Scared To Death Buying a First Home!!!

[HeroOfPellinor]

Originally posted by: XZeroII

Originally posted by: Lonyo
What are the penalties like on the fixed if you want to change to another provider with lower rate after a few years (say 10), if you could get a lower rate/what are the early pay off fees?
Fixed is better, but you might want to see what other fixed rates are like and what penalties or otherwise they have associated with them.

No point in getting a 6.25% fixed now and then having rates drop and being unable to switch to anything else without a huge penalty.

Penalties? What is this a cell-phone contract? Just refinance.

And, in so doing, reset your amortization table. FTL.

 

[Inspector Jihad]

my parents got the 5/1 arm on their house but they're going to be paying it off before that.

 

[IHateMyJob2004]

Originally posted by: Darkstar757
Looks like im going Fixed FTW I will find out about refinancing penalties soon. My gut tells me rates arent going down any time soon.

Thanks guys!!! Keep the great info coming.


Darkstar

If you live in an area where prices are falling, do not be in a rush to buy a home. If I were considering a first home right now, I'd second guess it. At worse, you will pay the same amount next year. At best, you will pay 50% less. FWIW, why not wait?

 

[Slew Foot]

Originally posted by: IHateMyJob2004

Originally posted by: Darkstar757
Looks like im going Fixed FTW I will find out about refinancing penalties soon. My gut tells me rates arent going down any time soon.

Thanks guys!!! Keep the great info coming.


Darkstar

If you live in an area where prices are falling, do not be in a rush to buy a home. If I were considering a first home right now, I'd second guess it. At worse, you will pay the same amount next year. At best, you will pay 50% less. FWIW, why not wait?

Best advice in the thread, however Ive noticed most first time buyers arent smart enough to realize that, for most of their life theyve seen ridiculous appreciation so getting something 10% off seems like the steal of the century.

 

[UglyCasanova]

FIXED, but do a 15 year not 30!

And that is a huge increase for just 1%.

 

[GoingUp]

I got a 10 year arm. I could see myself in my place for longer than 5 years, but not 10. Whats the rate on a 10 year arm?

 

[videogames101]

Let me word it better, If you get an ARM and your planning on being there more than 5 years,

then you are a complete fvcking moron.

(Get the fixed)

 

[spidey07]

Originally posted by: videogames101
Let me word it better, If you get an ARM and your planning on being there more than 5 years,

then you are a complete fvcking moron.

(Get the fixed)

Things don't always work out the way you planned.

Get the 30, invest given how low prices are right now and use the debt to create wealth.

 

[Wheezer]

do the 30 year fixed and make AT LEAST 1 extra payment on your principle a year.

 

[spidey07]

Originally posted by: Wheezer
do the 30 year fixed and make AT LEAST 1 extra payment on your principle a year.

Why would one throw money away by doing that? Do the math man. Debt used correctly creates wealth.

 

[JS80]

Originally posted by: spidey07
Fixed. You can't predict the future (rates, your income, living situation) and an ARM at this point is really, really, really dumb.

I will predict future rates. Inflation will creep up and rates will soar. Get the fixed. Or wait until rates soar and prices crash and get a 3/1 ARM then and refinance.

 

[ICRS]

Originally posted by: spidey07

Originally posted by: Wheezer
do the 30 year fixed and make AT LEAST 1 extra payment on your principle a year.

Why would one throw money away by doing that? Do the math man. Debt used correctly creates wealth.

It isn't throwing away money. If you invested that money instead it would have to beat your mortgage rate every year on average. With a 6.25% mortgage are you so sure you will beat that rate every year for the life of the mortagage on average.

 

[Chaotic42]

I just bought a house last month. I went with fixed. 5.875%

 

[rh71]

I thought ARMs were what got everyone in trouble in the first place...

