vania-janet/multiturn-rag-retrieval-data huggingface dataset:
So, people deposit money with you, you agree to pay them fixed % back, and then you invest money for your own profit? Sounds like a bank to me.  Or a dividend-paying mutual fund, or a number of other similar ideas.  Sure, you're welcome to start something like that up; it's unlikely you'd get money from people unless you had already proved yourself competent as an investor, though.  After all, if it's possible to get a safe, comfortable 5%, why would anyone give you money at 2% or 3% instead of just getting that 5% for themselves?  Or, more likely, finding a competitor who gives 4.9%? As in most things, the market will find inefficiencies like this and squash them like bugs.   That said, there are some opportunities that take advantage of other kinds of situations.  The most common I'd say is owning a home.  You take out a mortgage for 80% of the value of the home, instead of buying it outright, and you instead invest the 80% in the market.  You likely will beat your mortgage rate given the current 3.5%-4% rates.  That's effectively doing the same thing, with an expense you'd have anyway (you always have to live somewhere); since it's a secured loan, you get better rates than the market will give (as it's quite safe) and you can use tax laws in your favor (mortgage interest deduction, in particular, and the capital gains break on primary residences).
tl;dr: when everything is going great, it's not really a problem. It's when things change that it's a problem. Finally, home loans are extended over extremely long periods (i.e. 15 or 30 years), making any fluctuations in their value short-lived - even less reason to be obsessed over their current value relative to the loan. Your post is based on the assumption that you never move. In that case, you are correct - being underwater on a mortgage is not a problem. The market value of your house matters little, except if you sell it or it gets reassessed. The primary problem arises if you want to sell. There are a variety of reasons you might be required to move: In all of these scenarios it is a major problem if you cannot sell. Your options generally are: In the first option, you will destroy your credit. This may or may not be a problem. The second is a major inconvenience. The third is ideal, but often people in this situation have money related problems. Student loans can deferred if needed. Mortgages cannot. A car is more likely to be a lower payment as well as a lower amount underwater. Generally, the problem comes when people buy a mortgage assuming certain things - whether that's appreciation, income stability/growth, etc. When these change they run into these problems and that is exactly a moment where being underwater is a problem.
I sold my house and had been in the market looking for a replacement house for over 6 months after I sold it. I found someone willing to give me a short term, 3 month lease, with a month to month after that, at an equitable rate, as renters were scarcer than buyers.By the time I found a house, there were bidding wars as surplus had declined (can be caused seasonally), and it was quite difficult to get my new house. However, appraisers help this to a degree because whatever the seller wants, is not necessarily what they get, even if you offer it. I offered $10k over asking just to get picked out of the large group bidding on the house. Once the appraisal came in at $10k below my offer, I was able to buy the house at what I expected. Of course I had to be prepared if it came in higher, but I did my homework and knew pretty much what the house was worth. The mortgage is the same as the lease I had, the house is only 10 years' old and has a 1 year warranty on large items that could go wrong. In the 3 months I've been in the house, I have gained nearly $8k in equity....and will have a tax writeoff of about $19,000 off an income off a salary of $72,000, giving me taxable income of $53,000... making by tax liability go down about $4600. If I am claiming 0 dependents I will get back about $5,000 this year versus breaking even.
I would also consider the following factors: How stable is your income?  Are you in an industry that could vanish in the near future?  How long would it take you to replace this income?  If you are at risk, then you need to consider that your lenders do not care how fast you've paid down your debt.  All the care about is that you make next month's payment.  You need to have liquid reserves available to weather any storm. (current wisdom is 3-6 months expenses).  It may be prudent to put this money in GICs or T-bills.  There may be an early withdrawal penalty, but at least you won't lose your house. (obviously, this isn't as important when you can actually retire all debt) What's your debt level?  If it's more than 3x income, then reducing that number might be the most prudent. On another note, what is your expected retirement income?  IRAs defer the tax to a later year. BUT, if you expect a great pension, it is feasible that you might be in a higher tax bracket on retirement (when you withdraw the funds) than you are now -- A situation that makes Indexed Retirement planning counterproductive. (Rich people don't buy IRAs)
I know this is a little off the wall but I bought a rental property for my son's tuition. The tenants pay down the mortgage for the next 12 years and it (hopefully) also appreciates in value. Worst case scenario is I come out with a rental and a kid with no education.  He doesn't go then there's no skin off my back.
