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Pragmatic Capitalism

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Buying a house — mortgage question

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Did you get a 15, or 30 year mortgage and why?

If you have savings in the stock market, do you now consider yourself leveraged due to having a mortgage? For example, maybe you are paying 3.5% on your mortgage, but because you believe the stock market will return more than that, you leave your savings in stocks instead of in your house.

If you paid cash, good for you, but would still like your thoughts on the above questions.

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Posted by laskerfan12
Posted on 10/09/2016 1:46 PM
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I also bought a house in June of this year 2 miles from my only grandchild (2.5 years-old). Wells gave me a 3.625 percent mortgage, tax deductible, and I bought the same amount of Wells Preferred L paying 6.14 percent in my IRA, tax deferred. Why would Wells do that?

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Posted by alanb516
Answered on 10/09/2016 4:18 PM
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    Oh, I am aware that they sold the mortgage to Fannie Mae and are not holding it in their portfolio, even though it is money good. So, they make it up on volume?

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    Posted by alanb516
    Answered on 10/09/2016 5:04 PM
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      Hi Lasker,

      We got a 30 year fixed with much more than 20% down. The bank gave us a 3.25% rate.

      Strangely, I’d actually argue that I feel delevered. The main reason is because I reduced my after effective after tax monthly expenses by buying. That might sound weird, but I was basically overpaying for a rental. So buying actually increases my cash flow position going forward. Yes, I feel more levered to stocks now because I don’t see the cash I invested in the house, but I know how stable this asset is on a long time horizon so I actually feel better owning than I do leaving the money in bonds or cash right now.

      My thinking was basically that the cash/bonds I own are not going to do much better than real estate in the next 10 years. I’m in a beachside CA town where the prices of homes tend to be correlated with the growth in very high incomes (4-5% per year). So it’s hard for me to imagine doing worse than bonds with the cash we invested in the house.

      I’d argue that my case is a bit unique given the location and property we purchased. So it’s a little hard to generalize and compare it to other parts of the country. We really were patient on a specific location and then we were really aggressive when we saw something we liked. So, I guess you could say that the old real estate saying “location, location, location” was a major driver in my decision. I’d venture to argue that, over a 10 year time horizon, there’s virtually no downside in the property I purchased. So I was just going for margin of safety over everything else and that is mainly a function of the uniqueness of the property I bought….

      Not sure if that helps, but I hope so!

      – CR

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      Cullen Roche Posted by Cullen Roche
      Answered on 10/12/2016 1:53 AM
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        >alanb516

        With the dividend less the loan interest Wells are paying you less dividend then they pay a cash buying shareholder (6.14-3.625), in return you pay for the shares later , at the end of the loan term.

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        Posted by Dinero
        Answered on 05/24/2017 5:51 AM
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