Debts And Assets

irvinebullhousing

Well-known member
Americans hold $8.88 trillion of mortgage debt, according to a February report from the Federal Reserve Bank of New York. It's the largest type of household debt in the country, and it increased "substantially" during the fourth quarter of 2017 ? up $139 billion, according to the report.

If you're one of those millions of people with a mortgage, your top priority should be paying it off before retirement, according to Kevin O'Leary.

"If you want to find financial freedom, you need to retire all debt ? and yes that includes your mortgage," the personal finance author and co-host of ABC's "Shark Tank" tells CNBC Make It.

You should aim to have everything paid off, from student loans to credit card debt, by age 45, O'Leary says.

"The reason I say 45 is the turning point, or in your 40s, is because think about a career: Most careers start in early 20s and end in the mid-60s," O'Leary says. "So, when you're 45 years old, the game is more than half over, and you better be out of debt, because you're going to use the rest of the innings in that game to accrue capital."

"Mortgages are more of a gray area than credit card debt, because real estate can be an investment," O'Leary explains. Still, he advises you to think long and hard before taking on a mortgage at all.

"It's not always a good investment, and in my opinion, most people in their 20s, or even 30s, have no reason to be taking on that kind of debt," he says. "Homes don't always gain as much value as you expect ? at least not anymore, and at least not quickly."

https://www.cnbc.com/2018/06/13/kevin-oleary-pay-off-your-mortgage-by-this-age.html

My statement - Not when you carry a million in mortgage debt, and in the last great recession, it considered you are imprison in your own home. Can't sell and can't move.
 
@Kings, this is not what the author written the article. The author encourage to at least, get rid of all student debts and credit cards debt by this age of 45. This is just an ideal age for Mr, O'leary best practice. Many do achieve much sooner than that.
 
It's actually dumb advice.  Why would I want to pay off my student loan that is locked at 1.5% or my mortgage that is locked at 4.5%?  I much rather have the liquidity.
 
Owning your home free and clear may sound awesome, but paying off a mortgage, particularly paying it down early, is a complex decision.

Can you afford to prepay your mortgage?
What will produce the greatest wealth?
When will you need your money?
How important is paying off debt to you emotionally?

For an investor, this raises an interesting question: Can you earn a better return on an investment portfolio? Since 1926, the average annualized return for a balanced portfolio of 50 percent stocks, 40 percent bonds, and 10 percent cash, has been 7.9 percent. That's far higher than most mortgages, even after accounting for taxes. For a growth portfolio (75 percent stocks, 20 percent bonds, 5 percent cash) the average annual return has been closer to 9 percent. Of course, past performance is not a guarantee of future results ? the future return on an investment portfolio is uncertain. So your view of risk is important, as is your timeframe.
 
Compressed-Village said:
@Kings, this is not what the author written the article. The author encourage to at least, get rid of all student debts and credit cards debt by this age of 45. This is just an ideal age for Mr, O'leary best practice. Many do achieve much sooner than that.

those are direct quotes from mr. wonderful lol

Compressed-Village said:
If you're one of those millions of people with a mortgage, your top priority should be paying it off before retirement, according to Kevin O'Leary.

"If you want to find financial freedom, you need to retire all debt ? and yes that includes your mortgage," the personal finance author and co-host of ABC's "Shark Tank" tells CNBC Make It.

You should aim to have everything paid off, from student loans to credit card debt, by age 45, O'Leary says.

"The reason I say 45 is the turning point, or in your 40s, is because think about a career: Most careers start in early 20s and end in the mid-60s," O'Leary says. "So, when you're 45 years old, the game is more than half over, and you better be out of debt, because you're going to use the rest of the innings in that game to accrue capital."

"Mortgages are more of a gray area than credit card debt, because real estate can be an investment," O'Leary explains. Still, he advises you to think long and hard before taking on a mortgage at all.

"It's not always a good investment, and in my opinion, most people in their 20s, or even 30s, have no reason to be taking on that kind of debt," he says. "Homes don't always gain as much value as you expect ? at least not anymore, and at least not quickly."
 