So make sure you've got what you need to handle your basic needs even if you hit a rough patch, and make sure you're not financing the paying off of your house by taking a loan from Visa at 27% annually. Once you've gotten through all of those more-important things, you finally get to decide what else to invest your extra money in. Different investments will provide different rewards, both financial and emotional (and Mason Wheeler has clearly demonstrated that he gets a strong emotional payoff from not having a mortgage, which may or may not be how you feel about it). On the financial side of any potential investment, you'll want to consider things like the expected rate of return, the risk it carries (both on its own and whether it balances out or unbalances the overall risk profile of all your investments in total), its expected costs (including its - and your - tax rate and any preferred tax treatment), and any other potential factors (such as an employer match on 401(k) contributions, which are basically free money to you). Then you weigh the pros and cons (financial and emotional) of each option against your imperfect forecast of what the future holds, take your best guess, and then keep adjusting as you go through life and things change. But I want to come back to one of the factors I mentioned in the first paragraph. Which options you should even be considering is in part influenced by the degree to which you understand your finances and the wide variety of options available to you as well as all the subtleties of how different things can make them more or less advantageous than one another. The fact that you're posting this question here indicates that you're still early in the process of learning those things, and although it's great that you're educating yourself on them (and keep doing it!), it means that you're probably not ready to worry about some of the things other posters have talked about, such as Cost of Capital and ROI. So keep reading blog posts and articles online (there's no shortage of them), and keep developing your understanding of the options available to you and their pros and cons, and wait to tackle the full suite of investment options till you fully understand them. However, there's still the question of what to do between now and then.
A point that hasn't been mentioned is whether paying down the mortgage sooner will get you out of unnecessary additional costs, such as PMI or a lender's requirement that you carry flood insurance on the outstanding mortgage balance, rather than the actual value/replacement cost of the structures.  (My personal bugbear:  house worth about $100K, while the bare land could be sold for about twice that, so I'm paying about 50% extra for flood insurance.)  May not apply to your loan-from-parents situation, but in the general case it should be considered. FWIW, in your situation I'd probably invest the money.
What's going on here is that the variable rate loan is transferring some of the risk from the bank to you.  In a reasonable deal taking on risk brings with it reward.  It's the same thing as deductibles on insurance--they're transferring some risk to you and thus your expected total cost goes down. Thus the proper evaluation of such deals is whether you can afford the outcome if you draw the short straw.  If you feel you can afford the highest payment that can result then the variable rate is a good deal.  If you're near your limit then stay with the safe option of the fixed rate. For a house this is easy enough to evaluate--run the calculations assuming the highest payment and see what the debt-to-income ratio is.  Note that when we were getting mortgages there was another factor involved: the variable rate loans had a higher initiation cost.  Combined with the very low difference between fixed and ARM rates at the time we went fixed but given the rates you quote going variable would have been a no-brainer for us.
One late payment and you may lose all the equity you think you've been building up. Note that things may be different if you are moving from the U.S. to Canada, and have no credit history in Canada. In that case, you may have no credit rather than bad credit. Most banks still won't offer you a mortgage in this case, but some lenders do target recent immigrants. Don't rule out renting. For many people, regardless of their credit rating, renting is a better option. The monthly payments may be lower, you don't need a downpayment, you don't have to pay realtor and legal fees (and pay again if you need to move). A couple of sites provide more information on how your credit rating affects your possibility of getting a mortgage, and how to get mortgages with bad credit: http://mortgages.ca/credit-score-needed-mortgage-canada/ and http://mortgages.ca/mortgage-solutions/new-to-canada-financing/, along with http://www.ratehub.ca/mortgage-blog/2013/11/how-to-get-a-mortgage-with-bad-credit/
It depends on how much money it is going to save you, how secure your job is and how much risk is acceptable to you. The main problem with taking out a 401k loan for anything is that you have to pay it back within ~60 days of loosing your job which would be precisely when you need your savings the most and then you get the tough choice of using your savings to repay the 401k loan (assuming you have an emergency fund) or possibly not having enough money to live on until you find another job. If you don't have an emergency fund you are going to get stuck with a substantial tax bill 10% penalty plus taxes at your marginal rate. There are definitely advantages to avoiding PMI and you will probably get a pretty decent return on investment (mortgage interest rate + cost of PMI), but there are risks as well.
Generally speaking, no they won't. In this case, though I haven't done it myself, I was recommended to put the mortgage on the real estate after it's been leased out and has a contract on it.  Then, yes, they will use it for that.  But, ex-ante don't expect any bank to count on income from it because, at that point, there's zero guarantee you'll get it leased, and even if you do, at what rate.
