Author Topic: Those sitting on a lot of home equity: have you thought of selling and FIRE'ing?  (Read 12650 times)

talltexan

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I just do not understand how anyone is able to afford homes "starting in the upper 900's".

We'll need to move to generational mortgages where your grandparents buy the house and your kids finally pay it off after 100yrs.

Isn't an interest-only mortgage just a version of this?

For fun, I'm putting the 100-year term into my mortgage calculator. At a fixed rate of 4.75%, monthly payments would be $1,034 (on a $260,000 mortgage). For a 30-year term, they'd be $1,351. For a 40-year term (I've heard of these actually happening), it's $1,206.

If a bank is seriously offering these 100-year loans, you're probably not going to get the same rate as the 30-year.

Retire-Canada

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Isn't an interest-only mortgage just a version of this?

For fun, I'm putting the 100-year term into my mortgage calculator. At a fixed rate of 4.75%, monthly payments would be $1,034 (on a $260,000 mortgage). For a 30-year term, they'd be $1,351. For a 40-year term (I've heard of these actually happening), it's $1,206.

If a bank is seriously offering these 100-year loans, you're probably not going to get the same rate as the 30-year.

Well an interest only mortgage would never get paid off so that's not what I am talking about. It's also hard to get a mortgage where I am longer than 30yrs and the rates are not fixed for more than 5yrs at a stretch. It may be possible to get something longer, but I am not aware of how realistic that is for folks without a lot of money and it's folks who can't afford a "normal" 30yr mortgage that would be looking for a longer amortization period.

Offering a 100yr loan doesn't mean you would offer a locked in rate for 100yrs. It just means you would accept a borrower who's income only allowed them to repay a mortgage on a longer term and who would fail the approval tests for a normal 30yr mortgage. Unless something changes in hot housing markets the number of people who can afford a 30yr mortgage will keep dropping so if we want those people to still have a shot at a house something around mortgages has to change.


talltexan

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I heard somewhere that the average home tenancy is seven years. So let's say I get a $150,000 mortgage, interest rate 4.75% with a 30-year term.

When I'm selling the house (at the end of year 7) my loan balance is still $131,000, more than 87% of the total (with 75% of the term remaining). If I change houses three times, I could be 28 years in with 87% of my loan balance remaining, effectively simulating the 100-year term through a series of 30-year mortgages.

Canadians must think we Americans are so weird with our 30-year fixed mortgages.

Retire-Canada

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I heard somewhere that the average home tenancy is seven years. So let's say I get a $150,000 mortgage, interest rate 4.75% with a 30-year term.

When I'm selling the house (at the end of year 7) my loan balance is still $131,000, more than 87% of the total (with 75% of the term remaining). If I change houses three times, I could be 28 years in with 87% of my loan balance remaining, effectively simulating the 100-year term through a series of 30-year mortgages.

Canadians must think we Americans are so weird with our 30-year fixed mortgages.

In that scenario you would be getting a new mortgage every 7yrs and having to deal with interest rate changes each time, which is not that far off a Canadian with a typical 5yr fixed term mortgage. Our mortgages are frequently amortised at 25 or 30yrs even though the term is only 5yrs long.

Canadians don't think US 30yr mortgages are weird, but we do wish we had that as an option if we could get such low rates on them. From what I've seen on these forums the 30yr fixed US mortgage is lower or similar interest to the Canadian 5yr fixed rate mortgage.

Linea_Norway

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We need to sell our house to be able to FIRE. Our house cost approx 1 mil USD when we bought it. We spent practically all we had on it, just before discovering MMM. We are building stash from scratch again.
But I think we can easily buy somewhere smaller where we can free up 60% of the sum. And since we have the house I realize it is a lot of work to clean it. So my next place should definitively be smaller.
My DH thinks we just as well let the money sit in the house until we need it. But I've told him it need to generate rent to make the 4% rule. Houses usually don't generate a lot. He is starting to agree on it.

Slee_stack

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Taxes and running costs, not equity, is what would (or will) prompt us to high tail it the hell outta here.

Appreciation almost always brings along costs.

This year, property taxes jumped pretty brutally for us, but so did water/sewage, sanitation and electricity.  Why?  Because the government can!  Everybody wants to live here right? 

So we get to enjoy 50% more in running expenses in return for.....'equity'...that may or may not ever actually materialize.   I suppose we should just feel privileged to pay MORE for the SAME (or actually diminished) services.

I suppose its just another reason to NOT own anything expensive.  Sure, you can make some money on house appreciation, but you can also pay thru the nose every year making your way there.




Retire-Canada

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Our property taxes haven't gone up much despite a hot real estate market. Locally they take the municipal budget and divide it by the property value of the tax base. So if everyone's house went up 15% in market value, but the municipal budget stayed the same property taxes don't go up.

afuera

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We actually plan to do the opposite.  We live in TX which has very affordable housing but are thinking of FIREing in a few places that have higher real estate costs.  Our plan now is to use whatever equity we end up with as a down payment on our FIRE house so we don't count home equity in our 'stache since we plan on spending it once we are ready to FIRE.