/biz/ - Business & Finance

>>57492579
Yes, 10 year treasury spiked from 3.81% to 4.05% yesterday since the fed said "we're good". Hope you locked it.

>>57441508
>the new home will be 4.5%

Yes. Because banks give out mortgage for the same rate that they borrow from the treasury at. Because that's exactly how it works.

Holy shit renters are retarded

Yes.

You should always take the mortgage and invest the cash, while getting the mortgage interest deduction.

>>56188251
Something to consider - you get a larger tax deduction with a higher interest rate, since you're paying more mortgage interest.

7.125% on a 350k mortgage is 25k mortgage interest. Property tax is likely 4k. After the standard deduction is applied, this is an additional 16k deduction worth roughly 4k. This makes your effective mortgage rate of 6%. The treasury is paying 5.5% for cash right now, so paying it down isn't that advantageous.

Conversely, people who landed a 2.75% mortgage rate in 2021 won't see any tax savings on a 350k mortgage.

>>56165820
It's dumb but mortgage interest is not as big of an issue as people make it out to be, since treasury yields rise with mortgage interest, and mortgage interest is tax deduct-able.

A 320k mortgage at 3% gets essentially no tax benefits, since the mortgage interest amount isn't above the standard deduction. But a 320k mortgage at 7% will pay 22k interest in the first year, 9k above the standard deduction, saving them roughly 2500 come tax season. That makes the effective tax rate 6%.

In addition, if rates were 3%, treasury yields are around 1.25% since there's typically a 1.75% gap. They're not gaining any interest in their cash. However, if rates were 7%, then people are gaining 5.25% on their cash.

This is why people who brag about paying off their home or paying cash for their next purchase are retarded. You should never, ever put make anything but minimum payments for your house, try to put as little money down (never more than 20%), and always take out the mortgage regardless of the rate. The higher the mortgage rate, the higher the treasury yields, and the higher the mortgage interest deduction

Here's a scenario - Billy Boomer has 400k cash for a house. He chooses to put 20% down and take out the mortgage for the rest.

>80k down payment
>320k mortgage at 7%
>22k in interest the first year

Sounds bad, Billy gets to deduct the 22k from his taxes, saving him ~5k (we'll assume with his property tax + other deductions that he's met the standard deduction already). His interest rate is now 5.3%.

Billy dumps the remaining 320k into treasury bills at 5.5%, earning him 15k/year after taxes. His 7% mortgage ends up being a 0.625% mortgage.

If rates fall, Billy gets to refinance and he gains thousands in home equity. If rates rise, Billy's treasury yields rise while his mortgage is fixed. Billy wins no matter what happens.

It's why I laugh when I see dumbasses bitching about "usury" and how you should "wait until you have the money to buy it in cash".

>>56043042
half the market is cash buyers in coastal FL, and even if they have cash, 7% mortgage isnt terrible for them

florida is a state full of boomer transplants who sell their properties up north and move down there to retire

boomers can dump their cash into treasury bills/CDs/high interest accounts at 5.5%, take out a mortgage at 7%

on a 520k mortgage, you pay 3k/mo in interest the first year, or 36k/year

standard deduction is 13k, meaning a net 23k interest deduction on their taxes, getting back ~24% of the 23k ($5,520)

total cost of mortgage for year one is ~30k, of 5.77%

they dump their 520k into treasury bills, CDs, high interest accounts at 5.5%, earn 28k/year before taxes (~21k/year after taxes)

net cost after year 1 = 9k on a 520k mortgage, or 1.7%

mortgages always cost ~2% for people with cash, regardless of the rate, because rates rise/fall with treasury yields, and cash buyers can just dump their cash into securities instead

and this is assuming there aren't more deductions - they're likely getting back more than 5520 on their interest deduction

if rates fall, they refinance and gain equity

if rates rise, their investments in securities pay more than the interest they pay towards their mortgage

it's win-win