Irvinecommuter said:
It's actually dumb advice.  Why would I want to pay off my student loan that is locked at 1.5% or my mortgage that is locked at 4.5%?  I much rather have the liquidity.

4.5%? Ouch. I'm closer to 2.5%. I would love to have my mortgage paid off by the time I'm 45. It will mean I've been able to consistently earn a lot more than I spend and have enough left over to pay extra on the mortgage after:

Retirement savings
College savings
Non-restricted savings
HSA savings
etc.
 
Kings said:
Compressed-Village said:
@Kings, this is not what the author written the article. The author encourage to at least, get rid of all student debts and credit cards debt by this age of 45. This is just an ideal age for Mr, O'leary best practice. Many do achieve much sooner than that.

those are direct quotes from mr. wonderful lol

Compressed-Village said:
If you're one of those millions of people with a mortgage, your top priority should be paying it off before retirement, according to Kevin O'Leary.

"If you want to find financial freedom, you need to retire all debt ? and yes that includes your mortgage," the personal finance author and co-host of ABC's "Shark Tank" tells CNBC Make It.

You should aim to have everything paid off, from student loans to credit card debt, by age 45, O'Leary says.

"The reason I say 45 is the turning point, or in your 40s, is because think about a career: Most careers start in early 20s and end in the mid-60s," O'Leary says. "So, when you're 45 years old, the game is more than half over, and you better be out of debt, because you're going to use the rest of the innings in that game to accrue capital."

"Mortgages are more of a gray area than credit card debt, because real estate can be an investment," O'Leary explains. Still, he advises you to think long and hard before taking on a mortgage at all.

"It's not always a good investment, and in my opinion, most people in their 20s, or even 30s, have no reason to be taking on that kind of debt," he says. "Homes don't always gain as much value as you expect ? at least not anymore, and at least not quickly."

Which I agree with you is that not realistic, because if you taken on a huge mortgage debt now, let's say 1 million, unless you win the lottery, it ain't going to happen. It more like you will be working well past retirement age to full fill debt obligation.
 
paperboyNC said:
Irvinecommuter said:
It's actually dumb advice.  Why would I want to pay off my student loan that is locked at 1.5% or my mortgage that is locked at 4.5%?  I much rather have the liquidity.

4.5%? Ouch. I'm closer to 2.5%. I would love to have my mortgage paid off by the time I'm 45. It will mean I've been able to consistently earn a lot more than I spend and have enough left over to pay extra on the mortgage after:

Retirement savings
College savings
Non-restricted savings
HSA savings
etc.

Jumbo loan and 30 year fixed. 
 
Rather than specify age, I'd say time the RE market and buy when it's cheaper (or at least comparable) than rent.

In addition to making the numbers work, if you're buying a home, you should only buy a house that you feel good living in.  If that's not possible then rent and buy elsewhere as investment property.  Never buy a home that you feel miserable living in.
 
momopi said:
Rather than specify age, I'd say time the RE market and buy when it's cheaper (or at least comparable) than rent.

In addition to making the numbers work, if you're buying a home, you should only buy a house that you feel good living in.  If that's not possible then rent and buy elsewhere as investment property.  Never buy a home that you feel miserable living in.

Which beg the question, where are we now in the cycle? From your perspective.
 
If he's saying a home is not a great investment, he's insinuating there are better investments.  I think the stock market shows that over the long-term.  With that in mind, his advice is wrong. 

I'd rather borrow money at roughly 4% and invest in the market long-term where you'll see 7-9% appreciation.  Paying off your mortgage is the right option if you (1) value peace of mind much greater than the 3-5%/year opportunity cost and (2) your go-forward income (and ability to pay bills) is shaky. 

But at the end of the day - there is no 'one size fits all' advice on this topic.
 
Kings said:
so....don't take on a mortgage in your 20s or 30s, but have your mortgage paid off by 45. got it.

I'm with Kings, this is what that author said:

"It's not always a good investment, and in my opinion, most people in their 20s, or even 30s, have no reason to be taking on that kind of debt,"

You have to pay to live somewhere... and to me, if you can afford to pay a mortgage vs rent, that seems reasonable.

