Author Topic: Mortgage spread to Treasury  (Read 6109 times)

BPCAP

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Re: Mortgage spread to Treasury
« Reply #40 on: September 07, 2020, 06:14:46 PM »
For my fellow posters who are also extremely debt-adverse to a degree that, on paper, doesn't look optimal or smart (i.e. the typical planner would look at me and say, why don't you at least have a mortgage-you're leaving carry on the table!):

Would you take out debt at any rate? I'm trying to talk myself into getting some debt via a mortgage that's about 2% (and falling) after tax benefits, and it's refundable, refinanceable, and NON-RECOURSE (because it's 'Merica!). Why not get as big a mortgage as possible?

The only reason I can think of is work. Meaning, the day I paid off my mortgage was the day I starting thinking more clearly and investing better (I'm a PM). I improved a real shortcoming in my game, which was Munger's concept of gumption. Will I be more anxious or timid because I have some debt, even though I know that it would lead to no reasonable bad consequence? 

Thanks for hearing me out on this optimization problem. Not a real problem, of course, in the big scheme of things. But on an anonymous board, it's easier to ask the things I'd be ashamed to ask people I know.



thepupil

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Re: Mortgage spread to Treasury
« Reply #41 on: September 07, 2020, 06:44:05 PM »
Alaska, Arizona, Washington, Utah, Idaho, Minnesota, California, North Carolina, Connecticut, North Dakota, Texas and Oregon.

I assume a risk averse chap like you knows those are the non recourse states.

I am the exact opposite.

 I maximize debt and minimize home equity in order to have the most liquidity. I feel more comfortable being short a mortgage and long investments and house than being long a house and much lower investments.

During the rona, I have incrementally de-levered from 97% to 90% LTV, 2% via some accelerated amortization of my 2nd lien that balloons in 4 years and the rest from fake Zestimate appreciation. Without going into too much detail, I have the ability to be much lower LTV but do not have enough money to pay off the house entirely at this stage of the game.

I am in the midst of my worst drawdown on a relative basis of my short investment career. I took out the 2nd mortgage  right before this. It has not been a good decision thus far and has been detractive to net worth. I still feel more comfortable with though.

 people think Iím nuts. My home is financed like itís 2005.

My advice is you do you. Itís not like the risk of investing with mortgage proceeds have decreased because rates went from 4% to 3% to maybe less.
« Last Edit: September 07, 2020, 06:46:15 PM by thepupil »

DooDiligence

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Re: Mortgage spread to Treasury
« Reply #42 on: September 07, 2020, 06:58:40 PM »
I think it depends on the individual / couple / family.

I'm a terrible equity investor who gets lucky on occasion.

I own my home & don't owe anyone a penny.

I sleep like a baby & wouldn't have it any other way.
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Jurgis

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Re: Mortgage spread to Treasury
« Reply #43 on: September 07, 2020, 09:17:44 PM »
I think it's a great time to buy multi-million dollar house with 80%+ mortgage.
But I won't do it.  ::)

I agree with what thepupil said: You do you.
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fareastwarriors

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Re: Mortgage spread to Treasury
« Reply #44 on: September 07, 2020, 10:44:14 PM »

During the rona, I have incrementally de-levered from 97% to 90% LTV, 2% via some accelerated amortization of my 2nd lien that balloons in 4 years and the rest from fake Zestimate appreciation.


What kind of mortgage? HELOC?


Gregmal

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Re: Mortgage spread to Treasury
« Reply #45 on: September 08, 2020, 12:29:26 AM »
I'm with pupil on this one.

Only difference is that I was lucky to be able to buy the home I hope to live in and raise my family in for 20+ years by 25. This also happened to be shortly after the GFC. So I got in at a good time, put some sweat equity(plus like $200k) into my home, and did a cash out refi this past March to raise liquidity.

But I lever EVERYTHING. Cash is garbage. Even my $1200 snowblower...12 months no interest, then balance transfer to a 0 interest card. All day. Typically with home improvement projects or large expenses, I'll put down 1/3 in cash and finance the rest. Cars I lease off the top and then buy out into a 5-7 year loan depending on the rate.

I've got a few private placements in non public companies...75% funded with debt from the start. I semi regularly buy vintage sports cards and memorabilia(be careful, but if you are in the right neighborhood this is as good as art) always funded with promo credit card deals with no interest.

It's originally the Donald Trump strategy, but if one hates him, its easier called the Brookfield playbook. Get into good assets with as little upfront equity as possible and then let them do their thing. Only adjustment is go super hard on the leverage for depreciating, but life necessary assets, IE cars and whatnot. Its crazy to me when I hear folks paying cash for cars....what a waste.

The only * is to make sure you have liquidity earmarked for all this stuff. But if you can afford it to begin with, why pay up front?

thepupil

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Re: Mortgage spread to Treasury
« Reply #46 on: September 08, 2020, 03:42:29 AM »

During the rona, I have incrementally de-levered from 97% to 90% LTV, 2% via some accelerated amortization of my 2nd lien that balloons in 4 years and the rest from fake Zestimate appreciation.


What kind of mortgage? HELOC?

