This thread is about to get booted, but at least back before we were born with the literal 20% interest then there were many ways, loopholes to mitigate the high interest. But I'm not aware of what they are. Would that not apply here?

Also, can I get this straight, Striker you have a 1.1% mortgage???? About the HELOC, did you open it just to use as an option if you need it or did you take the cash? Sorry if I'm asking personal questions but I don't know much about HELOC, I just know my bank always tries to get me into one. I know you borrow against your house. Is that a second mortgage or not?

 

There were lots of ways to mitigate it. In the housing business they used adjustable rate mortgages and assumptions of older mortgages with much lower rates, sellers held notes and financed properties for buyers. For instance, FHA and VA mortgages are actually assumable, so if you have one of those someone who buys your house can assume that loan with that rate and then get a second or pay cash down for whatever gap there is with your loan balance and the sales price.

Remember too back then ALL interest was tax deductible, so your car loans and credit card interest were deductible, which mitigated the impact of the high rates, especially for high earners who had much higher tax rates.

Its money borrowed from his family. There has never been such a thing as a 1.1% mortgage from a bank.

For the HELOC, I would get one in case you need it. It becomes a second mortgage yes.

 

I dont want to go into the housing and mortgage industry, this is far too off topic for this thread, but I can tell you that increase in car prices does not even begin to match the increase in the cost of raw materials. If you're looking for a new car, especially a V8, the more you wait the more expensive it will get. The prices are not going back down unless there is a total economic meltdown.

 

HELOC is basically a Home Equity Loan Line of Credit. You borrow against the equity in your home as you need it. Think of it like this...your home equity is being used like a credit card. You pay back what you use. You can draw the money from a Debit card or checks. I currently have a $200K equity line that is setup in case of an emergency.

As far as Striker, it sounds like they don't use a bank, they have a family "pot" of money that they loan out. My father immigrated here (1958) from Pakistan, and I've seen a lot of Pakistani and Indians use this system as they dont trust banks, mostly the first generation immigrants. From what I've seen, people pay into the pots and then borrow the money, then continue adding to the funds until they pay back what they borrowed. So if wanted to buy say a car with a V8, you would borrow from this pot to buy the car, then pay it back with interest. Striker can correct me if I'm wrong

 

I am from an extremely conservative family of immigrants on BOTH sides, we generally never borrow against our houses and I likely will not make an exception. I may consider doing so to fund a "final" V8 car like a final year S8 or Panamera but that's the only thing I would even somewhat entertain and it's very unlikely due to the sheer waste of doing so. It would have to be a car I would be sure would appreciate so I can justify it.

A HELOC is for all functional aspects a 2nd mortgage, make sure it's a good fixed rate if you get one and it's something you have little exposure with. I to some extent view then in a similar light as a title loan.....if you need one you are screwed anyway. If you don't need one it can be useful to leverage the capital elsewhere if it's not a high exposure area. Like everything else in finance it's a tool that can be a great boon or curse depending on the user

 

I never recommend anybody use a HELOC to finance anything but improvements that add value to the house.

 

Exactly correct, 1gen immigrants on both sides from Poland and Philippines and I'm fairly sure I would be laughed out of the room if I proposed using the pot to buy a car lol!

 

I was going to guess Eastern European! It's funny how different cultures from different parts of the world have similar practices. My mother in law who's now passed away (first generation immigrant from India) didn't trust or believe in banks and litterall kept her money and jewelry in a safe. She paid for everything in cash. Everything. There are pros and lots of cons for doing stuff this way, but I won't get into that. Yeah, I'm guessing buying a V8 wouldn't be considered an appropriate way to spend the family pot LOL!

 

it took taking interest rates to 20% in the 80s to stabilize the dollar. Imagine what interest rate it will take now with our current spending and debt levels. We are in a far worse position now than in the 80s.

 

I just completely disagree

 

1980: $908 billion debt, 32% debt to GDP ratio, $13B trade SURPLUS
end of 2021: $30 trillion debt, 124% debt to GDP ratio, over $600 billion trade deficit

yup were definitely better off now, hoping inflation is just going to go away on its own isnt a strategy

 

Those simple numbers don't tell you the whole story. The events leading up to this are very different than the events in the 70s, you have come off a period of extremely low inflation for a protracted period of time, inflation lower than what the FED would actually like to see, keeping job growth tepid, and right now we're in a situation where yes we have higher inflation, but we also have very low unemployment and an economy that is fundamentally strong with growing wages. This inflation is largely transitory, caused by all of the capital that was injected into the market and now you have the 1/2 punch of these supply chain issues coupled with increased and pent up buyer demand from Covid. Inflation will continue, but once we are able to meet production demands things will cool off a lot. what we need to do is mobilize people to produce what the economy is demanding. You will also see as we get into what should be a COVID free summer, people transition from spending on goods to spending on services such as vacations, dining etc which will also help. What you will see is a combined approach of increasing production, interest rate hikes, a transition from quantitative easing to quantitative tightning and you will see relief far before rates have to be raised to that level.

The point is...interest rate hikes are not the only tool that can be used here while largely they were in the 70s.

 

Gotcha! Me personally I want to avoid a second. Even for improvements.

 

@SW17LS Didn't the fed themselves admit that inflation is not transitory? The things you are saying sound similar to what they said right before changing course.

 

Yes and no, what they said was that if they did nothing inflation would not cool down on its own. That means that it is not transitory, or more specifically no longer a short term problem, but there are a lot of transitory elements that are driving inflation that are in fact transitory. The supply chain issues are transitory, the Ukranian conflict and the impact it has on fuel prices are transitory. What is NOT transitory is the capital that is flowing around the economy and the impact that has on inflation, or the increases in wages and additonal costs of labor. That shift alone is a huge change, the acceptance that many of the workers who have left the workforce will not return.

So, those transitory elements will fade and that will help, but action by the fed will also be required and thats what you are seeing take shape now.

The important thing is...this WILL BE OKAY. Everybody just needs to calm down and let the economy hash these things out. All of this doomsday talking is absurd. We negotiated COVID as an economy, this is nothing compared to that. Yes costs to aquire things will increase, but those costs have been extremely, extremely low for far longer than they should have been.