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Except with the new, higher standard deduction, how many people paying mortgage interest will exceed the standard deduction

I certainly wouldn't.

But I think it's good to discuss the potential impact of possible changes so that we can be ready to make any personal changes we need to make.

There have been a few earlier threads debating whether to pay off one's mortgage before retiring. This standard deduction would make that decision easier for me.

Fred
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Yeah, the related issue of possibly taking away the tax deferral has also been discussed.

http://boards.fool.com/scariest-thing-i39ve-read-today-32823...

With people generally not saving enough for retirement already, limiting contributions and/or taking away tax deferral seems like it would only compound the retirement savings problem. People who can afford to save a lot will, in taxable accounts (or find other dodges); those who find it harder to save will have one or two more reasons not to bother.

An optimist might believe that some pensions might return.... but I'm not an optimist.
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...limiting contributions and/or taking away tax deferral seems like it would only compound the retirement savings problem...

I'm waiting for the retroactive clause to this bill. Talk about not being an optimist:)

Pete
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MataroPete,

You wrote, I'm waiting for the retroactive clause to this bill. Talk about not being an optimist:)

Wow. That would be a mess.

I've started front-loading my 401(k) contributions. Pre-tax contributions go first. Next year I should hit the annual limit on pre-tax dollars on my April 15th paycheck. I wonder how they would have me "fix" that? Have my employer return my excess contributions?

Also if they change the limit late next year and excess funds are returned, some people might find switching to Roth contributions ... challenging.

And then there are all the automated systems that would need to be re-programmed at the last minute...

Yeah. I think that would be a real mess.

- Joel
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They are also talking about raising the standard deduction to 24K

You'd likely come out ahead anyway


t.
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They are also talking about raising the standard deduction to 24K

You'd likely come out ahead anyway


I've only seen "double the standard deduction." $24k is for married couples, not singles.

Upping the standard deduction would be nice for those of us that no longer have a mortgage, but would likely hurt middle class people with a mortgage, since what I've seen couples the increased standard deduction with no longer allowing a mortgage deduction. Limiting contributions and/or tax deductibility would be a double whammy.

And they just voted today to eliminate state and local tax deduction. Doesn't affect me, but would affect a lot of others if it actually goes thru.
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"I've only seen "double the standard deduction." $24k is for married couples, not singles."


I thought it was about 7K now for singles. Double would be 15K

- ----

"Upping the standard deduction would be nice for those of us that no longer have a mortgage, but would likely hurt middle class people with a mortgage, since what I've seen couples the increased standard deduction with no longer allowing a mortgage deduction."


Well, at 3% type interest rates - most folks aren't going to have that much mortgage interest - other than CA big cities and MD, VA, Ct, MA, etc.

More than half of homes are mortgage free.

A lot of people live in apartments

- - - - -- ----



" Limiting contributions and/or tax deductibility would be a double whammy."

The average for charitable contributions is, what, under 2% a year?

For taxes......well, that might limit how much states can now gouge you as folks realize those giant tax bills are no longer deductible - or they have 24K standard deductions and don't have 24K in deductions/mortgage/real estate taxes.

You don't get to deduct both sales taxes and state income taxes - one or the other.

- - ----

"And they just voted today to eliminate state and local tax deduction. "

Well, no state taxes in TX and half a dozen other states -

We do have sales taxes we can now deduct.

- ---

"Doesn't affect me, but would affect a lot of others if it actually goes thru."

well, maybe it is time to reform the tax system and not reward states for gouging their citizens. er, residents.

Why should folks in TX have to subsidize folks in CA and MD and MA and VA to the tune of hundreds of billions of dollars for their out of control spending, high taxes on houses, high taxes for sales, high auto taxes, taxes taxes and more taxes? Why?

- - -

If the standard deduction 'doubles' I'll never be able to itemize. As it is now, I only get to deduct, and not all that much, every other year by bunching my real estate tax payments - which I can pay either in December or January of a year. So two payments one year, none the next.....$4000 real estate taxes in TX on my $300,000 house now. Plus about a thou sales tax deduction from the table.

It will save the hassle of even trying to get over the limit....and saving all the receipts, etc, for donations.

t.
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They are also talking about raising the standard deduction to 24K

You'd likely come out ahead anyway


Don't assume you know anything about Joel's tax situation - I do, because I helped him do his taxes. He won't come out ahead if they increase (not really double) the standard deduction for singles to $12k, given that they are also eliminating other deductions and decreasing where the 25% bracket starts. Neither will I, for that matter. We may be part of a small percentage, but both of us will end up paying more in taxes with the same amount of income.

AJ
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I thought it was about 7K now for singles. Double would be 15K

The proposal isn't to "double" the deduction. It's to increase it to $12k for singles and $24k for couples. It's close to "doubling" since for 2017, the deduction is $12,700 ($13,000 in 2018) for MFJ and $6,350 ($6,500 in 2018) for singles, so that's probably close enough for politicians to say "double". But it's not.

Well, no state taxes in TX and half a dozen other states -

We do have sales taxes we can now deduct.


I've lived in 3 of those no income tax states for the last 13 years, so I haven't paid state income taxes in that long, either. But the sales tax deduction and property tax deductions are gone, too. Of those 3 no income tax states that I lived in, TX had the highest property tax rates and was in the middle on the sales tax rates, so it will impact lots of people in TX, too.

AJ
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limiting contributions and/or taking away tax deferral seems like it would only compound the retirement savings problem.

Meanwhile we know that the contributions and gains are still taxable at ordinary rates when you take distributions in retirement. The govt is not "giving" you anything. They are merely incentivizing voluntary contributions.

But this looks like a figment of govt accounting. The tax cut proposal gets scored on its 10 yr impact on the deficit. So cutting the tax deferrals helps the CBO score of the proposal.

Such gobbledegook from our govt. It's a shame we can't do better.
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telegraph,

In response to my post you wrote, They are also talking about raising the standard deduction to 24K

You'd likely come out ahead anyway


Such a short memory these days. I'm certain I've already posted an analysis of how Trump's plan impacts my taxes. I come out behind. I've even posted about it recently, not long after his latest press conference.

Quoting a recent post on this board, The proposal completely eliminates the "Taxes you paid" section of the Schedule A. In 2016 I claimed $15,273 on my Schedule A. Based on the new rules I'd get to claim $9,136 - well under the new standard deduction of $12,000. Net result would be a loss of $3,273 in deductions. Or an increase of $818.25 in taxes just to get started. ...

See: http://boards.fool.com/branmin-you-wrote-well-if-trump-gets-...

In any case you are conflating my response to MataroPete with something mostly unrelated. MataroPete was talking about Congress making any tax changes, including 401(k) plan changes, retro-active.

I was speculating that doing so would really create a mess ... I wasn't actually expressing an opinion one way or another about any of Trump's stupid tax proposals in my post. But since you brought it up, as I said in that other post you apparently didn't read, ... I'd be shocked if it works out to save *me* any money.

- Joel
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telegraph,

You wrote, I thought it was about 7K now for singles. Double would be 15K

Now telegraph... I didn't know you were young enough to know "new math".

And I also thought everyone knew Trump's plan was 12K for singles, 24K for MFJ.

Also, Well, no state taxes in TX and half a dozen other states -

We do have sales taxes we can now deduct.


And won't be able to under Trump's proposal.

I lived most of my life in Texas. Texans are proud of having no income tax; but their property and sales taxes are among the worst. Without them, I wouldn't have been able to file a Schedule A most of the years I lived there, even without doubling the standard deduction.

Good thing Trump is leaving in that mortgage interest deduction ... have to have something to make uber-rich in Texas feel special. It's certainly nothing the vast majority of households will be able to use.

- Joel
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joelcorley: "And I also thought everyone knew Trump's plan was 12K for singles, 24K for MFJ.

I lived most of my life in Texas. Texans are proud of having no income tax; but their property and sales taxes are among the worst.

Good thing Trump is leaving in that mortgage interest deduction."


Except with the new, higher standard deduction, how many people paying mortgage interest will exceed the standard deduction (unless interest rates rise significantly); remember that one can only deduct interest on $1M of personal home mortgage debt.

$500,000 mortgage at 4% would generate $20k in interest; still less than the 24k MFJ standard deduction.

Regards, JAFO
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Except with the new, higher standard deduction, how many people paying mortgage interest will exceed the standard deduction (unless interest rates rise significantly); remember that one can only deduct interest on $1M of personal home mortgage debt.

$500,000 mortgage at 4% would generate $20k in interest; still less than the 24k MFJ standard deduction.



Under the proposed plan, the personal exemption is gone, too. Currently that's about 4000 a person, so $8000 in personal exemptions would go away for a married couple filing jointly, plus the mortgage deduction, as well as deductions for state and local taxes. So a married couple might get a $24,000 standard deduction.... but if they have a $500k mortgage (lose the $20k mortgage interest deduction), lose the personal exemption ($8000) and lose the state and local tax deduction--and that amount will vary--this couple would not fare as well, all other things being equal.
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Link that talks about the personal exemption, etc.
https://www.google.com/amp/s/www.forbes.com/sites/janetnovac...
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JAFO31,

I wrote, And I also thought everyone knew Trump's plan was 12K for singles, 24K for MFJ.

I lived most of my life in Texas. Texans are proud of having no income tax; but their property and sales taxes are among the worst.

Good thing Trump is leaving in that mortgage interest deduction.


To which you replied, Except with the new, higher standard deduction, how many people paying mortgage interest will exceed the standard deduction (unless interest rates rise significantly); remember that one can only deduct interest on $1M of personal home mortgage debt.

$500,000 mortgage at 4% would generate $20k in interest; still less than the 24k MFJ standard deduction.


That's kind of my point. For a couple filing MFJ and assuming they get a 4% mortgage, they would need to buy a house worth at least $750,000 before they see a dime of tax savings from the mortgage interest deduction. I'm assuming a $150,000 down payment with a $600,000 mortgage.

Compare that to the median home price in Dallas of just $168,400, according to Zillow.

Now let's consider how much that $750,000 house is going to cost you in property taxes - taxes that aren't going to be deductible on your schedule A under the Trump plan. According to DCAD's property tax estimator page, a $750,000 house in the city of Dallas proper would cost you a whopping $35,394.18/year. (FWIW, that is almost 8 times what property taxes cost me on the east side of Seattle and my house is worth almost as much.)

Anyway, that's the minimum to get you to the bottom of the mortgage interest deduction under Trump's plan in Dallas. Basically you have to be paying something on the order of $75,000/year in housing costs (Principal + Interest + Taxes + Insurance, but not maintenance or up-keep) before you can deduct your first dollar of interest under the Trump plan in Dallas. That's a good deal more than the median household income in Dallas.

And yeah, you basically get capped out on the mortgage interest deduction at $40,000. So the most you are likely to save is 25% of $16,000 or $4,000/year on a house that is probably cost $1.2M and is directly costing you around $110,000/year. To someone with a $10,000/month housing budget the tax savings would probably seem pretty meaningless, except for bragging rights. It certainly doesn't do anything to incentivize home ownership.

- Joel
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MissEdithKeeler:

<<<Except with the new, higher standard deduction, how many people paying mortgage interest will exceed the standard deduction (unless interest rates rise significantly); remember that one can only deduct interest on $1M of personal home mortgage debt.

$500,000 mortgage at 4% would generate $20k in interest; still less than the 24k MFJ standard deduction.>>>

"Under the proposed plan, the personal exemption is gone, too. Currently that's about 4000 a person, so $8000 in personal exemptions would go away for a married couple filing jointly,"

I am aware of that. Under the current rules, the personal exemption is independent of whether one uses the standard deduction or itemizes deductions. I was (and am) trying to compare only deductions. I do not disagree with respect to your overall analysis.

"plus the mortgage deduction, as well as deductions for state and local taxes. So a married couple might get a $24,000 standard deduction.... but if they have a $500k mortgage (lose the $20k mortgage interest deduction), lose the personal exemption ($8000) and lose the state and local tax deduction--and that amount will vary--this couple would not fare as well, all other things being equal."

Agreed.

Of course, the disappearing personal deduction really hits hard at those with multiple children still at home.

A married couple with three children under age 18 would have 5 personal exemptions (at 2017 amount of $4,050, that is $20,250) and the standard deduction for 2017 for MFJ, is $12,700. Under the proposed changes, that combined $32,750 amount is reduced to $24,000, or at the 15% bracket an additional $1,312.50 in federal taxes due ([32,750-24,000] = 8,750 * 15% = tax increase). For 2017, the 15% bracket for MFJ starts at 18,650 and runs through 75,900.

https://www.forbes.com/sites/kellyphillipserb/2016/10/25/irs...

It will get ugly if DJT plan is enacted (and it will surprise many people who supported DJT).

Regards, JAFO
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joelcorley:

Joel: {{{And I also thought everyone knew Trump's plan was 12K for singles, 24K for MFJ.

I lived most of my life in Texas. Texans are proud of having no income tax; but their property and sales taxes are among the worst.

Good thing Trump is leaving in that mortgage interest deduction.}}}

JAFO: <<<Except with the new, higher standard deduction, how many people paying mortgage interest will exceed the standard deduction (unless interest rates rise significantly); remember that one can only deduct interest on $1M of personal home mortgage debt.

$500,000 mortgage at 4% would generate $20k in interest; still less than the 24k MFJ standard deduction.>>>

"That's kind of my point. For a couple filing MFJ and assuming they get a 4% mortgage, they would need to buy a house worth at least $750,000 before they see a dime of tax savings from the mortgage interest deduction. I'm assuming a $150,000 down payment with a $600,000 mortgage.

Compare that to the median home price in Dallas of just $168,400, according to Zillow."


I apparently did not understand your point. I understood that we were discussing increased federal taxes due if the DJT plan is adopted.

"Now let's consider how much that $750,000 house is going to cost you in property taxes - taxes that aren't going to be deductible on your schedule A under the Trump plan. According to DCAD's property tax estimator page, a $750,000 house in the city of Dallas proper would cost you a whopping $35,394.18/year. (FWIW, that is almost 8 times what property taxes cost me on the east side of Seattle and my house is worth almost as much.)"

That seems extremely high (it reflects 4.7%+ overall real estate tax rate); does it consider the homestead exemption?

"Anyway, that's the minimum to get you to the bottom of the mortgage interest deduction under Trump's plan in Dallas. Basically you have to be paying something on the order of $75,000/year in housing costs (Principal + Interest + Taxes + Insurance, but not maintenance or up-keep) before you can deduct your first dollar of interest under the Trump plan in Dallas. That's a good deal more than the median household income in Dallas.

And yeah, you basically get capped out on the mortgage interest deduction at $40,000. So the most you are likely to save is 25% of $16,000 or $4,000/year on a house that is probably cost $1.2M and is directly costing you around $110,000/year. To someone with a $10,000/month housing budget the tax savings would probably seem pretty meaningless, except for bragging rights. It certainly doesn't do anything to incentivize home ownership."