No. HELOCs can be pulled at the wrong time from what Iíve read. I am less comfortable with debt like margin and HELOCs where a change in the bank/brokers policy can suddenly change the duration of your loan.

I got an 80-98% 15 year amortization 2nd mortgage that balloons in 5 years (now 4.25). Rate is 5.25% which increases my all in house rate from 3.125%(the rate on the jumbo first) to 3.5%; 98% at 3.5% seems quite borrower friendly. Because the proceeds were used to fund investments, the interest is deductible, but you have to make an election that classifies all your investment income as short term so itís not generally favorable and is generally not deductible.

Iíve been marginally paying down the balloon a bit more aggressively so that 4 years from now itís closer to 7% of net worth (assuming stagnation/no bonus) than 15% when it balloons ; Iím pretty confident Iíll just borrow again on similar terms and hopefully extract more out of the house given its appreciating at > expected rate and the loan will be less sognificant relative to liquid assets by then and be lower risk.
« Last Edit: September 08, 2020, 04:02:11 AM by thepupil »

TwoCitiesCapital

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Re: Mortgage spread to Treasury
« Reply #47 on: September 08, 2020, 06:02:57 AM »
For my fellow posters who are also extremely debt-adverse to a degree that, on paper, doesn't look optimal or smart (i.e. the typical planner would look at me and say, why don't you at least have a mortgage-you're leaving carry on the table!):

Would you take out debt at any rate? I'm trying to talk myself into getting some debt via a mortgage that's about 2% (and falling) after tax benefits, and it's refundable, refinanceable, and NON-RECOURSE (because it's 'Merica!). Why not get as big a mortgage as possible?

The only reason I can think of is work. Meaning, the day I paid off my mortgage was the day I starting thinking more clearly and investing better (I'm a PM). I improved a real shortcoming in my game, which was Munger's concept of gumption. Will I be more anxious or timid because I have some debt, even though I know that it would lead to no reasonable bad consequence? 

Thanks for hearing me out on this optimization problem. Not a real problem, of course, in the big scheme of things. But on an anonymous board, it's easier to ask the things I'd be ashamed to ask people I know.

I was/am very debt averse. As I get older, I become less so.

When it comes to a mortgage, I want to borrow as much as possible because rates are low, liquidity is valuable, and it's hard for me to get 30-year money any other way. A 2.75% mortgage rate is a low bar for performance IMO.

As mentioned above, I also finance large purchases with 0% credit cards and roll the balances with balance transfer offers and pay down over the next few years. This is definitely the MOST risky thing I do, but the balance is less than 15% of my net worth and the carry costs negligible.

Don't swing for the fences with the money. Easy singles and doubles will keep you out of trouble and still be optimal with your leverage. Maybe a mixture of high yield corporates, mortgage REITs, some EM debt, some preferred equity, and some cheaper blue chips. Should be able to yield more than your hurdle rate with less volatility than the S&P 500 and you have some principal growth opportunity as well.

CorpRaider

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Re: Mortgage spread to Treasury
« Reply #48 on: September 09, 2020, 06:51:35 PM »

During the rona, I have incrementally de-levered from 97% to 90% LTV, 2% via some accelerated amortization of my 2nd lien that balloons in 4 years and the rest from fake Zestimate appreciation.


What kind of mortgage? HELOC?

No. HELOCs can be pulled at the wrong time from what Iíve read. I am less comfortable with debt like margin and HELOCs where a change in the bank/brokers policy can suddenly change the duration of your loan.

I got an 80-98% 15 year amortization 2nd mortgage that balloons in 5 years (now 4.25). Rate is 5.25% which increases my all in house rate from 3.125%(the rate on the jumbo first) to 3.5%; 98% at 3.5% seems quite borrower friendly. Because the proceeds were used to fund investments, the interest is deductible, but you have to make an election that classifies all your investment income as short term so itís not generally favorable and is generally not deductible.

Iíve been marginally paying down the balloon a bit more aggressively so that 4 years from now itís closer to 7% of net worth (assuming stagnation/no bonus) than 15% when it balloons ; Iím pretty confident Iíll just borrow again on similar terms and hopefully extract more out of the house given its appreciating at > expected rate and the loan will be less sognificant relative to liquid assets by then and be lower risk.

Some of my twitter dudes are saying you can get 10/1 ARM interest only loans now (maybe they are HNW private bank types, IDK).  I think I will probably just keep doing the 30 year fixed with the cheap/gov't subsidized interest rate option.  I still feel like mid 2's for a cash-out is what I want to see.  I should probably paint a couple of things before, since they act like the guy doing the $500 appraisal can actually add something to the valuation data....what a pain in the ass.

Unrelated: I'm pretty sure the NC anti-deficiency statute only applies to seller financing (i.e., not the normal situation where a bank.third-party funds the mortgage/DOT)
« Last Edit: September 09, 2020, 07:18:34 PM by CorpRaider »

Spekulatius

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Re: Mortgage spread to Treasury
« Reply #49 on: September 10, 2020, 04:25:43 AM »
re appraisal - I refinance with the same lender (no cash out ) and he is still relying on the initial appraisal from when I bought the house in 2018. There was no reappraisal needed for my last refinance, nor for my current one.

FWIW, my LTV is ~50%.
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