Millionaire pays off his mortgage and gets walloped on the Internet
Sam Dogen worked in investment banking for 13 years before starting Financial Samurai, a personal finance website. Considering his expertise, he saw logic in working hard to pay off his mortgage, which he did.
Then he wrote this article on CNBC complaining about paying off his mortgage. “In 2015, my wife and I finally did it. Eliminating one of our largest reoccurring expenses felt so satisfying. With one less burden, we could live life more freely,” he said.
“But just a year later, that feeling went away — along with the fire to improve my finances,” Dogen said.
And later he added: “…my entire attitude slowly changed once I sent that final mortgage check. I stopped aggressively looking for new freelance consulting work. I went from taking on three contracts per month to just one. So instead of working 60 hours, I was only working 20 hours. At around $10,000 per contract, I was losing out on $20,000 of monthly income.”
Needless to say, this Twitter feed had a field day with the article.
“Can you imagine the intense regret that would fester within due to living mortgage free, having a net worth of $3 million, and making $150k in passive income?” asked one commenter. “I can see how that would lead to a stale and listless existence. Cry me a river.”
Many of the comments contain vulgarity, owing to the fact that the majority of those who have a mortgage, can’t really afford to pay it off early.
As for Dogen’s attitude shirt, one Tweet had a fairly good response: “What the hell is this article? Is this written by a banker? It’s the guy’s own problem if he starts to be lazy and not invest or work as long.”
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Mortgage market investment wavers, briefly
Why does Rise&Shred cover mortgage activity in the secondary markets, be it stocks and/or bonds? Or as readers may put it: What does this have to do with me? Fair question! We’re glad you asked!
The entire market is based on liquidity. And when investors start to pull out of one industry, or another (they frankly don’t care if the mortgage market is doing good or bad, only if it’s worth investing in it) it’s normally an indication of tougher times ahead. We like to be prepared.
Currently, investors in mortgage companies are starting to anticipate a turn in the cycle, but it may be premature to call an end to the boom, according to an article in the WSJ. (warning, metered paywall.)
Fourth-quarter loan volumes reported by originators so far have been huge, and there are signs that the start of 2021 may not have the typical seasonal softness. However, some key measures of how much originators can make when they originate and then sell mortgages are falling.
For example, median gain-on-sale margins have dropped for banks and lenders in the fourth quarter from the third, according to Piper Sandler. This has gotten the attention of investors. Furthermore, loanDepot’s IPO launched much lower than hoped, until investors shook off the risk and began to buy.
The WSJ article is an attempt to reinforce to investors that mortgages are still a good investment, like with the article on the upside to investing in loanDepot.
“There may be a bit more upside yet in originating,” the WSJ states.
“For one, there are still a ton of mortgages with rates that make them strong candidates to be refinanced,” the article states. “As of December, there were roughly 19 million mortgages outstanding with high-FICO borrowers, or about $7 trillion worth, for which the average borrower could save about $300 a month if they refinanced, according to figures tallied by analysts at Jefferies Financial Group.”
That’s a fairly positive outlook, that’s very well put.
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“There are still a ton of mortgages,” that can refinance
The WSJ article urging investors to stay in the mortgage game mentions the tons of opportunities out there for lenders. That is, of course, threatened by higher interest rates.
According to this NextAdvisor sponsored article in Time: Mortgage rates are expected to rise — and put a damper on your refinancing plans.
“Our forecast [has mortgage rates] going up to around 3.4% by the end of the fourth quarter of 2021,” says Mortgage Bankers Association economist Joel Kan. “The reason why we have an increasing rate path is driven by the expectations of stronger growth in the second half of the year.”
And while that may not seem like much, it may narrow the window of refi opportunity. “Even going up by half a percentage point could prove to be a pretty big hit to the refinance market,” Kan says.
Treasury rates have been increasing steadily since August 2020, and mortgage rates are starting to feel the pressure. Barring an unexpected setback to our economic recovery, experts predict rates will rise by the end of 2021.
However, considering the Federal government’s efforts to keep rates low is likely to continue, the nation’s economy may be back on track in time for rates to begin to rise again.
Late last week, the Biden administration’s $1.9 trillion stimulus package cleared a hurdle to approval with both the House of Representatives and Senate approving budget resolutions. This allows the Democratic-led Senate to approve the measure with a simple majority.
Optimism is high, with Treasury Secretary Janet Yellen saying she expects the U.S. to return to full employment by next year if the stimulus package is passed.
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