I agree that it does not incentivize home ownership.

But look at it the other way, MFJ, kids out of the house and off the family payroll, and who own a $160,000 house. At 4% interest rate, assuming 120k mortgage, that is $4800 in interest, and the implied tax rate you wrote (which I only assume arguendo), that would be $7,520 in taxes, for $13,320 to deduct, or only $620 more than the 2017 MFJ standard deduction of $12,700, with a tax savings of $93 in the 15% bracket, that is not a lot of incentive, either.

And with the 2017 personal exemption amount of $4,050, under the current rules, the couple excludes $21,370 ($8,050 + 13,320) whereas the DJT plan would allow the 24k deduction, and would generate a small tax savings of about $394.50.

Regards, JAFO
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I wrote, And I also thought everyone knew Trump's plan was 12K for singles, 24K for MFJ.
and follow-ons


Who the hell cares?

When I was younger I used to get all het up about proposed Federal tax changes. As I got a bit older, I realized it was kinda like shaking my fist at and shouting at a thunderstorm.

We have exactly zero control over what the new tax schedules (if anything actually happens), and when the changes do happen they never look much like the original proposal.

All we are doing in this discussion is venting to one another. Unless, perhaps, anyone here has some juicy blackmail on a few Senators. ;-)
Whatever we like, dislike, agree with, or disagree with---has no more effect than shouting at a thunderstorm.
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But look at it the other way, MFJ, kids out of the house and off the family payroll, and who own a $160,000 house. At 4% interest rate, assuming 120k mortgage, that is $4800 in interest, and the implied tax rate you wrote (which I only assume arguendo), that would be $7,520 in taxes, for $13,320 to deduct, or only $620 more than the 2017 MFJ standard deduction of $12,700, with a tax savings of $93 in the 15% bracket, that is not a lot of incentive, either.

And with the 2017 personal exemption amount of $4,050, under the current rules, the couple excludes $21,370 ($8,050 + 13,320) whereas the DJT plan would allow the 24k deduction, and would generate a small tax savings of about $394.50.


However, their overall taxable income has actually gone up if they were maxing out their 401(k)s before the tax change and if the plan to reduce amounts they can contribute to 401Ks or tax contributions to 401Ks.

So in your situation above, say both earners made $70k a year, and maxed out their 401(k)s every year. In 2016, their taxable income could be $104,000. Under the new plan, it would be the full $140K... so it seems like there would be no tax savings, but rather higher taxes would be likely.
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Who the hell cares?

When I was younger I used to get all het up about proposed Federal tax changes. As I got a bit older, I realized it was kinda like shaking my fist at and shouting at a thunderstorm.

We have exactly zero control over what the new tax schedules (if anything actually happens), and when the changes do happen they never look much like the original proposal.

All we are doing in this discussion is venting to one another. Unless, perhaps, anyone here has some juicy blackmail on a few Senators. ;-)
Whatever we like, dislike, agree with, or disagree with---has no more effect than shouting at a thunderstorm.


Well, you're right, we don't have any control... until the next election.

But I think it's good to discuss the potential impact of possible changes so that we can be ready to make any personal changes we need to make. I've been thinking about buying a bigger, more expensive house, for example. Another person might be thinking about moving to a state with much higher property taxes. These decisions MIGHT be affected by the tax changes if they go through. It's good to be informed and prepared.

And talking about it and understanding the changes allows us to tell friends who voted a certain way in the last election to say "Hey, you voted for them," when they start to complain about the changes. :-)
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JAFO31,

I wrote, Now let's consider how much that $750,000 house is going to cost you in property taxes - taxes that aren't going to be deductible on your schedule A under the Trump plan. According to DCAD's property tax estimator page, a $750,000 house in the city of Dallas proper would cost you a whopping $35,394.18/year. (FWIW, that is almost 8 times what property taxes cost me on the east side of Seattle and my house is worth almost as much.)

To which you replied, That seems extremely high (it reflects 4.7%+ overall real estate tax rate); does it consider the homestead exemption?

Oops. No. I forgot to hit that check box. The homestead exemption brings a year's taxes down to a more manageable (tongue firmly in cheek) $28,956.38. That gives you a 3.86% tax rate.

Here's the DCAD estimator, you can check it out for yourself. http://www.dallascad.org/TaxRateCalculator.aspx

Honestly I don't remember property taxes being that much over 3%. But I last owned a home there around 2009. Also I suppose the homestead exemption has a much larger effect on a less expensive home.

If I use my old tax valuation the DCAD estimator gives me an estimate that's almost 20% lower than what I was paying just under a decade ago. Or an effective rate of about 2.50%. I'm pretty certain I was paying almost 3%. But perhaps that's not a fair comparison because home values have gone up and the homestead exemption amount may have gone up with it.

- Joel
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"Now let's consider how much that $750,000 house is going to cost you in property taxes - taxes that aren't going to be deductible on your schedule A under the Trump plan. According to DCAD's property tax estimator page, a $750,000 house in the city of Dallas proper would cost you a whopping $35,394.18/year. (FWIW, that is almost 8 times what property taxes cost me on the east side of Seattle and my house is worth almost as much.)"


Yeah...if you live in Manhattan or Marina del Rey, or Beverly Hills, you'll pay sky high taxes.

I live in Dallas suburb. Nice area. House worth $302K according to the last appraisal. Taxes are $4020 a year. Homestead exemption, taxes 'frozen' at age 65......great town. 7 libraries, town rec centers with pools and indoor tracks, basket ball courts, exercise machines/room, etc. Gazillion restaurants and stores. Hiking and biking paths.. 20 parks.

A 4-5 bedroom 2 story house of 4500 sq feet might be $450K and tax bill $5500 a year.

No income tax in TX but 8.75% sales tax. Not on food. 6% on cars.

t.
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Our leader has spoken....er...tweeted. "No changes to 401k."

And he's always been truthful, and he's in total control here, so we"re good.

https://www.google.com/amp/s/amp.businessinsider.com/trump-t...
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MissEdithKeeler:

<<<But look at it the other way, MFJ, kids out of the house and off the family payroll, and who own a $160,000 house. At 4% interest rate, assuming 120k mortgage, that is $4800 in interest, and the implied tax rate you wrote (which I only assume arguendo), that would be $7,520 in taxes, for $13,320 to deduct, or only $620 more than the 2017 MFJ standard deduction of $12,700, with a tax savings of $93 in the 15% bracket, that is not a lot of incentive, either.

And with the 2017 personal exemption amount of $4,050, under the current rules, the couple excludes $21,370 ($8,050 + 13,320) whereas the DJT plan would allow the 24k deduction, and would generate a small tax savings of about $394.50.>>>

"However, their overall taxable income has actually gone up if they were maxing out their 401(k)s before the tax change and if the plan to reduce amounts they can contribute to 401Ks or tax contributions to 401Ks.

So in your situation above, say both earners made $70k a year, and maxed out their 401(k)s every year. In 2016, their taxable income could be $104,000. Under the new plan, it would be the full $140K... so it seems like there would be no tax savings, but rather higher taxes would be likely."


We were talking about standard deductions.

I forget who wrote it above, but I agree that the proposed low limit on tax deductible contributions is all about finding revenue, within the federal 10 scoring requirements, to pay for the proposed tax cuts for the very high income group.

It will not score the revenue lost after 10 years because so many more funds are now held outside of deductible IRA accounts and/or in Roth accounts.

I thought that was crystal clear.

Regards, JAFO
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http://boards.fool.com/confirmed-trump-tax-plan-changes-401k...
xpost Confirmed: Trump tax plan changes 401k
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Except with the new, higher standard deduction, how many people paying mortgage interest will exceed the standard deduction

I certainly wouldn't.

But I think it's good to discuss the potential impact of possible changes so that we can be ready to make any personal changes we need to make.

There have been a few earlier threads debating whether to pay off one's mortgage before retiring. This standard deduction would make that decision easier for me.

Fred
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There have been a few earlier threads debating whether to pay off one's mortgage before retiring. This standard deduction would make that decision easier for me.

I paid off my mortgage about 23-24 years ago. I never could figure out the wisdom of paying a Dollar in mortgage payment to get a $0.06(6% were the interest rates then) tax deduction if I didn't have to. With today's rates of 3%-4% it makes even less sense to me.

I've been completely debt free since July 1, 2003 --the day I retired. All bills, including monthly credit card charges get paid upon receipt of the bill.

It makes life in retirement, simpler for me.

b&w
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I paid off my mortgage about 23-24 years ago. I never could figure out the wisdom of paying a Dollar in mortgage payment to get a $0.06(6% were the interest rates then) tax deduction if I didn't have to.

About 40 years ago I figured out that the reasonings about having a mortgage for the mortgage tax deduction were pure BS.
They were a weak strawman argument to justify buying a bigger house than you could really afford. It never made sense, but that didn't matter, it was only to justify doing what they wanted to do, so any old argument or bogus reasoning would do.


People who make the argument quoted above are just making a strawman argument, and are rightfully dismissed.

The true, valid argument for not paying off the mortgage has nothing to do with the interest tax deduction. The valid argument is making the comparison of where to put your money. A dollar can be either in the house or in the investment portfolio, not both places.

The proper comparison is to look at the long-term costs, the long-term pros and cons of the two alternative places for your money. Which means the effective mortgage interest rate (which is the rate on the note minus the tax benefit) vs. the long-term return of the investment portfolio.

Personally, I have NEVER paid any attention to the mortgage deduction in making decisions about a mortgage. I always figured that if you need to bolster the case with a weak argument, that in itself is a sign that the case is weak. If it is better on net to have a mortgage, then any tax benefit is just icing on the cake.

A 4% mortgage vs. 8.5% (long-term) investment earnings nets to a 4.5% benefit. If the tax deduction happens to amount to 25% of the mortgage rate, that's just an additional bonus of 1%.




I've been completely debt free .... All bills, including monthly credit card charges get paid upon receipt of the bill.

You are not truly debt-free, you are just looking at things from the viewpoint that lets you claim that you are.
From the time that you use your credit card until the time that you pay the bill, you are in debt. It is zero-interest debt if you pay it off as soon as you get the credit card bill, but it is debt nontheless.

If you have $1,000,000 in investments and owe $100,000 on your house mortgage, you could make a good argument that you are debt free. Either way, your net worth is $900,000. The only real difference is in the cash flow. Just like the paying off the credit card bill when it comes. Cash flow.


It's all about managing your cash flow and asset location. Where is the optimal place to put $100,000 of your assets? If it is in the house then it is not in stocks/bonds. If it is in stocks/bonds is it not in the house. So you compare the costs & benefits of each location.
If it costs you 4% to have a mortgage, but you earn (long-term) 8% on investments, then it is financially optimal to have the mortgage.

That's why successful businesses borrow money. They earn more by using the money for investing in the business than it costs them.


It makes life in retirement, simpler for me.
To each his own.
For me, it would be no simpler or more complicated to have or not have a monthly mortgage payment. All my regular monthly bills are on automatic bill pay. Electric bill, phone bill, car insurance, health insurance, water/sewer bill, mortgage.

How would it be simpler if the monthly mortgage payment wasn't there? A: It wouldn't be.

**************************************
Funny thing about this is......overall it doesn't make any difference (financially) in retirement if you have a mortgage or not. Running the number through a retirement calculator shows this plainly. So people are getting all riled up & arguing over a thing that does not matter.
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I paid off my mortgage about 23-24 years ago. I never could figure out the wisdom of paying a Dollar in mortgage payment to get a $0.06(6% were the interest rates then) tax deduction if I didn't have to. With today's rates of 3%-4% it makes even less sense to me.

It doesn't make sense to me to pay off the mortgage to save 3%-4% in interest when I can make more investing the money. For me, my mortgage rate is 2.625%.

PSU
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Funny thing about this is......overall it doesn't make any difference (financially) in retirement if you have a mortgage or not. Running the number through a retirement calculator shows this plainly. So people are getting all riled up & arguing over a thing that does not matter.

That's where I ended up on this. We could probably make a bit more by mortgaging and investing, but we already have more than enough according to most financial planning blurb I've seen, and we're comfortable at 90% stocks. No need to take that slight leverage risk.

For younger folks still accumulating, yeah, do the mortgage and invest in stocks.

What I often see is folks making the argument to leverage with a mortgage, then having something like a 60/40 or 70/30 stock/bond mix, or even paying PMI. That makes no sense.
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Back to the 401(k):

The GOP plan to reform the 401(k) will still hurt the middle class. But not for the reason Trump says.
http://www.politico.com/agenda/story/2017/10/24/what-trump-g...

Contrary to Trump’s tweet, the break does relatively little to help the middle class. In fact, most of the benefits of the tax break, which costs the government more than $100 billion a year, accrue to the rich.

I guess we're rich, then. We've maxed out our retirement accounts for ever.

“When you are sitting down and deciding how much to save, there are a lot of possibilities. People don’t have the mental bandwidth to evaluate all those options”

"Mental bandwidth". That's a good one. I don't believe it. Folks can figure it out, if they want to.
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It doesn't make sense to me to pay off the mortgage to save 3%-4% in interest when I can make more investing the money. For me, my mortgage rate is 2.625%.

Does this mean that if I have a free-and-clear house I should take out a home equity loan and invest the proceeds?
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We could probably make a bit more by mortgaging and investing, but we already have more than enough according to most financial planning blurb I've seen, and we're comfortable at 90% stocks. No need to take that slight leverage risk.

The thing here is path dependency. There's all sorts of things that real people do that "financial man" wouldn't do.

If the path I was on had an already paid-off house, I wouldn't get a cash-back mortgage and invest it. (Not to mention that cash-back mortgages are much more costly than a non-cachback refi.)

But if I was on the path where I had a mortgage, I would keep it and leave the money invested.

Even though financially these are the same thing. You'd be in the same position either way.

Another path would be selling your old house and buying a new house at your retirement location. That's a fork in the road where those two above paths are just two different forks.

In that situation, my neighbor took the "buy the new house without a mortgage" path and I took the "keep the cash invested and get a mortgage" path. (Actually, he got a mortgage to buy the new house, and then paid it off 3 months later when the old house sold.)

FWIW, his wife was agast when my wife mentioned how much our mortgage payment was. OTOH, he has to get up at 5:50AM three days a week to go to his part-time janitor job, while I stay in bed until the sun gets in my eyes.
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Does this mean that if I have a free-and-clear house I should take out a home equity loan and invest the proceeds?

Good question.

Why do AAPL and AT&T and AMZN borrow money (float bond issues)?

Doesn't AT&T management realize that they could save $5billion a year if they didn't have all those bonds?

Snark aside, it's because they figure they can earn more with the borrowed money than the interest cost. Same for us little guys. You can earn more in stocks than the cost of the mortgage interest.

