[heresie-dabord]

> 4) Do not over leverage yourself such that a job loss or housing crash will immediately crush you.

I can reasonably assert that an economically significant number people would be in big trouble if they lost their jobs.

As for a housing crash, it depends on your specific meaning. If enough of the value of property were lost, banks would be forced to take action to survive their lending risks. The ramifications of that would be extensive, let us say.

[throwaway22032]

Yes, but _you_ can protect yourself against this by simply not over leveraging.

Instead of buying the 250k house, buy the 200k house and put 1/4 of the mortgage payments away. After a year you have three months buffer, after four years you have a year.

The key is simply to live slightly below your means.

Re housing crash: the banks are not going to foreclose en masse on people who are paying their mortgage payments regularly simply because they are in negative equity. They are not incentivised to do so.

[constantcrying]

But doing that is very expensive, the moment your interest starts rising you are paying hundreds of dollars/euros/etc. each month just so that you have the money available in your account, constantly depreciating. That is obviously something you need to be able to afford.

[throwaway22032]

I don't understand what you are saying.

If you can afford a 250k house then you can afford a 200k house + 25% saved per month. It's exactly the same amount of money.

You then have a buffer. It's the opposite of expensive.

[constantcrying]

Not spending money to pay off debt means you continue to pay interest on the remaining debt you decided not to pay off.

If you spent money to reduce your debt, you aren't just reducing the money you own, you reduce all future interest. Saving money instead of paying off your mortgage is expensive, it costs a lot of money each month.

[throwaway22032]

Mortgage rates where I am are basically always within 1-2% of the risk free rate and less than most investments return over time so this isn't really true.

You have a very small opportunity cost, which reduces your risk of default to near zero.

Holistically, you can then take greater risks in other areas and end up longer term positive.

To me your argument is like saying that an airbag, or a crumple zone, or a seatbelt, increases the weight of your car, and therefore fuel consumption, and therefore it's expensive. It's true but only in a pedantic way, when you need it it suddenly goes from being "expensive" to a huge net positive no brainer.

[constantcrying]

What? This makes no sense, if you want to have money in case of economic trouble you obviously do not invest it. This is just contradictory, so you have to actually have the money in a savings account.

Over the decades you are paying off your loan you pay tens of thousands of dollars for having that savings. Each month of having that safety net will cost you money, the result will be that it takes you many years longer to pay it off.

I am not saying that in moderation it is a bad thing, but it certainly has serious downside, especially if you are tight on money.

[RecycledEle]

> If enough of the value of property were lost, banks would be forced to take action to survive their lending risks.

I do not believe so.

Banks are predatory. They want power and will do anything to het it.