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Suppose you live in a million dollar home, but have zero equity in that
home (ie--you owe 1 million dollars). In 30 years, that home is worth $4 million, and you owe still owe $1 million on it (ie--you had an interest-only loan). You have $3 million in equity on the home. You decide to take out $2 million of that equity, and put it in an investment that pays a rate equal to what the monthly payment would be on the loan (ie--you end up with a net monthly outlay of cash of zero). You can then use the $2 million to live on. The problem here is that you've already made payments on that interest-only loan that far far exceed your imaginary equity. NOYB wrote: Nope. Try again. An interest-only loan on $1 million at 6% interest gives you a monthly payment of $5000. And you have a fixed rate for that 30 years, right? It'll never never never go above 6%, right? And you don't have to pay taxes on that "appreciated" property, right? And your monthly bills aren't any higher in proportion to the size of that 'million dollar house' right? The bottom line here is that you're living on credit and trying to convince yourself it's sound fiscal policy. You probably feel a little guilty because you really know it ain't and you're risking your family's future. Otherwise you wouldn't even have posted that feel-good article about how market bubbles never ever collapse. DSK |
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