BTW, taking out a home equity loan for investing is a bad, bad, stupid idea. The interest rate is not fixed and the loan can be called at any time. The right kind of loan is one that has a fixed interest rate and is not callable.
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"Why do AAPL and AT&T and AMZN borrow money (float bond issues)?"

The only way a corporation can get money is offer equity (stock) or borrow money through bonds. with 2% money, bonds are cheaper. They'd have to pay 2.5 or 3% dividend on stock. Or whatever AT&T pays these days. Plus they can write off the interest.


- - ----

"Doesn't AT&T management realize that they could save $5billion a year if they didn't have all those bonds?"

Not really. AT&T pays a healthy dividend. If they issued stock, they'd pay 5 billion more in dividends each year.

They can write off the interest. They can't write off dividends. They come out of profits.

Not only that, but in the future, the bonds mature - they pay them off at face value.. The stocks, if they want to buy them back, could be 4 times higher in 20 years.


- -----

"Snark aside, it's because they figure they can earn more with the borrowed money than the interest cost."

Or it is the most tax efficient method of raising new cash for acquisitions, paying fat bonuses to execs, funding the pension plan, etc.


- - -----

" Same for us little guys. You can earn more in stocks than the cost of the mortgage interest."


Lots of companies that borrow money - wind up going bankrupt. You really don't want that when you retire.

If you don't have at least a 10 year investing horizon, you really don't want to be in the stock market. Yes, the market goes up over decade long periods, but over a five year period.....it could seriously go down, down, down.

In 1929, the market crashed. It took over 15 years for the DOW to reach the same level as it was in 1929, right? Some of the DOW companies didn't survive, either - gone - replaced by others in the index. Likely you owned some stocks if you were an investor back then that took ALL your money in them...down to zero.

When you are 25 or 35, having a mortgage is fine. Buying a new house with one is OK. When you are 65 or 70, the last thing you need to be doing is taking money out of your house and putting it in the market because you THINK you can make more money. You can also lose a lot of money quickly.
Or 'investing' money rather than beginning to pay off the house if you still have a big mortgage.

If you have a 30-40-50 year time horizon, by all means invest in the market.

Don't bet your retirement on it though.

My house was paid off when I retired. As was the car and everything else. My house is under 10% of assets so not a big deal. But I would never speculate with my house.

----

Some history

1. 1929-32
> DJIA decline from peak to trough: 90%
> Change in GDP: -21.4% (1930-33)

Triggered by a period of rampant speculation, the stock market had its worst crash ever in 1929. Beginning with Black Tuesday, the market lost a quarter of its value in just two days. From peak to trough, the Dow Jones Industrials declined a massive 90%


- ---.

2. 2007-09
> DJIA decline from peak to trough: 54%

The effects from the down markets of the late 2000s are still being felt today. The U.S. economy had been built up on overextended consumer credit and faulty mortgages, and as these risks were exposed a number of major American financial institutions either collapsed or were bailed out by the federal government. This set off the Great Recession.

- - -----

3. 1937-38
> DJIA decline from peak to trough: 52%

In 1937,there was another major downturn in the economy. During that time, the Dow fell by more than 50%.

- - - - - -----

4. 1973-74
> DJIA decline from peak to trough: 46%

From January 1973 to December 1974, the stock market lost 46% of its value. This happened after the end of the Bretton Woods monetary system and was heightened by the 1973 oil crisis. The U.S. economy entered a recession that was distinctly marked by stagflation: a combination of high inflation and high unemployment. From 1972 to 1973, inflation more than doubled to 8.8%, and continued to rise for the remainder of the decade.

- ----

6. 1968-70
> DJIA decline from peak to trough: 36%

Many consider the 1968-1970 bear market as one that actually lasted to 1982. Over the two year period listed, however, the Dow lost approximately 36% of its value. Unemployment, which was as low as 3.4% in 1968, reached 6.1% by the end of 1970. Between 1968 and 1970, the Dow fell from 906 points to 753.19.

- - - ---

7. 2000-02
> DJIA decline from peak to trough: 34%

The U.S. essentially had a decade-long bull market throughout the 1990s. As a result, stock values were largely inflated. This trend turned around in 2000. Many technology companies either went out of business or lost value. Wariness of the market was later compounded by the September 11 attacks. In September 2002, the Dow hit a four-year low. From peak to trough, the Dow lost 34% of its value.

- - - ----

source: http://www.foxbusiness.com/markets/2011/08/12/worst-stock-ma...

Now....I've lived through everything from 1968 - on. Got out of college in 1968.

That was one of the WORST years to retire. You had your nest egg in 1967 - all set to retire - and WHAM!....the market dropped like a ton of rocks...and Stayed down for 16 years!

- - ------

Pssst - sure thing...invest in this new company!........ NOT!


t
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I paid off my mortgage about 23-24 years ago. I never could figure out the wisdom of paying a Dollar in mortgage payment to get a $0.06(6% were the interest rates then) tax deduction if I didn't have to.

You don't understand how mortgages and taxes work, if you think that paying $1 toward your mortgage got you a $0.06 deduction.

That said - I would agree that holding a mortgage for the tax deduction is a money losing reason to do so. However, investing the money that would otherwise be put into an illiquid asset (your house) in order to keep the money more liquid and invested at a higher rate can make sense.

Personally, the money that I would use to pay off the mortgage is invested in income producing investments that more than make the mortgage payment, so it makes no sense for me to pay off the mortgage.

AJ
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Does this mean that if I have a free-and-clear house I should take out a home equity loan and invest the proceeds?

Probably not. A regular mortgage (currently) is 1) long term, 2) low fixed rate, 3) tax advantaged, and 4) non-callable.

HELOCs are some of those things, but not all of them. Interest rates probably won't shoot up, but they could, which would make the HELOC strategy very unattractive, especially if stocks go down. Which they will at some point.

I Could be Wrong Dept: Back in the late 1970s or early 1980s when interest rates were going crazy I asked my dad about the interest rate on his mortgage. He absolutely chortled and said it was only 7%! A rate so low it was almost unheard of. Of course he got his mortgage in the late 1960s back when mortgages were super cheap.

I have a 3.5% 30-year fixed. The historical long term inflation rate is about...3.5%. That's gotta be the deal of the century. When you are experiencing the lowest interest rates ever recorded, that's the time to borrow, right? Why would I ever pay that thing off?
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BTW, taking out a home equity loan for investing is a bad, bad, stupid idea.

In our case, my mother had a small HELOC which had matured into the forced payoff stage when she died and we decided to refinance that to put it in our name and take advantage of current rates. The replacement is just called a mortgage, not a HELOC, I presume because there is no first and no draw option. But, yes, we elected not to pay it off so that we could keep that money in our investment pool.
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Personally, the money that I would use to pay off the mortgage is invested in income producing investments that more than make the mortgage payment, so it makes no sense for me to pay off the mortgage.

BINGO.
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I paid off my mortgage about 23-24 years ago.

I paid off my mortgage over a decade ago as well. But I did it because I hate owing money, not because I thought it made any financial sense.

-IGU-
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I paid off my mortgage over a decade ago as well. But I did it because I hate owing money, not because I thought it made any financial sense.

Just goes to show that different people value things differently. De gustibus non disputandum est.

I neither hate nor love owing money. In fact, I have no emotional feelings at all with respect to owning money. I go for whatever deal makes the most financial sense with the lowest risk.

We just bought a new car, and paid nothing down. More. Not just "nothing down"--no money out of pocket whatsoever. We didn't even take our checkbook to the dealer with us.
We financed not only the cost of the car but also the sales tax and the 10 yr extended warrantee.[*] We did pay the title fee out of pocket, though--I forgot to add that to the loan. But it was only $38, so no big deal. (Oh yeah! Arkansas has the cheapest registration fees of all the states we have ever lived in.)

All at 1.99% interest rate. For a 5 year loan.

Hell, my savings accounts are paying 1.30%, so for complete safety of my money the loan is costing me net only 0.70%.

-----
[*] I am death on paying too much, though. We got the price of the car down to below invoice, and got the extended warrantee from the dealer at half the next best price (PenFed, which last time was half what the dealer wanted).
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"'We just bought a new car, and paid nothing down. More. Not just "nothing down"--no money out of pocket whatsoever. We didn't even take our checkbook to the dealer with us.

We financed not only the cost of the car but also the sales tax and the 10 yr extended warrantee.[*] We did pay the title fee out of pocket, though--I forgot to add that to the loan. But it was only $38, so no big deal. (Oh yeah! Arkansas has the cheapest registration fees of all the states we have ever lived in.)

All at 1.99% interest rate. For a 5 year loan.

Hell, my savings accounts are paying 1.30%, so for complete safety of my money the loan is costing me net only 0.70%."

- --

Of course, you probably gave up a two to three thousand dollar price reduction if you had paid cash.

Zero percent or 2% financing is built into the price of the car.

Pay cash and you can get another couple thousand bucks off the price you'll pay for financing.

95% of the time, you'll come out behind on any 'extended warranty'. You have to figure they have a very good expectation of repair costs, and they add in a 40-50% overhead to pay that salesman a fat commission for talking you into paying for it..... Consumer Report and others say it's a bad deal. Assuming your car lasts that long before it gets totalled or you decide to trade it in......and I'd bet it is mileage limited too - so maybe you'll hit the mileage limit before 10 years.

Best time to buy a car - end of month when they want to meet quotas or get bonuses. Ever better - end of the year when they don't want to pay inventory taxes on it - and want the sales in this year, not next........


t.
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Hi Rayvt:

About 40 years ago I figured out that the reasonings about having a mortgage for the mortgage tax deduction were pure BS.
They were a weak strawman argument to justify buying a bigger house than you could really afford. It never made sense, but that didn't matter, it was only to justify doing what they wanted to do, so any old argument or bogus reasoning would do.


I find it interesting how smart you are. Anything that anyone says you know better. How do you live on this planet with all of us mere mortals?

It won't be necessary for you to answer this post. I consider the matter closed.

Respectfully submitted
b&w
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HI PSU

It doesn't make sense to me to pay off the mortgage to save 3%-4% in interest when I can make more investing the money. For me, my mortgage rate is 2.625%.

But you are not paying 2.625% You are paying 100% of the mortgage payment to get 2.625% interest deduction.

For example--You are paying $1000 per month to get a $26.25 tax deduction. $12K a year for a $315 tax deduction.

b&w
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For example--You are paying $1000 per month to get a $26.25 tax deduction. $12K a year for a $315 tax deduction.

Sorry, I will say again - you don't understand how mortgages and taxes work.

The amount of interest paid varies depending on the principal balance, but even in the 10th year of a $250k loan at 2.625% (monthly payment of $1004.13), the average interest paid per month is $418.15 That's the amount that will be deducted for the $1004.13 payment, not $26.25

In the first year, it's a $5960.24 deduction
In the 10th year, it's a $5017.84 deduction
In the 20th year, it's a $2909.72 deduction
Only in the 30th year (when you are paying almost all principal) does it get anywhere close to the $315 you quoted - at $169.54 Even the 29th year is a $476.99 deduction

AJ
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Many mortgage service providers will also require that you pay your real estate taxes through them. THey get to keep that money (and invest it for their benefit) for the 11 months a year before they actually send it in.

Same for homeowners insurance.

You are losing money that way , too.

Now, some will let you pay separately but many will not

If your taxes are $10,000 a year....that's a lot of money they have making money for them.

- - ------
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Many mortgage service providers will also require that you pay your real estate taxes through them. THey get to keep that money (and invest it for their benefit) for the 11 months a year before they actually send it in.

You are not required by law to have an escrow account unless you live in a flood zone, and require flood insurance - and this has only been true for a few years - it was required due to the Biggert-Waters Flood Insurance Reform Act of 2012.

If you have a high LTV loan and/or a low credit score, some lenders may require you to have an escrow account, or they won't fund your loan. But other than that - you are not required to have an escrow account. And if you don't want one, you should make it clear when you are applying for the mortgage. I haven't had an escrow account on the last 7 mortgages I have received.

If your taxes are $10,000 a year....that's a lot of money they have making money for them.

On average over the course of the year, even adding in the extra 2 months of 'buffer' that the mortgage servicer is allowed to keep, it's only $6250. Since the money is obviously something that you would need to have in less than a year, you shouldn't be investing it with any risk. In a 'high' yield savings account, you might get 1.3% on it, or $81.25 a year. Probably not something to get worked up about if you can afford to pay $10,000 in property taxes each year.

AJ
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Sorry, I will say again - you don't understand how mortgages and taxes work.

I do know a little bit about how mortgages and taxes work. I know enough to know that the 2.625% interest rate isn't your entire cost
I'm sure you figured it out --How much does the total of the 360 monthly mortgage payments come to? And how much does the interest on the 360 monthly payments come to and how does that compare to the 2.625% rate. Also is there any mortgage insurance payments? How about closing costs-Brokerage commission? Title policy? Points?-Legal fees?

I also know that if you have a mortgage and due to illness or loss of job or some other financial setback that prevents you from paying your mortgage for a few months could leave you out in the streets
b&w
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I do know a little bit about how mortgages and taxes work.

You don't seem to be demonstrating that by insisting that one only gets $315 in annual deductions from making $12k in mortgage payments.

I know enough to know that the 2.625% interest rate isn't your entire cost.

Never said it was. For a 2.625% mortgage, it's between 40% and 60% of the mortgage P&I payment for about the first 10 years.

How much does the total of the 360 monthly mortgage payments come to?

Come on - you can do the math from the figures in my post: $1004.13 x 360 = $361,486.80

And how much does the interest on the 360 monthly payments come to and how does that compare to the 2.625% rate

Over the course of a 30 year $250k mortgage at a 2.625% rate, you pay $111,486.80 in interest, get $111,486.80 in deductions, or an average of $3716.23 a year for 30 years. What type of comparison are you looking for, when you want it compared to the 2.625% rate.

Also is there any mortgage insurance payments? How about closing costs-Brokerage commission? Title policy? Points?-Legal fees?

Yes, there are probably some costs. But when you compare that to the $250k that you are keeping liquid, they are insignificant.

I also know that if you have a mortgage and due to illness or loss of job or some other financial setback that prevents you from paying your mortgage for a few months could leave you out in the streets

Not likely when you have $250k in income producing investments that more than make the mortgage payment for you.

Look - you're the one who's always bragging about how much income you get from your investments - why would you not want to have an extra $250k to provide that much more income?

AJ
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buyandwin writes,

I also know that if you have a mortgage and due to illness or loss of job or some other financial setback that prevents you from paying your mortgage for a few months could leave you out in the streets

</snip>


That's true for a mortgaged homeowner with little in the way of other financial assets. A retiree with a portfolio 25 times his annual spending (i.e., the 4% rule) has a substantial cushion to weather an unexpected expense.

intercst
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Not likely when you have $250k in income producing investments that more than make the mortgage payment for you.

