How many of you have paid off your home?

Why do you say a low fixed mortgage would be a hedge against inflation? Let's say you borrow $250,000 and hyper-inflation hits. Now you owe 25 million. If you don't have the cash flow, you lose your house. The wise thing is always to be free of debt.

 

The risk would be deflation. The amount you owe remains the same in a traditional mortgage. If inflation goes rampant and you remain employed, presumably your earnings would go up and the mortgage payment would be a much lower part of your income.

Funny thing. When we were in Greece 10 years ago, we commented to a tour guide about how many homes seemed to be in various stages of construction with no one working on any of them. It was explained to us that debt is not even usually considered an option there, most people simply pay as they go and so the houses often take many years to complete. If only governments were so wise. More proof that most politicians are usually completely out of touch with typical constituents.

Another thing that struck us is that street vendors there put the fries INSIDE the gyros. Yum.

 

So your house is paid off. No problem, except the poll has already closed.

I've heard this attributed to property tax evasion. Under a system where such taxes do not start until construction is complete, there is a very strong incentive to not complete the construction.

This completely changes the spin on ...

 

Definitely something a tour guide would likely omit lol. Tax laws would also explain the difference to other countries in western Europe. Granted, most of those you notice weren't even complete enough to use as shelter.

 

"Presumably" is the operative word. Real wages have been falling. One easy way for the ruling class to pick the pockets of the working class is for wages not to keep pace with inflation.

Interesting theory. The reason Greece is a basket case and could possibly trigger another financial collapse, is DEBT. Ten years ago, the above may have been true. But Greeks learned how to abuse borrowing in the interim. Hmmm. Maybe their prior lack of experience with debt was what allowed them to fall so far behind when debt became popular. They didn't know how to manage debt sensibly.

Here's the thing: Debt can be a way to build a personal or national infrastructure to support a productive and profitable lifestyle, or it can be an irresponsible way to consume more than you earn. But it's always a risk, because you are dependent on circumstances beyond your control for your ability to continue servicing that debt.

Being debt-free eliminates many of the risks that can plunge honest people into destitution. And in the long run, if you choose to operate within the law, you're more likely to succeed financially if you avoid debt.

(The great fortunes, of course, are seldom if ever acquired within the law, but that's another topic.)

 

The current economy is not an example of inflation, certainly not hyper-inflation. Cost of living has been relatively flat for the last few years. Again, if real wages are falling, you're talking deflation. I think the context of an inflation hedge is when you start approaching double-digit annual inflation or more.

Right, thus the irony in how different things can be from how the general public manages their affairs to how it is done by politicians who are all but isolated from the real world.

 

In that case, the guide's observation may be correct. Most of the houses I have seen 'under construction' under this tax system were complete and occupied on the ground and often second floor. The top floor was obviously incomplete, often just barely started with some concrete columns and rebar pointing to the sky.

 

Before the Euro was adapted in Greece inflation was high. That probably made long term loans difficult to get so I suspect that a lot of houses were worked on as money became available

I've seen a lot of partially built houses in Mexico (bottom occupied, 2nd floor incomplete) and one explanation I got was because of lower taxes if a house is still under construction.

The other common explanation was that people were building their houses without loans and built as they could afford it.

In Newfoundland I saw a lot of houses that looked complete except the front door was 6 to 10 feet off the ground with no porch or steps. One explanation was lower taxes on an incomplete house. Another explanation was that people usually went in through the mudroom in the back of the house so a front porch was a low priority.

 

Daniel,

'Real wages' is not relevant. If a person's wages increase faster than the loan APR, the house loan is devalued. It is the flip side to having money in a fixed investment like a CD during an inflationary period.

 

I agree, perfectly legal and huge tax advantages to doing so

For example, I am an employee of my company. My company pays what I consider to be a fair wage, offers nice perks, retirement and dental, etc

We should discuss such murky topics as leasebacks and capital cost recovery allowance

A good tax lawyer is worth it

 

Yup, I am an employee of my company too. In the US tax system, I benefit by paying less social security than would be true as a simple business owner, deduct health insurance premiums, and am allowed a much higher ceiling for tax deferred retirement savings contributions.

 

Paid off our 20 year home loan in 13 years and have been living without a house payment for the past 34 years.

 

Deflation is when the money becomes more valuable. I.e. a loaf of bread costs fewer dollars.

If the rate of inflation is, say 5% but wages are only rising by 4%, the monetary situation is inflation, but real wages are declining. A loaf of bread costs more dollars than it did, and also it takes more hours of work to earn enough to buy that loaf of bread.

As for the loan/mortgage stuff, I admit to being confused regarding what sort of conditions make it profitable; but it is still true that going into debt so that you can buy something with money you don't have, is always a risk. An example is the recent collapse of credit: People bought houses believing that "property values always go up," and when the bubble burst, they found themselves under water, and if they lost their job, they lost their house. My sister bought a second house, thinking it would be a great investment. She took a big loss. If she had borrowed money to buy it, she'd have lost the house and still been in debt for a house she no longer owned.

There were examples of people who owned their houses, but decided they wanted to embark on a project that they had no money for. So they borrowed against their home, and after the collapse they lost it.

There's always risk when you borrow money.

 

Sure it's been paid for years

 

I guess I am late to this and the poll is closed. I paid off my house in September of '08, just before the economy fell off of a cliff. I also finished putting my youngest through college just a few months earlier. Being self-employed, my business took a fairly serious hit when the economy tanked. It has come back some, but not to pre '08 levels. But it really didn't matter all that much, I was completely debt free and didn't need nearly as much as I had before, so the timing was pretty fortunate for me.

I am firmly of the opinion that there is no better way to prepare for, or get by in, bad economic times/conditions than to be as debt-free as possible. I pay cash for everything nowadays, even vehicles. It is much better to pay for them in advance than to make payments. I am not fond of banks for a number of reasons and don't want to give them any more money than I absolutely have to!

 

Spot on!!!

 

Congratulations!

 

Dave Ramsey, inventer and innovator of the debt snowball idea. Oh, and pretty rich guy from selling his crapola to the poor and (dare I say financially stupid) christian faithful.

Paying off *some* debt is better than paying off no debt. More debt would be paid off if one starts with the highest interest debt first, so it is hard for rational people to not laugh at Ramsey. His flock is however enamored with the proposition of receiving one fewer bills in the mail. That is supposed to provide the motivation to continue paying debt off.

One other Ramsey tidbit: credit cards are the devil. Once again rational people who do not collect debt on their cards shake their heads at Ramsey, but here he is on firmer ground since he knows his flock pretty well, and rightly assumes they do not have the discipline to avoid misuse. Of course Ramsey does not say "my advice is for knuckleheads only," but that *is* the congregation.