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What about the money you 'lock up' into your house? You will always need a house, will you not? When would you get the money that you 'lock up' into your house back?Quote:
Originally Posted by littlelolligagged
I think that approach will only be good when a mortgage rate is below renting rate. Only then will it make sense to buy a house. Otherwise it may be beneficial to simply rent. Sometimes you can get a much, much bigger house than you could get with the same money.
I would think that money tied up in real estate (that you live in) is the least liquid of all assets and thus hardest to draw upon.Quote:
Originally Posted by LittleFuzzy
By the way Dissident, that was what I meant with 'lost interest', it is the interest you could have had if you could use the money locked up in your home inanother way.
It was even more illiquid until they created HELOC and home equity loans. Then it was easy to draw on to get cash to...take a vacation or buy a car. They twisted up the home improvement loan, easy money made stupid.Quote:
Originally Posted by Hazir
Making a business loan with a mortgaged home as collateral probably made sense during a time when folks would do anything to keep their home, and it was taken for granted they wouldn't default or walk away. Or if they did, the bank could repo, sell, and profit.
Now there are loans made on top of loans, and the deck of cards has fallen. Everyone from the bankers to the buyers saw leveraged property as business as usual. Debt as asset. MBSs sucked in third party investors, businesses were built on borrowed money that's now defaulted, even PMI is underfunded (they never thought it would come to this).
It's incredibly difficult to draw on directly, yes. Definitely illiiquid. That's why I said leverage instead. Cash is even easier, just putting the money in an accessible bank account, but is that what you'd actually do with it all? Seeing as that usually also doesn't provide a particularly high return?Quote:
Originally Posted by Hazir
The inflation-adjusted appreciation of homes is something like 1.5-2% over time, IIRC. The bubble, which started much earlier on the coasts, caused people to treat it like something extra special, and take inappropriate risks. A house is more like a bond, and one should not accept much risk because of that low payoff.
As I pointed out, thatt still would give a better result.Quote:
Originally Posted by LittleFuzzy
But if it's not what you're going to do even if it would provide a better result, then it shouldn't be used as a point of comparison.Quote:
Originally Posted by Hazir
I tried to find a source for that, but didn't find much in either direction. And any data I do find is distorted by the housing bubble. :noob:Quote:
Originally Posted by '
But frankly, 1.5-2% over inflation is no mean feat at all. Most savings accounts and many bonds don't grow much beyond inflation (if at all).
I also suspect that number is the average of very disparate numbers. EG I just calculated that my mom's apartment (where I grew up) has appreciated 200%+ since she bought it. But of course she bought in a neighborhood that since then has become increasingly desirable.
Yet I imagine there are whole towns in America that have become correspondingly less desirable and the housing stock has declined accordingly. EG the median price of a home in metro Detroit is now $7500. :bulb:
It's almost impossible to detangle all the cash wrapped up in a mortgaged house. If you have to escrow property taxes, that's a chunk of change that can't accrue interest anywhere else (and it's not the same as first and last month's rent in apt deposits).
I'm not familiar with escrowing property taxes...how does that work? Isn't that just a transaction thing?
Isn't the cash in homes just the (sale amount/appraised value) - (mortgage amount) = theoretical cash value?
Mainly because it isn't ethical.Quote:
Originally Posted by Timbuk2
It drives up home prices, and it screwed up the economy here.
What's not ethical about selling your home for a profit?Quote:
Originally Posted by Supermarioman
:lol: Marioboy said I have no ethics. I think I feel awesome now.
Usually, if there's less than 20% cash down, buyer has to escrow municipal and property taxes for the year, a year in advance. They also like to pad escrow a bit since taxes are known to go up. The mortgage company then pays the tax collector.Quote:
Originally Posted by Dreadnaught
Might depend on the company, but I think they add it to each monthly payment, and break it down by principle/interest/escrow. Pa is required to return a certain percentage of overage to the homeowner, if the value of the home depreciates, but it's so complicated no one really knows if that ever happens.
And since taxes are tied to assessed value and mils formulas, and assessments aren't done yearly.....
I haven't heard of that...but it's an odd situation that the buyer can't pay for more than 20% down, but can put a year of taxes into an escrow account...right?
Buyer's can escrow taxes if they want, even if they don't have to (but why would they?)Quote:
Originally Posted by Dreadnaught
It's a contractual thing, maybe state-dependent? My township has legal rights as first lien holder. They can seize my house for non-payment of taxes.
Another part of this 'walk away from your mortgage' that is confusing. Are they also not paying the taxes that were part of their contract in the fine print? Are banks fighting municipalities for who gets the deed and sells to recoup losses?
I never said that. :?Quote:
Originally Posted by littlelolligagged
Read my first post. I said I wouldn't buy a house just to sell it, like a stock or other asset.
http://en.wikipedia.org/wiki/Real_estate_bubble
Really? Or is it the point where we should start to become more rational about the total of our assets and stop acting as if a home that you own is just another one that also needs to be justifiable.Quote:
Originally Posted by LittleFuzzy
Hazir, how are your taxes set up?
I'm paying quite a bit in interest on my loan, to get a paltry tax deduction. I'd prefer to pay down the principle faster, but it makes more sense to keep that cash making interest/dividends. Just in case.
Some have interest-only loans, and they don't have much equity at all....they just use the tax deduction.
The interest on loans for your first home (mortgage/repairs/improvements) are deductable from the tax on income. I get back about 37 cents of every euro I pay in interest on those. A lot of people see this as an incentive to borrow more, I always saw it as just another subsidy to the banks so I persisted in paying down my loan.Quote:
Originally Posted by GGT
For me tax deductability means that I am effective paying around 1.2% of interest on my loan (compared to getting 2.4% on my savings). The charm of this is that the loan cancels out the savings for the application of capital gains tax.
Real estate taxes for home-owners are relatively low at 0.05315 % of the market value of your real estate.
Your rate IS low. :shock: My combined municipal + school taxes = 2.5% of assessed value. It used to be assessed value was much less than appraised (market) value, but now it's 100%, after county-wide reassessment was done a few years ago, during the bubble.Quote:
Originally Posted by Hazir
As property values went up, the county wanted more revenue. They especially wanted to capture the gains made in houses owned for a long time, (assessments were only made when property changed hands) which caught elderly by the short hairs.
I pay about 1.2 %.
In a state where a 2 bedroom bungalow goes for over $600,000, I can see why you guys balked at Arnold's attempt to raise property taxes....Quote:
Originally Posted by Being
Hmm.. maybe this is my answer; real estate you live in is barely taxed in this country.
My $600,000 bungalow has 3 bedrooms, 2.5 baths (not counting the pasture), family room, living room, laundry room as big as a bedroom, and a two story barn. :o But it's only worth about $475,000 now. :( But I've been here for 12 years and payed much less than that for it. :DQuote:
Originally Posted by GGT
As far as taxes go, which house "value" are you paying on?
Market value, re-assessed every year on the basis of actual sales of similar places in my neighbourhood.
Me? I'm paying on the appraised value from when I refinanced in 2002. Less than today's appraised value by at least 100K.Quote:
Originally Posted by GGT