Not if you are in retirement with no other income and need the portfolio income to pay your living expenses. A declining market can get the cockiness out of an individual pretty quickly if you skate too near the thin ice.

That's why I lean towards growth of income in my portfolios and not towards capital gains.This is because I believe that the income part of the portfolio is more stable than seeking capital gains which might or might not be there when you need them. And this is after I owe NOBODY NOTHING and my portfolio income has been built up to about double my current expenditures. And the excess is reinvested for additional income-- I do this because I don't know how much my expenses will increase in the future. I do know that in 14 years of retirement my expenses this year are projected to be about 3.5 times what they were the year I retired and probably will be more next year.

b&w
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That's true for a mortgaged homeowner with little in the way of other financial assets. A retiree with a portfolio 25 times his annual spending (i.e., the 4% rule) has a substantial cushion to weather an unexpected expense.

If a homeowner with 25 times his annual spending (the 4% rule) were to pay off his mortgage in full He wold have maybe 23 or 24 times his original spending---But he would NOT have the mortgage to pay so probably he would have the same or more cash to spend for personal expenses as he was paying before other than the mortgage. And he would be a lot safer in retirement than with a big mortgage to pay.

Do the math --It is a safer alternative and it might work for some or all people. If it doesn't work for everyone, It might work for some.

b&w
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Look - you're the one who's always bragging about how much income you get from your investments - why would you not want to have an extra $250k to provide that much more income?

It's hard to admit having been wrong for the past couple of decades. Especially when you've been bragging about how smart your are and giving advice to others.

Remember, we saw that in spades during the discussion of annuities. There are none so blind as those who will not see.

-IGU-
(got my own blind spots)
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telegraph,

You wrote, Many mortgage service providers will also require that you pay your real estate taxes through them. THey get to keep that money (and invest it for their benefit) for the 11 months a year before they actually send it in.

Same for homeowners insurance.


My lender's escrow service screwed up my taxes back in 2000. That was the last time I had an escrow account on that house.

When I moved to Washington, the purchase and closing was kind of rushed and the lender (Wells Fargo) pushed to have the escrow account and I didn't want to fight over it ahead of the closing. But I had them remove the escrow account not long after.

Escrow accounts are not mandatory ... but I've known people for whom an escrow account was a godsend.

- Joel
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I find it interesting how smart you are. Anything that anyone says you know better. How do you live on this planet with all of us mere mortals?

It won't be necessary for you to answer this post. I consider the matter closed.

Respectfully submitted
b&w


Not familiar with this whole "discussion" concept, eh?
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Not familiar with this whole "discussion" concept, eh?

Well, at least he "respectfully" submitted his derogatory comments... :)

Draggon
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Many mortgage service providers will also require that you pay your real estate taxes through them.

Now, some will let you pay separately but many will not.


I believe the correct word is "most", not "many".

I know that because I'm the smarted guy here, plus ... google. But mostly google.

Fannie Mae Guidelines, B2-1.4-04: "First mortgages generally must provide for the deposit of escrow funds to pay ... taxes, ground rents, premiums for property insurance,"
Since almost all mortgage lenders adhere to the FNMA Guidelines, and they generaly read "generally must provide" as "MUST provide", almost all 1st mortgages require an escrow account.

FHA makes no bones about it: "FHA mandates an escrow account."




If your taxes are $10,000 a year....that's a lot of money they have making money for them.
Not really. Not to the individual borrower.
If your taxes are $10,000, the average escrow balance will be $5000. At current savings account interest rates of about 1%, that's only $50. After tax in the interest, that amounts to about $38.

Big picture, your effective RE tax is $10,000 vs. $10,038. That's a nit, and not worth a lot of getting upset about. I can make up $38 by skippng buying a cup of coffee once a week.

I don't know how all states do it, but when we were in Illinois the RE tax was paid twice a year, 1st half and 2nd half. So your average escrow balance would be half of each tax bill, or $2500.

When we moved out of Illinois, our RE tax went from $14,000 ($7000 twice a year) to $2400 (once a year).



And .... $10,000?? Maybe you should move to another state.

USAToday says the average US property tax on a single-family home is $3,296.

So average escrow balance is $1,648. 1% earnings on that is $16, or $12 after tax. One mid-afternoon visit to McDonalds.

Not a life-style-changing sum of money.
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You are not required by law to have an escrow account
It not that escrow is required by law.
It's that escrow is required by the lender.



some lenders may require you to have an escrow account, or they won't fund your loan.
But other than that - you are not required to have an escrow account. And if you don't want one, you should make it clear when you are applying for the mortgage. I haven't had an escrow account on the last 7 mortgages I have received.


Darn, that brings up a memory of my 2nd refi after we retired. I told them that I didn't want an escrow, and the lender said, "No Problem." Great!!
"We can do that, it only costs 0.1% additional points at closing, and 0.1% higher interest rate on the mortgage."

I said, no I don't want to pay that. He said, yeah, most people don't take the no-escrow load when we tell them the price.

Best deal we ever had was with Telegraph S&L (RIP) in Chicago.
They applied your T&I escrow payment to the mortgage balance, and then increased the mortgage balance when they paid the RE tax & ins premium. So in effect I was earning like 6% on my escrow.
::sigh:: no lender after that ever would do that.
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I do know a little bit about how mortgages and taxes work...How much does the total of the 360 monthly mortgage payments come to?

You don't seem to understand that the principal part of the mortgage payment isn't a cost, it's just transferring a bit of your net worth from yuor left pocket to your right pocket.


I also know that if you have a mortgage and due to illness or loss of job or some other financial setback that prevents you from paying your mortgage for a few months could leave you out in the streets
This is true.

But if you don't have a mortgage, then where did the money come from that paid off the mortgage? If I have a $200K mortgage and $200K sitting in the bank (or in investments), if I decline to pay off the mortgage then I have $200,000 which I can use to make the monthly mortgage payments for a very long time. People act like the money used to pay off the mortgage just fell out of the sky.

If you have some financial setback that prevents you from paying your annual real-estate tax, you will be out on the street, too. Why do people gin up these scare scenarios about having a mortgage and leave out the bit about the RE tax bill? The county tax collector will toss your butt out on the street faster than the mortgage lender.
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Look - you're the one who's always bragging about how much income you get from your investments - why would you not want to have an extra $250k to provide that much more income?

Look - the only risk that a mortgage gives you is if you don't make the required monthly payment. That's why the problem of losing your job is a risk.

But if you've got investments that are 2 or 3 times your mortgage balance, then you DO NOT have any risk of being unable to make the monthly payments.

Heck, if AJ has $362,500, that right there is adequate to make every single payment for the entire 30 years. There is NO risk there whatsoever. EVen a bear market crash like 2008/2009 is not a risk, because there's enough assets to ride over the pothole.

Yeah, yeah, "sleep well at night." Well, how many sleepless nights do people have when they know that they could pay off the mortgage 3 times over by just making one phone call to their broker whenever they wanted to?
"Why can't you sleep, dear?"
"I'm worried sick that we might not be able to make the house payment out of petty cash."
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95% of the time, you'll come out behind on any 'extended warranty'.
~~~~~~~~~~~~~~

"Warranty" is an intentional misnomer. These are really service contracts, and often have a substantial deductible. Today's autos will generally outlast ant "Extended warranty". My 2012 Honda Accord with 97,000 miles has never required anything other than routine service.

I usually buy pre-owned, certified, to save up-front costs. Honda CPO adds a little cost as it extends the new car warranty, but it is a true Honda warranty.
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Today's autos will generally outlast any "Extended warranty". My 2012 Honda Accord with 97,000 miles has never required anything other than routine service.

No lie.

Sometime in the 1990's we traded in our Honda Civic with 95,00 miles on it. As were were driving to the dealer to pick up the new car, the front quarter panels were flopping like bird wings---because they had completely rusted through except for a bit at the top. A block from the dealer, the red "alternator" light came on and the headlights got dim. My wife and I looked at each other and then looked away. We coasted into the dealer's driveway.


Just recently my son replaced his 2002 Toyota Camry (our old car). It had 205,000 miles on it and still ran good, except for the A/C that had just stopped working. The only work ever put into the car was brake pads and one muffler. As you say, just routine service. It didn't even have any rust.
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It not that escrow is required by law.

Yes, it can be required by law. If the property is in a FEMA zone that requires flood insurance, and you get a new mortgage - be it a purchase loan, a refi, or even a HELOC, you are required by law to have an escrow account for your flood insurance premiums. Check the Biggert-Waters Flood Insurance Reform Act to confirm.

AJ
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Not likely when you have $250k in income producing investments that more than make the mortgage payment for you.

Not if you are in retirement with no other income and need the portfolio income to pay your living expenses.

Yeah, but that wasn't the scenario that was given. The scenario was that you had $250k in income producing investments that were making the mortgage payment for you, not that the income was being used for living expenses.

The alternative would have been to have no mortgage, but not have that $250k in income producing investments - so the income from the $250k isn't available for living expenses in either case.

AJ
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Just recently my son replaced his 2002 Toyota Camry (our old car). It had 205,000 miles on it and still ran good, except for the A/C that had just stopped working. The only work ever put into the car was brake pads and one muffler. As you say, just routine service. It didn't even have any rust.
~~~~~~~~~~~

Not long ago we replaced a 1999 Accord that had accumulated 192,000 miles: no rust, original exhaust, but there were relatively minor repairs required at around 150,000. Daughter wanted Hyundai Elantra coupe (2014 - 50,000 mi), which has been very good so far.
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I do know a little bit about how mortgages and taxes work. I know enough to know that the 2.625% interest rate isn't your entire cost.

I'll made this simple for you. The interest on my mortgage is 2.625%. Let's assume I have the exact same amount of money as my mortgage in an investment account at the beginning of this year. I'll use my mix of index funds in my 401k as my investment return because my administrator makes it very easy to look up the return. My year to date return is 17%. So what you are suggesting is that I should have cashed out all my investments that I earned 17% just so I could save 2.625%.

I also know that if you have a mortgage and due to illness or loss of job or some other financial setback that prevents you from paying your mortgage for a few months could leave you out in the streets

People who don't pay off their mortgages at a fast rate than necessary invest their money instead. Some like to call it a Mortgage Freedom account. That account can be used to pay the mortgage if you can't due to illness or loss of job.

Now let's look at the risk you incurred by prepaying the mortgage. Let's assume you take every last extra dollar and use it to prepay your mortgage. You've been doing this faithfully each month for 15 years and you project the mortgage will be paid off on the 16th year anniversary on the 30 year mortgage. Then you lose your job at year 15. You don't have any savings (remember I said every extra dollar towards prepaying). The mortgage company isn't going to care if you are 15 years ago of schedule if you can't make your 15 year, 1 month payment. They'll foreclose on your house. The person putting the extra money in the Mortgage Freedom account has all that extra money plus the return on investing that money. When that person loses their job at 15 years, they're not concerned about the 15 year, 1 month mortgage payment. Nor are they for months after that. They'll pay it out of the Mortgage Freedom account. This gives the person time to find another job while the prepaying person needs a job immediately.

PSU
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"Warranty" is an intentional misnomer. These are really service contracts, and often have a substantial deductible. Today's autos will generally outlast ant "Extended warranty". My 2012 Honda Accord with 97,000 miles has never required anything other than routine service.

I didn't have anything other than routine service on my 2008 Toyota Highlander. This summer my daughter bought a 2018 Toyota RAV4. Since she was a recent college grad, she got special pricing on the warranty. Generally, I would advise her not to take it since you're likely never to need it. But I decided to visit my non-dealer local mechanic that works on all my vehicles. I asked if the RAV4s were having maintenance issues worth buying the warranty. He told me in past years he would advise not getting the extended warranty but if he were buying today, he would. He just doesn't know the reliability of all the electronic parts in new vehicles and the cost to replace them since they're new to vehicles he sees. My daughter vehicle has sensors for determining if the car crosses a painted line in the road and will actually steer the car back. It has adaptive cruise control that will brake the vehicle if it gets too close to a vehicle in front of it. There are backup cameras and climate control systems. None of this stuff is on my 2008 Highlander.

PSU
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Of course, you probably gave up a two to three thousand dollar price reduction if you had paid cash.

Zero percent or 2% financing is built into the price of the car.

Pay cash and you can get another couple thousand bucks off the price you'll pay for financing.


I had someone here try to argue this point years ago. He has since left here. I don't know how you buy cars but here is how I buy them.

- Meet salesman to look at $23,000 car.
- Negotiate a price of $20,000.
- Salesman then takes me to finance officer to do paperwork.
- Finance officer asks me how I'm paying.
- I say cash.
- Usually the finance officer will then say "I can offer you special finance rate. Wouldn't you like to keep your money invested?"

Never once has a finance officer say to me "Oh, you want to pay cash. I'll take two or three thousand dollars off the price."

Also never once has a finance officer say to me "Oh, you now want to finance. I'll add two or three thousand dollars to the price you negotiated with the salesman."

I actually had a finance officer offer me 0% financing when I had my checkbook out and asked if he took a personal check on a $16,000 car. It was easy to determine if there were any hidden fees by multiplying the monthly payment by 24. It added up to $16,000. Why would the dealer offer me 0% financing? Because they were not supplying the financing, the manufacturer was. I'm sure the dealer gets a kickback for each loan made. So they have an incentive for you not to pay cash. Therefore, you're not getting two to three thousand off the price for cash.

PSU
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"Generally, I would advise her not to take it since you're likely never to need it. But I decided to visit my non-dealer local mechanic that works on all my vehicles. I asked if the RAV4s were having maintenance issues worth buying the warranty. He told me in past years he would advise not getting the extended warranty but if he were buying today, he would. He just doesn't know the reliability of all the electronic parts in new vehicles and the cost to replace them since they're new to vehicles he sees. My daughter vehicle has sensors for determining if the car crosses a painted line in the road and will actually steer the car back. It has adaptive cruise control that will brake the vehicle if it gets too close to a vehicle in front of it. There are backup cameras and climate control systems. None of this stuff is on my 2008 Highlander. "


Have a 2007 Toyota Prius. Never needed any 'repair'. Just goes and goes and it is FULL of electronics since it is a hybrid, has the HID lights, has all the bells and whistles, traction control, stability control, etc. Back up camera......

Have had a CHevy Malibu. 175K miles in 7 years. Zero repairs.

Most cars today have 15-20 computers in them (and have had) for the past 10 years. Not a big deal.


t.
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Most cars today have 15-20 computers in them (and have had) for the past 10 years. Not a big deal.

Well, I have a 2017 Subaru Outback and no extended warranty.
Like many I have long since decided they didn't make financial sense.