 

[ICRS]

Originally posted by: Lonyo
What are the penalties like on the fixed if you want to change to another provider with lower rate after a few years (say 10), if you could get a lower rate/what are the early pay off fees?
Fixed is better, but you might want to see what other fixed rates are like and what penalties or otherwise they have associated with them.

No point in getting a 6.25% fixed now and then having rates drop and being unable to switch to anything else without a huge penalty.

Your current provider cannot charge you a penalty for wanting to refinance somewhere else. It is against the law in most places.

 

[ICRS]

Originally posted by: HeroOfPellinor

Originally posted by: XZeroII

Originally posted by: Lonyo
What are the penalties like on the fixed if you want to change to another provider with lower rate after a few years (say 10), if you could get a lower rate/what are the early pay off fees?
Fixed is better, but you might want to see what other fixed rates are like and what penalties or otherwise they have associated with them.

No point in getting a 6.25% fixed now and then having rates drop and being unable to switch to anything else without a huge penalty.

Penalties? What is this a cell-phone contract? Just refinance.

And, in so doing, reset your amortization table. FTL.

If you had 12 years left and you refinanced into a 15 year. There is nothing stopping you from making extra payments to turn it into a 12 year loan.

 

[Special K]

Originally posted by: ICRS

Originally posted by: spidey07

Originally posted by: Wheezer
do the 30 year fixed and make AT LEAST 1 extra payment on your principle a year.

Why would one throw money away by doing that? Do the math man. Debt used correctly creates wealth.

It isn't throwing away money. If you invested that money instead it would have to beat your mortgage rate every year on average. With a 6.25% mortgage are you so sure you will beat that rate every year for the life of the mortagage on average.

It would probably be less than 6.25% for most of the loan since the mortgage interest would be tax-deductible. I assume you would be paying enough in mortgage interest to exceed the standard deduction.

While stock market returns are not guaranteed, I would hope they do better than 6.25% over any 30-year time frame.

 

[ICRS]

Originally posted by: Special K

Originally posted by: ICRS

Originally posted by: spidey07

Originally posted by: Wheezer
do the 30 year fixed and make AT LEAST 1 extra payment on your principle a year.

Why would one throw money away by doing that? Do the math man. Debt used correctly creates wealth.

It isn't throwing away money. If you invested that money instead it would have to beat your mortgage rate every year on average. With a 6.25% mortgage are you so sure you will beat that rate every year for the life of the mortagage on average.

It would probably be less than 6.25% for most of the loan since the mortgage interest would be tax-deductible. I assume you would be paying enough in mortgage interest to exceed the standard deduction.

While stock market returns are not guaranteed, I would hope they do better than 6.25% over any 30-year time frame.

Stock gains are taxable though. It is eliminates much of the benifit of the tax deductable mortgage. It isn't 6.25 over 30 year, it is 6.25% every year for 30 year. On average the market does actually beat this in the long term. But it is still high risk, which not everyone can afford.

If you are able to risk your pinciple then I say invest in the money, if you must have your principle secure than pay down the mortgage. This is what most investment places will tell you.

 

[FP]

Originally posted by: ICRS

Originally posted by: Special K

Originally posted by: ICRS

Originally posted by: spidey07

Originally posted by: Wheezer
do the 30 year fixed and make AT LEAST 1 extra payment on your principle a year.

Why would one throw money away by doing that? Do the math man. Debt used correctly creates wealth.

It isn't throwing away money. If you invested that money instead it would have to beat your mortgage rate every year on average. With a 6.25% mortgage are you so sure you will beat that rate every year for the life of the mortagage on average.

It would probably be less than 6.25% for most of the loan since the mortgage interest would be tax-deductible. I assume you would be paying enough in mortgage interest to exceed the standard deduction.

While stock market returns are not guaranteed, I would hope they do better than 6.25% over any 30-year time frame.

Stock gains are taxable though. It is eliminates much of the benifit of the tax deductable mortgage. It isn't 6.25 over 30 year, it is 6.25% every year for 30 year. On average the market does actually beat this in the long term. But it is still high risk, which not everyone can afford.