Not sure why he thinks by 45... if you acquire your first property in your mid 20s, move up once, you're looking at 50-60 to pay off, which is close to retirement age... which is really the goal, unless you want to retire earlier.

And then again, I'm more worried about getting my kids set up to be able to work and afford to live on their own and start families... then I can die. :)


"
 
Maybe he is saying don't spend money on moving up, and instead pay down the mortgage on your starter home and leverage your equity?
 
i would say mr. wonderful's advice is more realistic if you're living in a $200k home with a $150k mortgage and $100k income (for example).  but if you're living in a $1m home with a $750k mortgage and $200k income, it's not really practical.
 
Kings said:
i would say mr. wonderful's advice is more realistic if you're living in a $200k home with a $150k mortgage and $100k income (for example).  but if you're living in a $1m home with a $750k mortgage and $200k income, it's not really practical.

Let's say you are living in a $1m home with a $750k mortgage and $200k income and you bought the home at the age of 32 with a 30yr fixed mortgage at 4.5%. Monthly payment is $3,800 or about 22% of your pre-tax monthly income. To pay off the home in 15 years, you'd need to pay an average of $5,700/mo - which is understandably too much of a burden.

The key is that your dual-income will increase

33 - COLA 3% = $206k
34 - Promotion 10% = $227k
35 - COLA 3% = $233k
36 - COLA 3% = $240k
37 - COLA 3% = $247k
38 - COLA 3% = $255k
39 - Promotion 10% = $280k
40 - COLA 3% = $289k

Mortgage remains $3,800 while income has gone up almost 50%

Bonuses: Many highly paid employees receive annual 10-20% bonuses, some of which could be applied to principal.
 
inv0ke-epipen said:
Maybe he is saying don't spend money on moving up, and instead pay down the mortgage on your starter home and leverage your equity?

That would be very hard to do if you are moving up because of your life situation changing.

A 2 bedroom attached condo might work if it were just you or you and your spouse but once you have 1 or 2 kids, you have to get a 3 or 4 BR and should be looking at a detached home.

I just don't know how mid 20s do it today, especially in Irvine.

Homes have gone up almost 3-4x in the last 20 years, but salaries have not, even with lower interest rates (basically about 1/2 to 1/3), the monthly cost is still much higher than wages.

I'm too lazy to do the math but what is the wage requirement on a $750k starter home with 20% down? At 4.5 isn't that over $4k a month? So DTI requires about a 6-figure household income?

Gonna need some help from Moms... or Mom-In-Law.
 
paperboyNC said:
Kings said:
i would say mr. wonderful's advice is more realistic if you're living in a $200k home with a $150k mortgage and $100k income (for example).  but if you're living in a $1m home with a $750k mortgage and $200k income, it's not really practical.

Let's say you are living in a $1m home with a $750k mortgage and $200k income and you bought the home at the age of 32 with a 30yr fixed mortgage at 4.5%. Monthly payment is $3,800 or about 22% of your pre-tax monthly income. To pay off the home in 15 years, you'd need to pay an average of $5,700/mo - which is understandably too much of a burden.

The key is that your dual-income will increase

33 - COLA 3% = $206k
34 - Promotion 10% = $227k
35 - COLA 3% = $233k
36 - COLA 3% = $240k
37 - COLA 3% = $247k
38 - COLA 3% = $255k
39 - Promotion 10% = $280k
40 - COLA 3% = $289k

Mortgage remains $3,800 while income has gone up almost 50%

Bonuses: Many highly paid employees receive annual 10-20% bonuses, some of which could be applied to principal.

That's sort of missing the point.  You can use the extra money to put into investments, which will get you significantly better return then if you put it into the principal. 

Also...it is very unlikely for someone in their early 30s to afford a $1 million home.  Down payment is at least $200,000 and that person is likely also paying high student debt because they went to graduate school.

It's a numbers game.  If your ROI > debt interest...you invest.  If the debt interest > ROI, you pay down your debt. 

Edit:  Your salary is not likely to continue to grew at 3% or get a substantial bonus or promotion.  Also need to factor in layoffs and downturns in the economy.
 
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