But the thought of something not working correctly and what what it would take to fix it scares me a bit.
Technology on this thing is not at all what you see in a 10 year old automobile, Prius or not.
I share the mechanic's concern about the unknown reliability of some of the new electronic parts, even though I decided not to buy the extended warranty.

I've had it for a year and the only problem we've had is the radio, and we are on the 3rd radio. I'm hoping the problem is the radio and not some obscure wiring problem that will never be discovered. It is pretty well documented with the dealer at this point.
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Never once has a finance officer say to me "Oh, you want to pay cash. I'll take two or three thousand dollars off the price."

Also never once has a finance officer say to me "Oh, you now want to finance. I'll add two or three thousand dollars to the price you negotiated with the salesman."


The last vehicle we bought, one of the line items on the proposal was -$1,000 if we financed through Kia Finance. Presumably the dealer got a kickback, and we just paid the whole thing off at the first payment date. With the non-zero interest rate on the loan, the $1,000 was actually worth around $950.
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He just doesn't know the reliability of all the electronic parts in new vehicles and the cost to replace them since they're new to vehicles he sees. My daughter vehicle has sensors for determining if the car crosses a painted line in the road and will actually steer the car back. It has adaptive cruise control that will brake the vehicle if it gets too close to a vehicle in front of it. There are backup cameras and climate control systems.


Yup. The Honda CR-V Touring model we just bought has all that stuff. And more. The owner's manual is a 661 page PDF file. The GPS navigation system has its own PDF file, only 141 pages.

At Christmas-time we have always put a Rudolf costume on the car. Antlers for the side windows and a red nose on the front grill.
But can't do that anymore. The CR-V manual says don't put anything on the grill, because it will interfere with the RADAR SENSOR (!!!) located inside the front grill and the front sensor camera on the rear-view mirror.
Are you freeking kidding me??!! My car has a friggin RADAR??
It's got so much electronics stuff that I wonder just how many computers it has. It's just a high-tech computer lab with wheels.

That collision mitigation system is pretty cool. The other day it stepped on the brakes when the car in front of me stopped to make a sharp turn. My wife said, "Did you do that?" I said, "No, the car did it all by itself."

Just going thru the manual, it looks like this car has over a dozen camera. Plus a friggin RADAR. It will even automatically lock the doors when you walk away form the car. But the remote start still needs for you to push buttons on the remote key, it doesn't yet automatically start the car when you walk to towards it. Next year's upgrade. ;-)

Lots and lots of stuff that can go wrong.
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I actually had a finance officer offer me 0% financing when I had my checkbook out and asked if he took a personal check on a $16,000 car. It was easy to determine if there were any hidden fees by multiplying the monthly payment by 24. It added up to $16,000. Why would the dealer offer me 0% financing? Because they were not supplying the financing, the manufacturer was. I'm sure the dealer gets a kickback for each loan made. So they have an incentive for you not to pay cash. Therefore, you're not getting two to three thousand off the price for cash.

PSU


A similar thng happened with us with this latest purchase. We settled on the price, and then got taken to the manager's office to finalize the paperwork.
He asked us how we were going to pay for it, and I told him I already had the 1.99%/60 mo loan approval from my credit union. He asked "Which one." and I told him that he had never heard of my CU since it was in another state.

He said, "Pentagon?" That kinda stunned me. Here's car dealer in Arkansas who is familiar with Pentagon Federal Credit Union based in Virginia.
But I said, "No, Motorola Employees CU in Chicago".

Note that this was the sales manager, not the finance guy.
I showed him the printout of MECU loan approval, which I cleverly had in my possession.

He then said, "Let me ask you, are you required to get the car loan from them? If I can get you the same rate would you do the loan with me?" So I said, "sure".
He walked out and came back in a few minutes later and said, "Done."

This was not my first rodeo, so I questioned him. "Same rate, 1.99%?" "Yes."
"Same length, 60 months?" "Yes."
"Simple interest?" "Yes. And no prepayment penalty. Just a plain vanilla loan."

To get back to PSU's point....the dealer is obviously getting some amount of kickback or "finder's fee" on the loan. And this was 1.99% loan. From a commerical bank.

Turns out the loan was from Capital One. I didn't even know they made car loans. So when we got home I went to the Cap One web site to check their advertised rates. "Rates as low as 3.24% -- with 20% down payment."
Huh???
I got 1.25% lower rate, plus no down payment, PLUS they paid a kickback to the dealer? And we got a really good price, lower than any of the other dealers around here.
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buyandwin: "HI PSU

It doesn't make sense to me to pay off the mortgage to save 3%-4% in interest when I can make more investing the money. For me, my mortgage rate is 2.625%.

But you are not paying 2.625% You are paying 100% of the mortgage payment to get 2.625% interest deduction.

For example--You are paying $1000 per month to get a $26.25 tax deduction. $12K a year for a $315 tax deduction."


From this response, I am uncertain whether you even understand PSU point (which is about opportunity cost), or that the tax deduction is irrelevant to his point.

Regards, JAFO
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I salute you folks who buy new cars every eight to ten years and have the stamina to stick to your plan in the manager's office and the finance guy's office. I swear I almost get to the point where I want to pay THEM to leave me alone and only screw me a little when I buy my car.

Thankfully, it's been 14 years (knock, knock) since my last purchase (a 2003 Toyota Matrix) and I'm hoping we'll be up to self-driving cars by the time I have to buy another.

Not my favorite thing to do.

Cheers,

SD
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At Christmas-time we have always put a Rudolf costume on the car. Antlers for the side windows and a red nose on the front grill.
But can't do that anymore. The CR-V manual says don't put anything on the grill, because it will interfere with the RADAR SENSOR (!!!) located inside the front grill and the front sensor camera on the rear-view mirror.


C'mon Ray. Live a little. Ignore the manual and put the Rudolf nose on the car.
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<<I salute you folks who buy new cars...>

Yeah, me too. So I can buy them used and run the wheels off them. :)

Almost asked "What's a new car?" Then I remembered I need folks like all y'all who buy new cars, baby them and then unload them.

I just did the 450K oil change on my '02 Golf TDI.

Dear wife's cherry 03 Civic we bought with well over 100K is due for it's 175K oil change.

Our vacation rig/church kid hauler is all serviced up at 265K. That's a 2002 4x4 diesel Excursion we bought from dealer's used lot when it came off lease in '04. Only getting run Sundays now so the solar battery tender panel keeps the batteries feeling the love.
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I salute you folks who buy new cars every eight to ten years and have the stamina to stick to your plan in the manager's office and the finance guy's office. I swear I almost get to the point where I want to pay THEM to leave me alone and only screw me a little when I buy my car.

Heh. Buying a car is easy if you have the right attitude. This attitude is:
I. do. not. care. if. I. get. this. car. or. not.

With that outlook, you are as immune to the salesman's tricks as Stevie Wonder is to a spotlight flashed in his face.

If you have trouble, just practice this phrase to use to respond to everything the salesman says to you. "don't care. I have no desire for that feature and won't pay for it."


I'm hoping we'll be up to self-driving cars by the time I have to buy another.

Based on my (short) experience with the features on the top-of-the line Honda CR-V -- Road Departure Mitigation and Lane Keeping Assist -- self-driving cars will be here at about the same time as Artificial Intelligence. I.e., never.
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I've bought a lot of new cars and tend to skip used cars

I keep them 7-8 years and put 200K miles on them. Figure that's a good time for most cars to move on since I travel lots of back roads through the middle of nowhere. Seats start wearing out. Suspension parts degrade and the ride isn't as smooth.

At 15 years old, the rubber bushings in the suspension get 'hard' .....and by then you'll be looking at new struts and other aging stuff. On my 17 year old Honda, the rubber seals around the door were beginning to not work as well......getting hard...... seat was getting worn out. It was the daily driver for many years and sat out in parking lots in the hot TX sun for 10 of those 17 years as I worked. A/C still worked which is important in TX.

If I were pinching pennies, I'd probably run them till the wheels fell off.....longest I've had a car is 225K miles. Longest time was 17 years.

right now my problem is figuring out how to spend my RMD. Enough to buy a nice car each year.

Bought a new car last year - Jan - got 62K miles on it and not even 2 years old. When it hits 170K to 200K, I'll trade it in probably.

It usually takes me 10-12 days to buy a new car. Figure out what I want first - test drive half a dozen cars - different makes...... but tend to favor GM as their cars are 'radio quiet- no noise on the ham radio. Fords are horrible for that - I'd never ever ever buy one.

Shop 3 or 4 Chevy dealers, ..and Buick.....and visit toyota and others to see what is about the comparable models.....

Check the car buying sites to see what 'fair sales price' is.....and usually beat that.

Never buy a car first visit........they'll high ball you....and start working their way down. You got to plan to walk out several times, have a folder or notebook with other info in it......including blue book/internet prices and mark up on options. Never discuss what others are proposing. Just say the deal isn't right.

Try to resist 'hot new cars'.....that they don't have enough of. They'll hold on to them for high prices and there aren't any deals.

Around town car is a 10 year old Prius. Going strong.

Too many people burn through cars without thinking of the long term expense of doing that.

I had friend back in my 20s who bought a new car every 18 months. Had to have the latest muscle car. Camaro....Firebird.....GTO...... as long as his car payment didn't go up - usually with a big down payment - he was happy. Saved his money.....and traded in the 18 month old car on a new one. sometimes in 12 months. Insanity....but that was his thing. Hopefully by age 30 he outgrew it.



t.
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Heh. Buying a car is easy if you have the right attitude. This attitude is:
I. do. not. care. if. I. get. this. car. or. not.

With that outlook, you are as immune to the salesman's tricks as Stevie Wonder is to a spotlight flashed in his face.


Ha! this has been a fun thread in multiple ways.

A) the mortgage discussion. Don't variants on this get repeated every few months? And have been for the last 20 years? Yes, you can pay your mortgage off early, but at the interest rates mortgages are at today, it doesn't make much sense (even if you get zero tax deduction).

2) Cars. Just bought a Corolla LE. NEW, mind you. Our first car since 2005, our first NEW car since 1999. Yes, it has all the collision mitigation active safety stuff (lane assist, radar in front for dynamic cruise control and collision avoidance/automatic braking). And we're talking a base model Corolla, not a Maserati SUV (in case you were wondering, Maserati DOES make SUVs. But I digress). So I can commiserate with Rayvt.

Also, on car buying - we were considering both the Corolla and the Honda Accord (Civics go for considerably more than Corollas down here, so if we were going to pay more we'd have gone for the Accord). So it was mainly price driven (can we get an Accord within X price of a Corolla?) and other than that, just the model, no attachment to any one specific car. And even there, we could've lived without a new car for a awhile longer if necessary. So it was just getting the bids on the model and trim, getting the "drive off the lot" price, and basic research to be sure the the quotes we were getting from 4 different dealers were not above prevailing purchase prices in the area. It worked fine.

Also also on car buying - nobody offered any sort of break if I paid cash. People who think that's a "thing" when buying from dealers are very out of touch. As noted, dealers WANT you to finance with them, because yes, it gets them a kickback (excuse me, "incentive"). We had financing in place before we got there but wound up going with the dealer financing. (And yes, we could've paid cash for the car).

III) No, you don't need an escrow account when you take on a mortgage. Usually the lender sticks you with one when you have <20% down, but beyond that, you can usually weasel out of them. I don't have one on my current mortgage, for all the reasons people state, although as Ray states, these days I get minimal benefit from holding the money myself.

d) Self-driving cars. Tesla already has them: https://www.tesla.com/videos/autopilot-self-driving-hardware...

-synchronicity
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From this response, I am uncertain whether you even understand PSU point (which is about opportunity cost), or that the tax deduction is irrelevant to his point.

I'd call the tax deduction icing on the cake. I'd still make the same decision without the deduction but if the government wants to lower my cost of borrowing, I'm more than happy to accommodate them.

PSU
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d) Self-driving cars. Tesla already has them...

No. Tesla has been selling cars for the past year that they claim have hardware sufficient for full self driving. But the software isn't ready yet. What's deployed isn't even close, even though they are still claiming to be on track to do a demo of a no driver intervention trip from LA to NYC by the end of the year (or soon after).

-IGU-
(drive a Model S with auto-pilot version 1, hardware not sufficient for full self-driving)
(plan to replace it with an up to date Model S or X by the end of the year)
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I'll made this simple for you. The interest on my mortgage is 2.625%. Let's assume I have the exact same amount of money as my mortgage in an investment account at the beginning of this year. I'll use my mix of index funds in my 401k as my investment return because my administrator makes it very easy to look up the return. My year to date return is 17%. So what you are suggesting is that I should have cashed out all my investments that I earned 17% just so I could save 2.625%.

One year isn't a very good illustration. By the same argument, when we moved to this LCOL place 10 years ago we had the option of a mortgage or a cash buy. Say we went the mortgage route, rates were about 6.5%, and put the cash in the S&P500.

Total return on the S&P500.
1 year: -17%
2 years: -27%
3 years: -20%
4 years: -14%
5 years: +8%
10 years: +105%

A happy result in the end, assuming one could hold on.

Personally, I think having a paid for house in 08/09 helped us to hold on to our 98% stock portfolio and not do anything stupid. It's our security blanket, if you like. Each to his own.
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One year isn't a very good illustration.

I know it isn't. Mortgage are long range products with many people getting 15 or 30 year fixed rate mortgages. So let's look at 10, 20 and 30 year returns on the S&P 500 since you mentioned it. I'll use this calculator:
https://dqydj.com/sp-500-return-calculator/

Annualized Return with Dividends Reinvested
10 year - 7.45%
20 year - 6.94%
30 year - 9.45%

Yes, past results don't guarantee future returns. With today's mortgage rates, I don't see where paying it off early is anything but an emotional sleep at night issue.

PSU
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I look at the 20+ years remaining on my current mortgage, look at the divi's and gains in the individual stock account I set up to specifically squirrel away "mortgage payoff" dollars. Then I asks myself, "Do I want to pay off my mortgage with today's dollars or with ~2025 - 30 dollars."

For now the answer remains: 2030 dollars. I'll take advantage of that inflation effect in this case.
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Also also on car buying - nobody offered any sort of break if I paid cash. People who think that's a "thing" when buying from dealers are very out of touch.

I think the price break vs. low/free financing is a meme that got implanted in the days when it was a manufacturer incentive. It took about 2 years for people to figure it out and factor it into their car buying...and arbitrage it away.


As noted, dealers WANT you to finance with them, because yes, it gets them a kickback (excuse me, "incentive"). We had financing in place before we got there but wound up going with the dealer financing.

Over the last few years my perspective has changed. The big insight I got was "everybody has to eat". That doesn't mean that I'll drop $100 bills on the table for them, but I no longer get angry with them for trying to make a profit on the transaction.

I knew (figured it out in about 10 millseconds) that he'd make some money on the financing if I got it with him. I was fine with that, since I got the same loan either way.