At a minimum, I would save 20-30k, because you need to have both a safety net and some money for home repairs.  Very few people move into a house and then do zero repairs - painting, usually, at a minimum, and there's almost always something that comes up pretty soon after.  Even if you're buying a condo, you'll want to be sure you can fix anything that needs fixing within that first year or two. Beyond that, you have to decide based on your risk tolerance and your other details, like your income.  Taking a smaller mortgage means a guaranteed 3% to 4% return, right now.  That's not quite what you'll probably get on the market over the long term, but how did your investments do last year?  My 401(k) was down slightly...  In order to do better than that 3-4%, you're going to have to invest in stocks (or ETFs or similar), meaning you could have 10+% swings potentially year over year, which if that's your only (extra) 50k might be more than you can tolerate. If you're very risk tolerant and mostly looking to make money over the long term, then it may be worth it to you.  But if a larger mortgage makes it harder to pay the monthly payments (a meaningfully smaller buffer), or if your job is such that you might end up having to sell those investments at a loss to cover your mortgage for a few months because you (didn't make enough|got laid off|etc.), then you may want the smaller mortgage to make that less of a risk (though still setting aside the safety net in something minimally risky).
My primary concerns. There seems to still be a fair bit of distressed property (forclosures etc) on the market at current, which might well keep prices down for the next year or so that it takes to finish flushing that stuff out of the market.  The gist I get from most experts/pundits is that There will be good deals around for while to come still I'd advise you wait.  Go ahead and do the math to figure out what total you WOULD be paying would be, and charge yourself that much a mohth for rent in your current place, pocketing the difference in a savings account.  You'll be able to get a feeling for what it's like to live with that kind of house payment, and if you can do it sans any room-mate (something you can't always count on)  If you can manage it, then you have a much more realistic idea of what you can afford, AND you'll have saved up a bunch of money to help with a down-payment in the process.  If for example your Mortgage plus taxes and insurance ends up running around say $1450 a month, plus another $150 for the HOA, well then, that's charging yourself $1600 a month for your 'rent' which means $1000 per month going into the bank, in two years that's nearly the same as what you have now in the $401K, and you'd have a really good idea if you can afford that much per month in housing costs. If you are bound and determined to do this now, then here's a few other things to consider. You might to shop around a bit to see how typical those HOA fees are.   Yeah you don't have the expense and hassle of needing to mow the lawn, paint the place etc  but still,  150 a month translates to around another 1.5 mortgage payments a year. You might be able to get around PMI by splitting the mortgage into two pieces and doing a 'purchase money second' of around 15-20% and 75-70% of the value for the main mortgage.  That way the LoanToValue on your primary loan is under 80%, which could be worthwhile even if the interest rate on that second loan is a little higher (at least it's deductible, paying PMI is just money lost to you) although trying to do any kind of creative financing these days is a lot trickier
"Another option you might consider is rolling over some of that 401K balance into a self-directed IRA or Solo 401K, specifically one with ""checkbook privileges"". That would permit you to invest directly in a property via your IRA/401K money without it being a loan, and preserving the tax benefits. (You may not be able to roll over from your current employer's 401K while still employed.)  That said, regarding your argument that your loan is ""paying interest to yourself"", while that is technically true, that neglects the opportunity cost -- that money could potentially be earning a much higher (and tax-free) return if it remains in the 401K account than if you take it out and slowly repay it at a modest interest rate. Real Estate can be a great way to diversify, build wealth, and generate income, but a company match and tax-free growth via an employee sponsored retirement account can be a pretty sweet deal too (I actually recently wrote about comparing returns from having a tenant pay your mortgage on a rental property vs. saving in a retirement account on my blog -- in short, tax-free stock-market level returns are pretty compelling, even when someone else is paying your mortage). Before taking rather big steps like borrowing from a 401K or buying a rental property, you might also explore other ways to gain some experience with real estate investing, such as the new crop of REITs open to all investors under SEC Reg A+, some with minimums of $500 or less. In my own experience, there are two main camps of real estate investors: (1) those that love the diversification and income, but have zero interest in active management, and (2) those that really enjoy real estate as a lifestyle and avocation, happy to deal with tenant screening and contractors, etc. You'll want to be careful to be sure which camp you're in before signing on to active investment in a specific property."
"I think this is possible under very special conditions.  The important part of the description here is probably retired and rich.  The answers so far apply to people with ""normal"" incomes - both in the sense of ""not rich"" and in the sense of ""earned income."" If you sit at the top tax bracket and get most of your income through things like dividends, then you might be able to win multiple ways with the strategy described.  First you get the tax deduction on the mortgage interest, which everyone has properly noted is not by itself a winning game - You spend more than you save.   BUT... There are other factors, especially for the rich and those whose income is mostly passive: I'm not motivated enough on the hypothetical situation to come up with a detailed example, but I think it's possible that this could work out.  In any case, the current answers using ""normal sized"" incomes and middle tax brackets don't necessarily give the insight that you might hope if the tax payer really is unusually wealthy and retired."
