Category Archives: Mortgages

By Percentage, The Rich Are Now The Number 1 Mortgage Defaulters

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According to this New York Times article: (Click here to read), the following is taking place:

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

The article goes on to say that only 1 in 12 below the million dollar mark is deliquent!

Okay, so perhaps the rich aren’t out on the streets…  In fact, usually it’s a 2nd home or a rental property that they are delinquent with the payment…

The article states that the Rich are more ruthless.  Actually first, I’m sure if “us, less than rich folks” had a 2nd house or rental property, we would consider unloading it too, especially if we were losing money on it. 

Second, I think since the government is attacking this social class, they no longer feel obligated to do what is best for the economy or government.  After all, they are being secretly or blatantly (depending on your viewpoint), attacked from the government.  So why care, since they are being view as the bad guys anyway. 

Mostly, I think they see it as a bad investment that no longer makes sense though.

I initially was going to write this post around the fact that strategic defaulters are bad, and I would take the high road and stick it out.  But, since the 2nd home or rental property is really an investment…  Now, I’m not so sure!  I would like to think I’d do the right thing, but they are losing money on these investment, and the government is kicking them while they are losing that money…

Readers, what would you do if you have a 2nd home or rental property in a place like Las Vegas (where the value of homes have practically halved)?

-MR

Warren Buffett Was A Renter

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I’ve started to read “The Snowball“, which is a biography of Warren Buffett.  So far, it’s a facinating book, that has changed my perspective on my “Financial Hero #2 Warren Buffett” post.

Although I’m only 1/4 of the way through the book, I wanted to mention something that I wouldn’t have guess about Warren Buffett.  He was a Renter!

There was a time when Mr. Buffett was just a little rich (my my standards) and so he was a renter.  When he was 26 year old (and rich by most of our standards), he said that he was retired (but really this was just the beginning).  He had gathered enough money by that age that he would live off of the money he had at the time.  He believed that he could live off of that money through his stock market skills (and he was right).  But he didn’t stop there, no sir!  He started managing trusts for people.  They would invest and he would manage their money into investments.

Warren rented because he didn’t want to tie up his money in a house at that time, after all, he needed to live off of the interest on the stocks he owned.  This was highly unusual at the time, especially considering that even at 26, he would have be considered rich by most standards.

So all of you Renters out there that claim your way is the best… you might be right, especially if you have investing skills like Warren did.

The catch is he didn’t rent for very long after he was 26… Eventually he bought a house (I think the one he lives in today).

So you crafty renters out there that might be investing tons of money!  Hats off to you all!

-MR

Loss of Honor, Walking Away From Your Mortgage

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I’ve had this title “Loss of Honor, Walking Away From Your Mortgage” stored in draft mode for over a month.  I hesitated in writing it because I was torn between how the government was treating us (practically giving money way to first time home buyers) and that fact that to walk away from your mortgage is wrong.

Why is it wrong you say?

Because you entered a contract with the other entity.  A contract is a contract and without it, American isn’t quite the same place.  What if your house lost 40% of it value, you might ask?  Well, I think that bites, but you still have a contract with your lender.   And the right thing to do would be to continue to make your payment as planned.  Besides, there is a good chance that your house might get some of it’s value back.  From recent readings, house prices are starting to appreciate a bit.

As you can tell, I’m up on the old soapbox about this voicing my opinion, but I kind of feel like a hypocrite!  I now own my house outright, so I no long have a mortgage payment, but that’s not why I feel like a hypocrite!

You see a very close friend has just did exactly what I’m saying not to do…  He bought a bigger, better house, and walked away from the mortgage on the other house.  He didn’t tell me directly, but his dad was upset and let it leak out to me.  Needless to say, I was shocked! 

Such an action that my friend preformed is called a “Strategic Default“.  This is where a person can still afford to pay a mortgage, but instead walks away.

My view of my friend has already changed for the worse, I find that I don’t want to hang out with him, and make up excuses as to why we can’t hang out.

I hope that Strategic Defaulters realize that doing such a deed, will tarnish their image, and they may even lose friends, or have their friendships reduced (like I did).

What would you do if a close friend or relative did such an action?

-MR

I Am Debt Free, My Mortgage Countdown #1 – Equilibrium

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I’m Debt Free!  I don’t have credit card, car, mortgage or any other type of debt!

At Equilibrium

 

On the Wells Fargo website I selected the send “Payoff form” option for my last mortgage payment.

I filled it out and printed it so that I can have Wells Fargo to pay our real estate taxes from our escrow.  Now that they did that, I still have to pay our house insurance at the beginning of March, but… I sent in my last official mortgage payment!

Actually the check is sitting on my kitchen counter downstairs, waiting for me to put it in the mail. Tomorrow, I will drop it off at the post office, and then I will be finished with it!!!  (Booyah)

I ended up paying off my house in 10 years.

So how did I do it?

Well, first I created an excellent excel spreadsheet to do some analysis on an amortization schedule.

Primarily, I used primarily 2 sheets in my spreadsheet:

  • The actual payment was recorded to a sheet.  This sheet was the real deal!  As soon as I made a payment on the house, it was recorded in this sheet.  Not much to this one, pretty cut and dry.  At the top, I calculated the reduction in interest paid by pre-paying, the shorting of the life of the years of the mortgage by prepaying, and the total cost of the initial mortgage plus the interest.
  • The “What If” analysis sheet. I used this to create a strategy to pay my house mortgage off early. I was able to calculate how different extra payments would affect the duration of the mortgage and also calculate the reduction in interest paid for the entire loan. I used this sheet so many times to calculation my payment schedule! It might not be obvious, but this was a great tool for wealth accumulation for me.

Next for the first year of the mortgage, I made double payments on the mortgage amount, with the excess going toward paying down the principal.  Then later after my son was born, I lessened the payment amount to only 1.5 times the original payment amount.

I’m still in disbelief!  I’m at a point of balance and having an “equilibrium moment”, so to speak!

As of this point forward, I will be solidly marching on a wealth-building path (or at least I hope, life sometimes throws some wild pitches at you…).

As the last phase of this final numbness wears off, I’ll tell you what it feels like being debt-free in a future post!

-MR

Update:  An equilibrium moment is when something is in perfect balance!  I don’t owe any debt anymore and nothing is owed to me either!  With the “debt phase“, I’m in perfect equilibrium.  This phase is over!  I don’t plan on ever going into debt that I can’t pay in a month’s time again!

Here are some links to former post in the Countdown series