Part of the reason we took the 10 yr extended warranty was that I knew that they were barely making any money on the car. Sure, he hammed it up, too -- great acting, he tippy-tapped on his computer and muttered to the salesman "How did you get to $30,490? Oh I see, exactly $500 below invoice." And ... more tippy-tapping ... "I'm trying to see how I can get this deal to make sense."

Two days before we came in, they has 3 cars of the model I wanted on the lot.
The day we came in to buy, they were all gone, so they would have to transfer a car from another dealer in the region. His price to me was $3000 (!!) below the best price I found at any other nearby dealer, so I didn't really want him to back out---which he could have, since...none on the lot.

I was getting ready to come up $500, but decided to keep my mouth shut and let HIM try to make the deal work. He knows his requirements better than I do, and he's the one who won't make any money if the deal falls through. That's when he came up with the cheap cheap 10 yr extended service contract. In my head I calculated that he cut it down to where he'd make a couple hundred dollars on it, which was less than the 500 I was getting ready to offer.

The car dealer has to eat, and the salesman has to eat. I want the car, so I don't mind them making a (small) profit.


you don't need an escrow account when you take on a mortgage. ... you can usually weasel out of them.
I couldn't on any of my most recent refi's. Not without paying a fee--which I was unwilling to do. Maybe if my tax was $14,000, but $2400?? Pfft, barely worth the inconvenience.


d) Self-driving cars. Tesla already has them: https://www.tesla.com/videos/autopilot-self-driving-hardware......

Vaporware.

I guarantee that if they tried to drive that Tesla from my house to the nearest Walmart it would never make it. It would be in the ditch at any of the couple dozen twisty curves in the road.
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PSUEngineer:

<<<From this response, I am uncertain whether you even understand PSU point (which is about opportunity cost), or that the tax deduction is irrelevant to his point.>>>

"I'd call the tax deduction icing on the cake. I'd still make the same decision without the deduction but if the government wants to lower my cost of borrowing, I'm more than happy to accommodate them."

I figured as much, but was avoiding nuance in my last response. Perhaps I should have said either "largely irrelevant" or "only relevant for purposes of determining rate for comparison".

Regards, JAFO
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Mortgage are long range products with many people getting 15 or 30 year fixed rate mortgages. So let's look at 10, 20 and 30 year returns on the S&P 500 since you mentioned it. I'll use this calculator:
https://dqydj.com/sp-500-return-calculator/


The most recent 10-20-30 years isn't really a good illustration either. It's just one such period.

A better thing to examine is *every* 10-20-30 year period. And since the thing that is the killer is not the average investment return but the _worst_ return, we need to look at that, too.

Which, conveniently, I have a spreadsheet which has that information.

For all rolling N-year returns since Jan 1950, for a 60/40 portfolio:
Yrs --> 10      15      20      30
Min 0.0% 4.0% 6.3% 8.1%
Avg 9.2% 9.3% 9.6% 9.9%
Max 15.7% 15.4% 14.7% 12.3%


If you compare a 30 yr fixed-rate mortgage to a 30 year period investment performance, there is no question. 30 yr FRM right now are about 4.0%. Every 30-year period since WW2 the investments have beaten the 4% mortgage by double.

https://www.dropbox.com/s/cbzvg74iyeyfwt6/SPX-monthly-1950-2...
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The most recent 10-20-30 years isn't really a good illustration either. It's just one such period.

A better thing to examine is *every* 10-20-30 year period. And since the thing that is the killer is not the average investment return but the _worst_ return, we need to look at that, too.


I know that but I didn't have the data handy. I've seen you post it in the past so I'm glad you stopped by.

PSU
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I've bought a lot of new cars and tend to skip used cars

Ditto this. Every time we decided to buy a car, the 2-3 year old ones were only cheaper than a new one by the amountof the IRS milage allowance. They cost less by exactly the amount they were worth less. Which isn't a bargain, it's just a lower price for a lower value.

I'd probably run them till the wheels fell off.
Ditto. When I was younger. Your perspective changes as you get past normal retirement age. Do I really want to own a 15 year old car when I am 90 years old? Um, no.


This last time, somebody started a "How To Buy A New Car" thread just as I was beginning to look. http://www.early-retirement.org/forums/f28/how-to-buy-a-new-...

I read it, and thought "Hell, I just want to buy a car at a low price, I don't want to take on a full-time job just to buy a stupid car."

Spent a couple of evenings looking at the car-buying sites, cars{dot}com and etc. to narrow down the candidates, put all the key data into a spreadsheet, then weeded it down to the top 3 candidates. Looked at one dealer for each, just look the car over and sit in it to see if we liked/hated it.

Then looked at the car buying sites to see the so-called "dealer invoice" and what other people were paying.

My philosophy on all this stuff was something I got from dealing in real-estate: "Take the first deal that is acceptable."


Never buy a car first visit........they'll high ball you....and start working their way down. You got to plan to walk out several times, have a folder or notebook with other info in it......including blue book/internet prices and mark up on options. Never discuss what others are proposing. Just say the deal isn't right

Too much work. I got tired of playing that BS game a long time ago.

When we go to a dealer's lot, we have the intention of buying the car on that visit, IF we like it after the test-drive and the price is right. We tell the salesman that first thing.

Heh, I don't even bother to look at the sticker, so their game of "working down from sticker price" is like them speaking Greek to me. And I tell them that.

When we go back to his desk and he pulls out the papers, I pull out the 3x5 card from my pocket and tell him "I'll pay $xxxxx for that car."
The next few minutes of conversation generally go:
Him: "bzzz, bzzz, bzzz because bzzz, bzzz, bzzz."
Me: "Don't care. That feature has no value to me so I'm not going to pay for it."
{repeat a few times}

There's really no good comeback they can use to me saying, "I. don't. care."
and in particular "I don't care if I buy this car or not. If I can get it for a price I like, I'll buy it. Otherwise, have a nice day."

In the Salesman's Goldbook of Overcoming Customer Objections, there is no surefire counter to "I do not care." What can they counter with? "Yes you do care."? As if.

I always either buy the car on the first visit or not. There is never a 2nd visit. They get one and only once chance to sell me the car. I tell them this early on, so they know how to spend their time, and are aware of what of their tactics will fail with us so he shouldn't even try them.

Last one, 2 days. Wednesday morning I checked the dealer inventories online, so see who had the model we liked. Went to the first dealer on Wednesday mid-afternoon, test drove the car, made offer -- which they refused. Thursday we were busy. Friday morning we went to the next dealer, made the offer which they accepted, paperwork all done before lunch.
Maybe total of 3 hours altogether at the dealers' lots.


You got to plan to walk out several times
Not us.

There's all these articles on how to negotiate a car that say stuff like that. "Email a dozen dealers, email back and forth on the price, email them that another dealer quoted a $100 less. Wait until end of month, end of quarter, rainy day, late Friday just before they close." Does nobody realise the the dealers read the same sites about how to beat the dealer, and know what games you (the buyer) will be trying to play?

The theory seems for an amateur to go up to battle against an experienced pro at his own game on his own playing field.
How could that possibly work out???

My wife is a better negotiator than me. A killer negotiator. No embarrassment whatsoever.

Once upon a time we were going out to dinner and we drove past a car dealer that had a (used) MGB convertible out front with a $2000 price sign on it. (This was a long time ago!) I mentioned to her that I almost bought one of those when I was in college. A few minutes later she said, "I want that car."
As we pulled into the restaurant, I said, "Tell you what, if after dinner you still want it I'll buy it but no more than $1200." I figured that would shut her up---no way would they come down that much.

Soooo, as we were leaving I turned left toward our house, and she pointed right and said, "the car dealer is that way."
We went in, salesman came over and said what can I do for you. I was figuring on being nonchalant and "accidently" noticing the MG.

She, on the other hand, pointed to the MG and said loudly (LOUDLY!), "My husband said if I can get that car for $1200 he'll buy it for me. How about it?" Stunned the salesman--I guess not many people come on like that-- and he laughed and named a higher price.

Every --every-- time he mentioned a figure, she just said, "That's more that $1200 and he won't buy it for me for more than $1200. My husband is *not* a liar and my husband said all I could spend was $1200 and so all I can spend is $1200." She talked about me as if I wasn't even there. And she wouldn't let them talk to me at all, only to her.

Didn't matter what the salesman or later the sales manager said. She just repeated her $1200 refrain. Since I was the invisble man, it was interesting to watch and see them trying all the typical car salesman tricks. "Another couple looked at it and are coming back to buy it." "We would take a loss." etc. Nothing worked, they might as well have been speaking greek. "If it's not $1200 you are wasting your breath."

Yeah, she got the car. For $1200.


Her other favorite trick she pulls at a street market, outdoor/sports/computer show, etc. When she sees something she wants, we walk away and she gives me all of her money except for a few $10/$20 bills. Then she walks back to the seller, turns her pockets inside out to show them that that's all the money she has, and says, I will pay $xxx but no more because that's all the money I have.


[How the heck did a 401k thread morph to a car thread?]
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Too much work. I got tired of playing that BS game a long time ago.

I was playing the BS game a few months ago when my daughter was buying a car. After going around and around, I finally got tired and we left. Since I'm a Costco member, I decided to try their car buying service. We went back to the same dealership a few hours later with Costco's price in hand. It was several thousand less than the negotiated price several hours earlier.

PSU
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[How the heck did a 401k thread morph to a car thread?]

The car part was more interesting than the 401k part, I thought.
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"Part of the reason we took the 10 yr extended warranty was that I knew that they were barely making any money on the car. Sure, he hammed it up, too -- great acting, he tippy-tapped on his computer and muttered to the salesman "How did you get to $30,490? Oh I see, exactly $500 below invoice." And ... more tippy-tapping ... "I'm trying to see how I can get this deal to make sense.""

No one is going to sell you a car for $500 under THEIR COST. Invoice price is just another number out there......that does not include all the incentives.

Most dealers get significant 'incentives'. THey're pushing this model out because they got too many and the parent company forks out another $600 per car. That doesn't show up under 'invoice'. If the dealer sells XXXX cars a quarter, they get another $150 per car back from Detroit or wherever.

- - -------

"Two days before we came in, they has 3 cars of the model I wanted on the lot.
The day we came in to buy, they were all gone, so they would have to transfer a car from another dealer in the region. His price to me was $3000 (!!) below the best price I found at any other nearby dealer, so I didn't really want him to back out---which he could have, since...none on the lot."

They do that a lot. And sounds like your other dealers weren't as deperate to sell cars that month. Or not that model.

-------


"The car dealer has to eat, and the salesman has to eat. I want the car, so I don't mind them making a (small) profit."

I'm sure they came out ahead. They always want to tell you how you are 'bleeding them' and they can't do the deal.....but hem and haw and slowly the price comes down..... or shop around for different vendor cars in the same category....never mention competitors prices or other dealer prices..just saying it still doesn't make sense.

Sometimes selling just one more car - even if they 'break even' - triggers the next level of bonuses back to that dealer....so for your car, zip profit...but they get a check for $150 each for the other 300 cars they sold that month for selling more than XX cars that quarter!

Here in TX, they love getting cars off the lot by Dec 31 so they don't pay a per car tax to the state for 'inventory'.

I wound up buying my last car from a volume dealer 50 miles away. My local Chevy dealer didn't have any of the cars I wanted other than high end high option cars (I hate leather seats in a car in TX).......and wasn't too forthcoming with decent pricing. Take it there for all my service needs now which are mainly oil changes.


t.
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"Heh, I don't even bother to look at the sticker, so their game of "working down from sticker price" is like them speaking Greek to me. And I tell them that."

The favorite tactic here is asking 'what can you afford to pay a month?" bit....

And they'll 'find a car' that will 'fit your budget' - and maximize their profit!


t.
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And sounds like your other dealers weren't as deperate to sell cars that month. Or not that model.

Yeah. All that you said, about holdbacks and etc.
Things got emotionally easier when, years ago, I came to the realization that I shouldn't care how much the other guy makes, that all I should care about is how I come out and got what I wanted at a good price for me.

My wife the negotiator used to fret about taking money out of the poor flea market vendor's wallet. I told her, He is not going to give you money and he is not going to sell it to you at a loss. If he accepts your offer, it's because he does no worse than breaks even on the price.

She had fun in Guatemala (went there on a cruise) with the local vendors. They'd name an outrageous price, and she'd dicker with them -- both sides having a ball -- when/if she got down to their absolute bottom-line price, they'd shrug, nod, and say "Business is business."


...how you are 'bleeding them' and they can't do the deal.....but hem and haw and slowly the price comes down
Yes, funny how every dealer sells every car below his cost. ;-)

But with me, the price doesn't slowly come down. I name what I figure is a realistic price that gives them a slight profit, and that's that.

Actually, when we bought this last one, we *were* under time pressure. We wanted to get a car that was already up here, before the cars that got flooded in hurricane Harvey could get shipped here. But all we told the dealers was, "We are here to buy a car today. Or not. Your choice."

We had decided that the upcoming weekend was our cutoff date. If we didn't get the car before then we'd wait 6 months until all the flooded cars got unloaded on suckers.
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The favorite tactic here is asking 'what can you afford to pay a month?" bit....

And they'll 'find a car' that will 'fit your budget' - and maximize their profit!


I enjoy reading the articles & books about all the tricks car dealers pull and "how to not get taken on your next car purchase".

I always waited for a salesman to pull those tricks on me....but they never do.

Whenever -on anything- the question about how much to you want/afford to pay per month comes up, I always shrug and say, "I don't care." For the question of how much do you want to put for the down payment, same thing. "I don't care. As little as possible, I guess." Then tell them, "I don't care about any of that stuff. Not down payment, not monthly payment, not length of loan. What I care about is the price."

They learn to read customers pretty good. Our "don't care" attitude and "we can afford to buy whatever we want" comes across loud and clear.

I read all about the "four-square" worksheet they supposedly use. I explained it to my wife, and told her that I was disappointed that nobody had ever tried it on me and I was kinda insulted that they hadn't.


Although one guy once tried the "initial this box that says the buyer will buy a car today if the numbers are agreeable" gimmick on me. Naive me, I didn't even realize this was a sales trick. ::blush:: I asked him, truly puzzled, "Why do you think I came in here if I didn't plan to buy a car?"


The business about trade-in value vs. car price never worked with me, either. Again, naive me, I didn't realize this was a trick on their part. I just said, "I don't care how much you are going to give me on the trade-in. My offer is I give you my old car and $XXXX for that new car. However you want to juggle the figures around, go ahead, knock yourself out, I don't care, please yourself. So long as it comes to we give you $XXXX and our old car."