The benefit is that your earnings in the 401k are not subject to income tax until you make withdrawals. This allows you to grow your money faster than if you made equivalent investments in a taxable account and had to pay taxes on dividends and capital gains along the way. Also, the theory is that you will be in a lower tax bracket in retirement and thus you will pay lower taxes overall. If this is not true (especially if you will be in a higher tax bracket in retirement), then there may not be any advantage for you to contribute to a 401k. One advantage over the Traditional IRA is the higher contribution limit. Some 401k plans also allow you to take loans from the plan, I don't think this is possible with a Traditional IRA. An alternative to both the 401k and Traditional IRA is the Roth version of either plan. With a Roth, you pay taxes up front, but your withdrawals during retirement are tax free.
I'd recommend you use an online tax calculator to see the effect it will have. To your comment with @littleadv, there's FMV, agreed, but there's also a rate below that. One that's a bit lower than FMV, but it's a discount for a tenant who will handle certain things on their own. I had an arm's length tenant, who was below FMV, I literally never met him. But, our agreement through a realtor, was that for any repairs, I was not required to arrange or meet repairmen. FMV is not a fixed number, but a bit of a range.  If this is your first rental, you need to be aware of the requirement to take depreciation. Simply put, you separate your cost into land and house. The house value gets depreciated by 1/27.5 (i.e. you divide the value by 27.5 and that's taken as depreciation each year. You may break even on cash flow, the rent paying the mortgage, property tax, etc, but the depreciation might still produce a loss. This isn't optional. It flows to your tax return, and is limited to $25K/yr. Further, if your adjusted gross income  is over $100K, the allowed loss is phased out over the next $50K of income. i.e. each $1000 of AGI reduces the allowed loss by $500. The losses you can't take are carried forward, until you use them to offset profit each year, or sell the property.  If you offer numbers, you'll get a more detailed answer, but this is the general overview. In general, if you are paying tax, you are doing well, running a profit even after depreciation.
You can't pay your bills with equity in your house. Assuming you paid off the mortgage, where would the money come from that you plan to live off of? If that is your whole retirement savings I'd say do neither. Maybe an annuity (not variable) for SOME of the money, keep the rest invested in conservative investments some of it in cash for emergencies.
Kind of gate to say it but I definitely have the persuasion and people skill part down. Spent 8 years in the therapy field in the military.   Definitely interested in tips!  I've been watching whatever I can on YouTube that I run across and have watched a few things on vet benefits for government contracts and different things like that but not sure I want to work too much with the government or even have that much of a chance where I'm at.  Probably looking more towards construction inspection or land survey stuff. Would absolutely love to get info search and rescue work if I could and do some good if I could
The tight lending standards such as elimination of low-documentation and sub-prime mortgages and requirements for lower loan to value, contribute to keeping all but those with pristine credit and cash reserves out of the market.  Some might consider this good for long term stability in the market.    I just went through doing a 20% down mortgage plus had to have one year extra liquidity in reserve.
"Generally, when you own something - you can give it as a collateral for a secured loan. That's how car loans work and that's how mortgages work. Your ""equity"" in the asset is the current fair value of the asset minus all your obligations secured by it. So if you own a property free and clear, you have 100% of its fair market value as your equity. When you mortgage your property, banks will usually use some percentage loan-to-value to ensure they're not giving you more than your equity now or in a foreseeable future. Depending on the type and length of the loan, the LTV percentage varies between 65% and 95%. Before the market crash in 2008 you could even get more than 100% LTV, but not anymore. For investment the LTV will typically be lower than for primary residence, and the rates higher. I don't want to confuse you with down-payments and deposits as it doesn't matter (unless you're in Australia, apparently). So, as an example, assume you have an apartment you rent out, which you own free and clear. Lets assume its current FMV is $100K. You go to a bank and mortgage the apartment for a loan (get a loan secured by that apartment) at 65% LTV (typical for condos for investment). You got yourself $65K to buy another unit free and clear. You now have 2 apartments with FMV $165K, your equity $100K and your liability $65K. Mortgaging the new unit at the same 65% LTV will yield you another $42K loan - you may buy a third unit with this money. Your equity remains constant when you take the loan and invest it in the new purchase, but the FMV of your assets grows, as does the liability secured by them. But while the mortgage has fixed interest rate (usually, not always), the assets appreciate at different rates. Now, lets be optimistic and assume, for the sake of simplicity of the example, that in 2 years, your $100K condo is worth $200K. Voila, you can take another $65K loan on it. The cycle goes on. That's how your grandfather did it."