and services because they are depreciating assets.
You do the opposite. You spend little on your house and overspend on depreciating cars, furniture and dinner plates. Not smart.

[Anonymous]

Anonymous wrote:
People are smarter than you. They spend beyond their means on housing. That’s very smart. Homes are assets that appreciate in value. They spend the minimum on goods and services because they are depreciating assets.
You do the opposite. You spend little on your house and overspend on depreciating cars, furniture and dinner plates. Not smart.

Hmmm… it’s smarter to overpay on a $500K loan by more than $111K? Sounds like OP is saving more than enough on interest payments to be able to afford spending a touch more on some household goods and services. Is it better to own a depreciating asset or to be burdened by a liability? I guess I would rather keep the $111K and spend some of it on travel than give it all away to a bank and receive nothing in return.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I’m laughing about the BMW. Do you think that’s a quality car?

NP. I think BMWs are very high quality cars. I am a mechanical engineer with a specialization in automotive engineering and am amazed at the attention to detail that is placed into most of their models. Any car brand can cherry pick one or two features upon which to optimize (e.g., quietness, acceleration, state-of-the-art tech, cost, etc…), but building a vehicle that has been optimized and harmoniously balanced across a multitude of characteristics is impressive. This is why a BMW is the Ultimate Driving Machine.

You are not a mechanical engineer, and have no such specialization. Your terminology is glaringly lacking from an engineering perspective. The Germans lost engineering preeminence after WW2. As it relates to BMW, case in point: VANOS. Where the conceptual could never square with the real world.

-a German engineer

[Anonymous]

Anonymous wrote:

You are not a mechanical engineer, and have no such specialization. Your terminology is glaringly lacking from an engineering perspective. The Germans lost engineering preeminence after WW2. As it relates to BMW, case in point: VANOS. Where the conceptual could never square with the real world.

-a German engineer

Nice try, troll. B.S. and M.S. degrees in mechanical engineering from Georgia Tech. Ph.D in Engineering Mathematics from MIT. J.D. in patent and intellectual property law from Harvard. Perhaps it is only benighted engineers like you that have never known the gratification of studying and innovating amongst the world’s most engineering elite.

This is probably how much you know about BMW innovation and engineering, in general: cos(ln(i^i))

[Anonymous]

Anonymous wrote:So, yeah, in this example a 30 year monthly payment is $1,975 while a 15 year monthly payment is $3,333. The owner with the 15 year is piling the extra $1,358 (and then some, since % of P+I on I is lower) into building greater home equity via illiquid savings. The owner with the 30 year? Hats off if their $1,358 per month is being invested another way with a greater return. In the majority of cases, it’s actually used to cover things like taxes, insurance, car payments, and groceries. We at least know for a fact that any owner with a 15 year mortgage is committed to savings.

This. We’re also squarely in the 15 year camp. We’re paying about $5K per month vs. $3K per month because we have a 15 year vs. a 30 year mortgage. It is a 100% investment into an appreciating asset (i.e., our house) and provides a nice balance from a diversification perspective. We’re still saving about $8K per month for retirement, $2K per month for college savings (2 kids), maxed out HSA, and another $1K per month in additional taxable brokerage investments. We don’t like having too much net worth tied to our home, but we need to strike a balance with our portfolio of stocks.

Plus, tons of people seem to forget that after 15 years, 100% of the monthly payment on a 15 year mortgage becomes available for alternative investment options. Meanwhile, those with a 30 year are still overpaying interest for another 15 years. Talk about dumb.

[Anonymous]

We paid off our home 15 years ago, have always lived well below our means, aggressively invested in high dividend stocks and funds.

Fast forward to now, no debt at all (own home in DMV, condo in SC, 35 ft sailboat). Pension plus about $120,000 in dividends estimated this year. Only 54, so still have to wait until 59.5 to tap retirement accounts.

Paying off mortgage and investing in stock market for past 30 years worked for us. YMMV.

[Anonymous]

I have literally never asked a friend "hey Barb, are you and Doug on a 15 or 30-year mortgage?"

I would also never want to be friends with someone who cared about that. How weird.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I think it is dumb to tie yourself to a 15-year mortgage. Get a 30-year mortgage and make double payments. This gives you flexibility if, for example, one or both of you lose your jobs and you have cash flow problems for a month or two. Apparently your idiotic plan worked out for you and your husband, OP, but it isn't the best choice.

OP, here. Why would either of us lose our jobs? We're both highly sought after and star workers? Besides, we have a 12-month+ safety net in liquid savings outside retirement. Just feels like people in DMV are way too invested in their homes, many house poor, and not diversified enough across a balance of assets, amenities, and experiences.

Oh dear.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I think it is dumb to tie yourself to a 15-year mortgage. Get a 30-year mortgage and make double payments. This gives you flexibility if, for example, one or both of you lose your jobs and you have cash flow problems for a month or two. Apparently your idiotic plan worked out for you and your husband, OP, but it isn't the best choice.

OP, here. Why would either of us lose our jobs? We're both highly sought after and star workers? Besides, we have a 12-month+ safety net in liquid savings outside retirement. Just feels like people in DMV are way too invested in their homes, many house poor, and not diversified enough across a balance of assets, amenities, and experiences.

Glad you got your brag out.

[Anonymous]

psa this is a troll

[Anonymous]

Anonymous wrote:

Anonymous wrote:I think it is dumb to tie yourself to a 15-year mortgage. Get a 30-year mortgage and make double payments. This gives you flexibility if, for example, one or both of you lose your jobs and you have cash flow problems for a month or two. Apparently your idiotic plan worked out for you and your husband, OP, but it isn't the best choice.

OP, here. Why would either of us lose our jobs? We're both highly sought after and star workers? Besides, we have a 12-month+ safety net in liquid savings outside retirement. Just feels like people in DMV are way too invested in their homes, many house poor, and not diversified enough across a balance of assets, amenities, and experiences.

Please tell me OP is a bored troll. Please...

[Anonymous]

Anonymous wrote:

Anonymous wrote:Home many in DMV actually have a 30 year mortgage?!? DH and I have a 15 year at 2.25%. Of course, we could have gone with a 30 year and invested the savings in the stock market, but how many people actually do this? Most of my friends have homes worth twice ours, but they have an HHI that is maybe 1/2. Most of our neighbors with similar home values are sporting used Toyotas, unkempt yards, IKEA furniture, and vacations to Rehoboth. Meanwhile, we have BMWs, several millions in savings, well manicured gardens and maintained home, heirloom Stickley furniture, and multiple int'l vacations per year in first class. One of our neighbor's trees fell down 2 years ago near the edge of our property line and they still haven't removed it. They want to split the $800 cost for removal. For real?!? Are we way off base, here?

You sound like a complete and total jerk.

PP—thank you for saying this!