Although sometimes, when they moan about not making any money on the sale, I tell them, "That's okay, you'll make the profit when you sell my old car."
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Rayvt: The business about trade-in value vs. car price never worked with me, either. Again, naive me, I didn't realize this was a trick on their part. I just said, "I don't care how much you are going to give me on the trade-in. My offer is I give you my old car and $XXXX for that new car. However you want to juggle the figures around, go ahead, knock yourself out, I don't care, please yourself. So long as it comes to we give you $XXXX and our old car."

We tend to drive a car until it has no residual value. Call our favorite charity which will haul it away for auction. Our 1999 Chevy venture had 179,000 miles, and the top was rusted through at the windshield.

But thanks to all who have contributed to this thread. I have learned some good things.

CNC
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"We tend to drive a car until it has no residual value. Call our favorite charity which will haul it away for auction. Our 1999 Chevy venture had 179,000 miles, and the top was rusted through at the windshield."

I had an 8 year old Buick LeSabre with 224K miles on it. Not much value - maybe $1300-1500 at the time. Put it on Craigslist and have half a dozen people want to buy it 'on payments' and for 'half that price' , or 'half down' and the 'rest in 60 days'. Went on for a month, then decided to just donate car and take the tax write off. too much hassle. Back then you could write off the blue book value.

Now, if you donate a car, you can only write off what they actually sell it for....which might be dirt cheap.......like a few hundred bucks


Last car had 175K miles on it after 7 years. Worth maybe $2300 private sale. I figure the dealer actually gave me about $1700 for it. No hassle. He likely wholesaled it off the next day. Good shape, running fine.....nothing had gone wrong - zero - nada - other than tires, one battery, oil changes, air filters. Original brakes. Everything worked. Would make someone a nice car but few folks rush out to buy a car with 175K miles on it - even if 99% of them were 'highway miles'.

Just had breakfast today with friend John. He has 19 year old Lexus. Still going strong. Very few problems.....but he is thinking one of these days it's time to upgrade to something newer. Nice condition and 130K miles. It should go to 300K easily. At some point, it makes sense to move on. Been garage kept most of its life so in great shape. Cash is absolutely no problem for him. Just doesn't 'need' a fancy dancy new fangled car.




t.
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Sometimes someone says something exactly as it should be said.

They cost less by exactly the amount they were worth less. Which isn't a bargain, it's just a lower price for a lower value.

Well put.
A class in a sentence.
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Listening to how some here run their cars into the ground, sounds more like the LBYM board. No wonder you are all doing so well or just careful and clever at the same time. I buy Mercedes Amg Sl 550’s and Vettes and buy new every 3 years.
Oh well, to each their own. Never had a car over 50k, perhaps I should try it sometime.....nah, live on the edge...could get run over by a car tomorrow with 6 million miles on the clock.
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Listening to how some here run their cars into the ground, sounds more like the LBYM board. No wonder you are all doing so well or just careful and clever at the same time. I buy Mercedes Amg Sl 550’s and Vettes and buy new every 3 years.
Oh well, to each their own. Never had a car over 50k, perhaps I should try it sometime.....nah, live on the edge...could get run over by a car tomorrow with 6 million miles on the clock.


Some people like black shoes, some prefer brown.

CNC
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" I buy Mercedes Amg Sl 550’s and Vettes and buy new every 3 years."

Thanks for keeping the economy rolling

You seem to be flush with lots of spare cash.

I assume you're already retired?

Reliability usually goes UP after the first 5-10,000 miles when you debug all the factory problems....


t.
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Over the last few years my perspective has changed. The big insight I got was "everybody has to eat". That doesn't mean that I'll drop $100 bills on the table for them, but I no longer get angry with them for trying to make a profit on the transaction.

Same here. I bought a new motorcycle yesterday. I had a great price from a dealer farther out, but really wanted to buy from my local guy. He was able to get close enough. It's a win-win.

(Of course, he claims he's selling it at cost, but we all know how that goes).
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Every time we decided to buy a car, the 2-3 year old ones were only cheaper than a new one by the amount of the IRS mileage allowance. They cost less by exactly the amount they were worth less. Which isn't a bargain, it's just a lower price for a lower value.

Well, the IRS mileage allowance isn't just depreciation, it's supposed to cover the running costs of the car, including fuel. But, yeah, I don't see 2-3 year old cars as good value for me, typically. My wife buys new and runs them into the ground (current van 10 years old, 140K), she's only ever owned three cars. I buy new and change them often, because I'm a gearhead and life is short.
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We tend to drive a car until it has no residual value.

That's my standard position. But with all the new nifty safety & electronic features they have now, there is a HUGE difference between the current models and even 5 years ago. Lane following, collision mitigation (WITH RADAR!!), blind-spot detection, adaptive cruise control, automatically locking the doors when you walk away.....
There's a youtube video of a guy who went on a CA freeway, set the cruise control to 70 MPH and drove around in 50-60 MPH heavy traffic, and never put his foot on the pedals -- even following a panel truck as they took an exit, _with_ a full stop at the off ramp.

FWIW, the #1 cause of car accidents in my town is hitting a deer. So now I'm kinda looking forward to some Bambi jumping out in front of me, to see how the anti-collision works. ;-)


Hah. That Honda Civic with the dead alternator and flapping front quarter panels? When we were all done buying the new car, I went back to the salesman and said, "You didn't _really_ give me $500 for my Civic, what did you really do?" He said they wrote it off and called the junkyard the next day to tow it away.


My son with our old Toyota Camry, with the dead A/C, the one door that would not open, with 205,000 miles on it? He told us he thought he might get $2000 for it on Craigslist. My wife told him he should stop smoking that funny tobacco---that car's value was basically the amount of gas in the tank.

Two days later, he called and said, hey Dad I remembered what you always told me about take the first offer I could live with and move on with my life. I just sold the Camry for $1000.
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We tend to drive a car until it has no residual value.

While we do keep our vehicles for a fairly long time, we don't drive them until it has no residual value or the wheels fall off. My wife has a job where she can't afford to be stranded by the side of the road several times a year. Once her car shows signs that there are going to be maintenance issues that could lead to that possibility, we get her another new car.

PSU
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sounds more like the LBYM board. I buy Mercedes Amg Sl 550’s and Vettes and buy new every 3 years.
Oh well, to each their own. Never had a car over 50k, perhaps I should try it sometime.....nah, live on the edge...could get run over by a car tomorrow with 6 million miles on the clock.


I had a co-worker buddy like you, he poo-poo'ed us guys who kept our cars a long time.
His theory was "You are going to have a car payment just about every month for the rest of your life anyway. But I'm driving a new(ish) car all the time and you guys are driving a 6 year old car."

My new Honda CR-V cost me $3000 more than we paid for the old 2009 Toyota RAV4--and the extra features make the RAV4 look like a kiddy-car. I could have saved $3000 by omitting the built-in GPS and just using my old Tom-Tom GPS -- then the CR-V would have cost exactly the same as we paid for the RAV4.

I'm really going to have to think about doing the 3-5 year cycle. No reason to try for the Richest Guy in the Cemetery reward. Maybe when it's time to buy new tires I should go for new car instead.
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"My son with our old Toyota Camry, with the dead A/C, the one door that would not open, with 205,000 miles on it? He told us he thought he might get $2000 for it on Craigslist. My wife told him he should stop smoking that funny tobacco---that car's value was basically the amount of gas in the tank.

Two days later, he called and said, hey Dad I remembered what you always told me about take the first offer I could live with and move on with my life. I just sold the Camry for $1000. "


There are lots of people who will buy a running car for $500 to $1000. That's all they have. If it lasts a year or two, great.......maybe they'll drive it another 5 years or 8.

You don't need a/c to drive. You see lots of cars here with windows down when it is 95 and 100 degrees.

As long as the driver door opens......fine......

heck, a lot of those cars run to 300,000 miles ........

Up north - folks buy them to drive in the winter time - beaters - so their good cars don't get salted down with the snow and ice......and if they slide off the road in a 500 buck car...well....not so bad.....better than the $40,000 SUV....



t.
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"His theory was "You are going to have a car payment just about every month for the rest of your life anyway. But I'm driving a new(ish) car all the time and you guys are driving a 6 year old car.""


I haven't had a car payment since 1970. ANd bought six or seven new cars since then.

I could car less about a 'new car'. One that is 3-4-5 years old now is just like new. In fact, you got it 'debugged'. Half the new cars go back for a recall or two, and have a minor problem or two to get 'resolved' right from the factory.

Yeah, some folks need status symbols.

Move from starter homes to bigger ones to even bigger ones...McMansions.......

If they got the loot, fine.

I just don't want to hear them whine about 'how they'll never be able to retire' though.



t.
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Yeah, some folks need status symbols.

Move from starter homes to bigger ones to even bigger ones...McMansions.......

If they got the loot, fine.

I just don't want to hear them whine about 'how they'll never be able to retire' though.


That's a different topic -- subject for a different board.

Here, we are a group of people who either are retired with a lot of money, or who are planning to retire with a lot of money.

If you've got a million or two in your retirement account(s), then it makes no difference whether you update to a new car every 3-5 years, or if you drive the car for 200,000 miles and then another 100,000 miles with one door wired shut and the windows rolled down.

At some point, a millionare bragging about driving a beater is just empty virtue signalling. There's no virtue in wearing a hair shirt.

some folks need status symbols.
Exactly nobody thinks a Honda or a Toyota is a status symbol.

Hell, in these days of leasing, nobody anymore even thinks a Lexus or BMW is a status symbol.



I haven't had a car payment since 1970. ANd bought six or seven new cars since then.
So?

I've bought several new cars in the same timeframe and always had car payments for 4-5 years each. Usually then with a gap of another 4-5 years of no payments. Paid 0.99% to 2.5% interest rate while my investment earnings averaged around 12%. The smart financially thing to do was keep the money earning at 12% instead of giving up the 12% earnings to save 2% interest.

Strange thing it would be to brag about giving up 10%.

Nor do I see anybody being impressed by me going to the grave with a 20 year old car with less than 100,000 miles on it.
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The additional safety features on new cars have made me think several times over about replacing my 2003 Toyota Matrix (125K). Three things stop me.

1) it seems each year new cars come with serious improvements, so waiting for it to level out a bit.

2) nothing really wrong with the car I'm driving. I like it!

3) I've still got a cassette/CD player and I really like that, too.

Seriously, so many cassettes would be rendered useless while right now I can still dig out ancient tapes and hear old radio shows (my own from college and others I taped throughout the years), family recordings and other various trivia...

But I would like the blind spot indicator and backing-up auto-braking...among the other safety features.
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If you've got a million or two in your retirement account(s), then it makes no difference whether you update to a new car every 3-5 years, or if you drive the car for 200,000 miles and then another 100,000 miles with one door wired shut and the windows rolled down.

That depends on if it interferes with paying my country club fee. May need to be a little frugal on the car.

PSU
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What's a cassette?

PSU
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What's a cassette?

It is what the kids are using these days instead of 8-tracks.
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What can I say? I love physical media. If you ever played music with anyone, chances are you recorded yourselves on a cassette until digital media. At which point, you likely got frustrated and stopped recording at all.

The kids sit in their rooms and make music alone on a computer and it often shows.
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I just said, "I don't care how much you are going to give me on the trade-in. My offer is I give you my old car and $XXXX for that new car. However you want to juggle the figures around, go ahead, knock yourself out, I don't care, please yourself. So long as it comes to we give you $XXXX and our old car."<>?

I recently bought a newer used car from a dealer, trading in my 15 year old beater. I had a good idea of what I could get for the old car privately if I wanted the hassle, and got a quote from Carmax which gave me a good idea of an easy bottom value. Carmax gives a non-negotiable quote in about 15 minutes and it is good for 7 days, so if wanted I could just go back to them and leave them the car with no hassle and walk away with a check.

The salesman and manager at the dealer were surprisingly unable to understand this proposition of only caring about the total price. It truly seemed incomprehensible to them to quote a total price, like I had told them I wanted to pay with a herd of goats. They kept insisting on breaking it into the the new-used car price, the dealer charge, the trade-in value, and other charges, and then an spending inordinate time on the calculator adding it all up. They really wanted my trade-in. They refused to come down much on the new-used car price, and if I didn't trade my old car in that was their best price. But they were quite willing to pay 3x the value of the trade-in. I only cared about the total and the total price with the trade-in was a good price so I sold it to them. But it was very mystifying. They must have some interesting internal accounting.
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"If you've got a million or two in your retirement account(s), then it makes no difference whether you update to a new car every 3-5 years, or if you drive the car for 200,000 miles and then another 100,000 miles with one door wired shut and the windows rolled down."

Well, if you only have a million.....and no pension...and just SS that you took at 62.....you're not rolling in the dough especially if you were making 80-100K year.....

maybe 60K a year. Got lots of taxes like in MA and CT and CA......for real estate and that eats up a lot......

And if you are married, your wife is likely not all that willing to downsize her lifestyle in retirement. Those $100 haircuts and pedicures and what not......

Most new cars will run 200K miles no sweat in 10 years.

My 17 year old 1990 Honda still ran fine, but it suffered a bit of aging from 17 years in the TX sun......and the seat was worn from lots of butt time. Everything except the window washer worked and it needed a new plastic bottle. well, one light on the radio was burned out on one of the buttons...... 165K miles......it probably would last the new owner another 10 years.


t.
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"The salesman and manager at the dealer were surprisingly unable to understand this proposition of only caring about the total price. It truly seemed incomprehensible to them to quote a total price, like I had told them I wanted to pay with a herd of goats. They kept insisting on breaking it into the the new-used car price, the dealer charge, the trade-in value, and other charges, and then an spending inordinate time on the calculator adding it all up. They really wanted my trade-in. They refused to come down much on the new-used car price, and if I didn't trade my old car in that was their best price. But they were quite willing to pay 3x the value of the trade-in. I only cared about the total and the total price with the trade-in was a good price so I sold it to them. But it was very mystifying. They must have some interesting internal accounting. "

Just about every dealer hear wants to talk 'car payments'. How much can "you afford" and we'll get you in a great car.......for that price.....or a bit more......

I suspect the internals are from the used car department that evaluates and then sells/unloads your trade in. If they can flip it for a profit, they want it. If not, they give you wholesale value. If it's a moving wreck, they sell it for scrap value (couple hundred).

It's hard to get them to give you 'out the door price' which is the only thing I care about - including tax, title, their fees.

And you have to be careful because they practice 'wallet cleaning'. After they get done, now they want to sell you fabric protection and floor mats and oh, it comes with an optional but already installed 'cargo net'....... and 'undercoating'.........and 'paint protector'......

At that point, I guess I say if the original rust proofing and paint isn't going to hold up, I probably don't want to buy this make of car.......

on things like floor mats......i won't pay them half of list price.....

The only extra option I got on my 2017 Malibu was a real spare tire. New cars come with a 'fix a flat' can of gunk and an 'inflator' pump. Take a nail in a sidewall or big gash in the tire and you are out of luck, especially if you are 60 miles from the nearest town in MT or west TX. So I paid them a couple hundred extra for the spare tire, rim, jack, tire iron, hold down hardware......and got my spare tire. Think I was the ONLY one wanting a spare tire that that dealer had ever seen.

Call AAA or your repair service, and the first question they ask you is 'do you have a spare tire?"....

DOn't have any experience with 'fix a flat' stuff....but also have that in the trunk.



t
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-- Our 2002 Toyota Camry had cassette and CD changer (6 disk) and AM/FM radio.

-- Our 2009 Toyolta Rav4 dropped the cassette, but had CD changer, and AM/FM & Sirius satellite radio, and aux jack for audio input from mp3 player.

-- Our 2017 Honda CR-V dropped the CD player. ("No CD player!?", I said. "Welcome to the digital world.", the salesman said. "It doesn't have a record turntable either.")
It has AM/FM & Sirius satellite radio and USB jack to play mp3 audio files, and bluetooth audio.

So I dug thru my misc. electronics box for a USB stick and copied a dozen of my homebrew CDs to it along with about 500 hours of music I had downloaded from Pandora and various internet radio stations.

I suspect the 2021 cars will drop the AM/FM. USB, satellite radio, and bluetooth only. Or maybe USB sticks will be obsolete by then?
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It's hard to get them to give you 'out the door price' which is the only thing I care about - including tax, title, their fees.

And you have to be careful because they practice 'wallet cleaning'. After they get done, now they want to sell you fabric protection and floor mats and oh, it comes with an optional but already installed 'cargo net'....... and 'undercoating'.........and 'paint protector'......


You know, over the years I have come to realize that my wife and I are *very* untypical buyers & negotiators. I bet we drive the car dealers crazy.

Like spinning said, we only care about the bottom line price (w/o tax, which in Arkansas you pay yourself instead of the dealer collecting it -- so that makes it easy.)

The previous car, the dealer has signs up all over the place that said "All vehicle sales have a mandatory $129 documentration fee" and their sales contract has a pre-printed $129 line item. I told the salesman that the price we agree on is the total price, and I'm not going to give them $129 more. "But but but, this is a mandatory charge." "No, actually it's not. If I don't buy this car then you won't be collecting any $129 fee."

He was either slow, or pretending to be slow, but he finally realized that he needed to put in a "$129 misc credit" line-item. But by God there was a $129 doc fee on the contract just like the signs said.

Last time, the time we get it all wrapped up and get handed off to the finance guy, he had obviously been alerted to not waste his breath.
He said, "You probably don't want the gap insurance, do you? Or the credit life insurance?" He took my chuckle for a "No".

I asked him if he was going to ask if I wanted nitrogen in the tires. He said he didn't bother because he knew I wouldn't.


It truly seemed incomprehensible to them to quote a total price, like I had told them I wanted to pay with a herd of goats. They kept insisting on breaking it into the the new-used car price, the dealer charge, the trade-in value, and other charges, and then an spending inordinate time on the calculator adding it all up.

I suspect this is an act. They are not stupid, and if they've been in business for a number of years they have run into quite a few buyers like us. But we're the minority of buyers, so the razzle dazzle works on the majority of their buyers. They know that if there are a bunch of plus and minus line items that people tend to get confused.

The salesman knows to the penny how much commission he will personally make on the sale, as soon as you express interest in a car. He can do that math in his head.
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The previous car, the dealer has signs up all over the place that said "All vehicle sales have a mandatory $129 documentration fee" and their sales contract has a pre-printed $129 line item. I told the salesman that the price we agree on is the total price, and I'm not going to give them $129 more. "But but but, this is a mandatory charge." "No, actually it's not. If I don't buy this car then you won't be collecting any $129 fee."

He was either slow, or pretending to be slow, but he finally realized that he needed to put in a "$129 misc credit" line-item. But by God there was a $129 doc fee on the contract just like the signs said.


I used to handle claims for an insurance company that specialized in auto dealers. We offered very unique lines of coverage geared toward their business needs, and one was called "Statute and Title Errors and Omissions Coverage." Those claims involved situations where there were alleged violations of truth and lending laws, failure to disclose prior damage, things like that.

I handled a lot of claims involving complaints about "document service fees" being charged, as well as "document review fees," "customer service fee," and a ton of other names for what amounts to "profit for the car dealership." There are (used to be... I haven't done that kind of work for 15 years now) a lot of cases in various states dealing with different fees charged, but my experience at the time was, as soon as a dealership realized they shouldn't call it one thing, they'd add a different line item and call it something else and find some other way to charge the money.

I learned a lot about how car dealers make money when I was doing that job.... enough to be really, really wary when walking into a car dealership. Dealers really don't make much, if any, money on the car itself. They make most of their money on financing and whatever other fees they can pack on the final sale amount. The document service fee is pretty much a way of passing the cost of their overhead (clerical back-office staff) on to the consumer. If you pay cash for a car, a lot of times the service fee or whatever is the only money the dealer is making on the deal outside of the financing, which the dealer would only get a small cut of. (Other note: in most dealerships, most of the inventory on their lot doesn't belong to the dealership, it still belongs to the manufacturer. I seem to recall fees that the dealership would have to pay if they had to send unsold cars back... but again, things may have changed).

(I also handled claims involving sexual harassment, discrimination, etc. at the dealerships. Let's just say those salespeople often have a lot of time on their hands and get into some interesting kinds of trouble....).
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So I dug thru my misc. electronics box for a USB stick and copied a dozen of my homebrew CDs to it along with about 500 hours of music I had downloaded from Pandora and various internet radio stations.

I love intelligent talk when I'm driving. Hard to find much of the time. I'm hooked on my Android Stitcher app now. Plays through my car audio via Bluetooth. Have a bluetooth headset I'll often wear to listen when walking too. Simple to setup favorite Podcast stations that update with latest downloads automatically (set to only download when on Wi-Fi). Listen mostly commercial free.
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Nor do I see anybody being impressed by me going to the grave with a 20 year old car with less than 100,000 miles on it.

My cars will likely get pretty old. I like them both and neither is still being made.
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I could car less about a 'new car'. One that is 3-4-5 years old now is just like new. In fact, you got it 'debugged'. Half the new cars go back for a recall or two, and have a minor problem or two to get 'resolved' right from the factory.
~~~~~~~~~~~~~~~~

It's good to remember that EVERY registered car on the road is a used car.
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He was either slow, or pretending to be slow, but he finally realized that he needed to put in a "$129 misc credit" line-item. But by God there was a $129 doc fee on the contract just like the signs said.
~~~~~~~~~~~~~

In CT most dealers charge a documentation fee because the state says they can. If they choose to charge such a fee, they are legally required to charge it to everyone. For those who protest the fee they reduce the price of the vehicle by the doc fee amount so it can be added back in per the preprinted line on the PSA.

Of course we all know the fee simply enhances the dealer's bottom line.
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But I would like the blind spot indicator and backing-up auto-braking...among the other safety features.

Love the blind spot indicator and rear cross traffic alert on our 2014 Mazda 3. Wouldn't buy another car without them.
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But by God there was a $129 doc fee on the contract just like the signs said.

Don't know how it is there, but here they are pretty much required to charge the same doc fee to everyone. There was some lawsuit where a dealer was found to be charging different doc fees to customers. May have been racially biased, don't remember. Anyway, to make sure they don't get into that mess again they charge the same fee to everyone. I tell them I want a total "out the door" price, make the numbers within that price work however you like.

Just did that with the bike I bought yesterday. Paperwork shows a $175 doc fee. Don't care.
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Yeah, some folks need status symbols.

Move from starter homes to bigger ones to even bigger ones...McMansions.......

If they got the loot, fine.

I just don't want to hear them whine about 'how they'll never be able to retire' though.

That's a different topic -- subject for a different board.

Here, we are a group of people who either are retired with a lot of money, or who are planning to retire with a lot of money.

If you've got a million or two in your retirement account(s), then it makes no difference whether you update to a new car every 3-5 years, or if you drive the car for 200,000 miles and then another 100,000 miles with one door wired shut and the windows rolled down.

At some point, a millionare bragging about driving a beater is just empty virtue signalling. There's no virtue in wearing a hair shirt.

some folks need status symbols.
Exactly nobody thinks a Honda or a Toyota is a status symbol.

Hell, in these days of leasing, nobody anymore even thinks a Lexus or BMW is a status symbol.


Do these debates ever lead to any productive discussions that result in positive outcomes?
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Do these debates ever lead to any productive discussions that result in positive outcomes?

Well I am positive I wouldn't like to know some of these folks personally.

Bryan
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Well I am positive I wouldn't like to know some of these folks personally.

Bryan


;-)

Heading out to do some dog proofing in my backyard, then change a headlight bulb on our 2005 Honda Element with 215K, then do an oil change on it, then install some new door weatherstripping in the house since the dogs ate what was on there.

Then I'm going to fire up the 2017 Honda Ridgeline and drive to meet my wife for dinner after an all day conference she is attending. I will most likely not be keenly aware of other drivers staring at my non-status Honda pickup. I will, however, remain keenly aware that I can haul dogs, bikes, plywood, mattresses, dirt, rock, furniture, brush, a cooler of beer next to my bikes, firewood, and whatever else I always seem to end up toting around as I buzz over a combination of gravel roads, county highway, and beltway interstate to meet my wife for some chow.

I'm a sucker for utilitarian transportation, but I would never pooh-pooh about anybody else's choice of transportation. If it gets you and your gear from point A to point B - it's all good in my book.

BB (still missing the days of minivan ownership...)
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Heading out to do some dog proofing in my backyard, then change a headlight bulb on our 2005 Honda Element with 215K, then do an oil change on it, then install some new door weatherstripping in the house since the dogs ate what was on there.

Then I'm going to fire up the 2017 Honda Ridgeline and drive to meet my wife for dinner after an all day conference she is attending. I will most likely not be keenly aware of other drivers staring at my non-status Honda pickup. I will, however, remain keenly aware that I can haul dogs, bikes, plywood, mattresses, dirt, rock, furniture, brush, a cooler of beer next to my bikes, firewood, and whatever else I always seem to end up toting around as I buzz over a combination of gravel roads, county highway, and beltway interstate to meet my wife for some chow.

I'm a sucker for utilitarian transportation, but I would never pooh-pooh about anybody else's choice of transportation. If it gets you and your gear from point A to point B - it's all good in my book.

BB (still missing the days of minivan ownership...)<\i>

hahahaha.

I buy new and don't trade in til the vehicle starts giving me too many headaches. My first car was used. Only one other car was bought used all the others were new. Currently have 08 Tundra and 50th anniversary Mustang.

I would never lease. Would make me too paranoid worrying about every little scratch

Bryan
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Love the blind spot indicator and rear cross traffic alert on our 2014 Mazda 3. Wouldn't buy another car without them.

Yah, big jump up from the state of the art in 2009.

I'm still getting used to the blind spot indicator. The car yells at me if I try to change lanes without using the turn signal. So does the wife, but I can tell her to shut up. ;-)

Didn't understand the rear cross traffic alert until the other day. The new Sams Club they built by us, the parking lot must have been designed by a one-eyed guy after a 7-day binge. No sight-lines, cars are always almost running into each other.
I was backing out of the spot and the alert went off (I'm paranoid and OCD about backing out of parking spaces, but I did NOT see that car). And suddenly I understood what the manual was trying to say.

Always hated Daylight Savings Time, every damn appliance in the house has a clock that you have to reset twice a year. Ditto the cars, and in the car you have to change it when/if you cross a time zone boundary.
Well, ta-da!! No more. The clock gets it time from the GPS *and* it figures out what timezone you are in and adjusts the time for that.
Gah!! Did some googling around---you can buy a "gps mouse" (plugs into your computer) for under $7. That'll give you the time from GPS accurate to microseconds. Also GPS location within 3 meters.
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Yes, backing out in parking lots has become a booby trap with endless variations. No matter how careful I think I'm being, there's often an element I'm not thinking enough about. Usually it's the people walking who apparently believe it's entirely up to me to notice that they have no intention of yielding to my back-up lights and, in fact, see them as an opportunity to test my reaction time by walking *faster* towards them. Congrats! You win the challenge!

Modern parking lot design appears to never take in the idea that people need enough room to back out and turn in the direction they need to go without hitting the cars on the opposite side. Part of this is because so many cars are now huge trucks and SUVs that take up more room than the space provides but also because they add bike racks, trailer hitches...extending their reach by another foot or so...

I often wish I was driving a Mazda 3 or my old Honda CRX in order to slip through areas where a slightly bigger car has no chance. But I really need to be able to tow more people around from time to time.
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I had a co-worker buddy like you, he poo-poo'ed us guys who kept our cars a long time. Rayvt.

Just to set the record straight, where did I once poo-poo anyone? Quite the opposite in fact, thought you had it all figured out. Read my post again.

Regardless, the Sl 550 is one of the best cars I have ever driven for speed and comfort and since I keep the miles low and have a really good arrangement with my dealer get a new one every 3 years. Just brought a C7 Vette. My 14th....Waiting now for the new Mercedes SL design to come out due 2019/20. Still have my C6 2005 with 9 thousand miles on the clock that’s been customised and a 1969 Jenson Interceptor that’s my pride and joy.
New, old, Antique, we all love our cars. The main concern apart from dodgy dealers are the amount of idiots on the road today who have no business driving in the first place.
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Just to set the record straight, where did I once poo-poo anyone?

I didn't say you did. Was speaking generically.
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Holy cr*p! Did you say SL550? I pulled up a link which said MSRP $112,300. I wonder whence the 300, couln't they have just rounded off?
Oh...plus $2,250 for blind spot assist and lane keeping assist.

It offered to estimate my payment, I said nah don't bother.

Oh....well...the local dealer has a few in stock. 25 actually. I guess Little Rock is a little more up-scale than I thought. No red one though, so too bad for them. Lowest MSRP is $116,145, so I guess it comes with the assist package.

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Last night I mentioned to my wife this thread, and that a couple of guys made a case for replacing the car every 3-5 years. She thought that was a capital idea.
So when it comes time to buy a new set of tires, we won't be going to Tire Express or Sam's Club Automotive. ;-)
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A colleague once traded in a very nice Expedition with 75k on the clock. It had a taillamp out. Last straw for her. I'd offered to take care of it... Then I found out what she took for it on trade in for the Mercedes sport ute she bought to replace. About fainted, would have paid her cash for it myself instead.

Then came the convertible CLK. Then the very nice E-clase, and then, and then, and then...

Perpetually car rich, cash poor. Though she sure knows how to make money. Best technical sales person I've ever worked with. Western region director now for some Swedish Company I'd never heard of. Early 50's now and no retirement in sight for her. But a very nice car in the driveway.
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