If you are able to risk your pinciple then I say invest in the money, if you must have your principle secure than pay down the mortgage. This is what most investment places will tell you.

Principal is nothing more than forced savings. It does nothing to secure your wealth other than make the banks sleep better at night because you owe them less.

An extreme example: If I pay down my $500k mortgage to $100k and my house drops in value $400k then guess what? I just lost $400k of my "secure" principal.

If I leveraged my debt, spread out my $400k across multiple investment vehicles during that time I would likely be able to pay the entire mortgage off in a shorter amount of time *and* my wealth is at less risk because it is diversified.

Paid down principal has 0 earning power.

 

[aigomorla]

Originally posted by: XZeroII
Odds are, interest rates are going to soar in the next few years. Get the fixed.

lol...

best advice, and its free.

+1

Originally posted by: IHateMyJob2004

If you live in an area where prices are falling, do not be in a rush to buy a home. If I were considering a first home right now, I'd second guess it. At worse, you will pay the same amount next year. At best, you will pay 50% less. FWIW, why not wait?

However i like this one more.

So he wins. 😀

 

[ICRS]

Originally posted by: binister

Originally posted by: ICRS

Originally posted by: Special K

Originally posted by: ICRS

Originally posted by: spidey07

Originally posted by: Wheezer
do the 30 year fixed and make AT LEAST 1 extra payment on your principle a year.

Why would one throw money away by doing that? Do the math man. Debt used correctly creates wealth.

It isn't throwing away money. If you invested that money instead it would have to beat your mortgage rate every year on average. With a 6.25% mortgage are you so sure you will beat that rate every year for the life of the mortagage on average.

It would probably be less than 6.25% for most of the loan since the mortgage interest would be tax-deductible. I assume you would be paying enough in mortgage interest to exceed the standard deduction.

While stock market returns are not guaranteed, I would hope they do better than 6.25% over any 30-year time frame.

Stock gains are taxable though. It is eliminates much of the benifit of the tax deductable mortgage. It isn't 6.25 over 30 year, it is 6.25% every year for 30 year. On average the market does actually beat this in the long term. But it is still high risk, which not everyone can afford.

If you are able to risk your pinciple then I say invest in the money, if you must have your principle secure than pay down the mortgage. This is what most investment places will tell you.

Principal is nothing more than forced savings. It does nothing to secure your wealth other than make the banks sleep better at night because you owe them less.

An extreme example: If I pay down my $500k mortgage to $100k and my house drops in value $400k then guess what? I just lost $400k of my "secure" principal.

If I leveraged my debt, spread out my $400k across multiple investment vehicles during that time I would likely be able to pay the entire mortgage off in a shorter amount of time *and* my wealth is at less risk because it is diversified.

Paid down principal has 0 earning power.

You house losing value has nothing to do with if you should invest or pay down your mortgage. You will lose that money if you invest or not.

You invest that money instead, your house drops in value by $400K, guess what that savings did nothing for your lost of $400K. You still lost it. It shouldn't even be a factor at all.

Working in the mortgage industry, I can assure you. Banks do not like it when people prepay. It makes it much more difficult to the hedge their risk.

 

[Special K]

Originally posted by: ICRS
Stock gains are taxable though. It is eliminates much of the benifit of the tax deductable mortgage. It isn't 6.25 over 30 year, it is 6.25% every year for 30 year. On average the market does actually beat this in the long term. But it is still high risk, which not everyone can afford.

If you are able to risk your pinciple then I say invest in the money, if you must have your principle secure than pay down the mortgage. This is what most investment places will tell you.

True - if you are already maxing out your tax-sheltered accounts (401k, Roth IRA, etc.) then any excess investing you do must be in taxable accounts. In a best case scenario, you would face a 15% long-term capital gains tax when you sold. Tax-inefficient funds would drag returns down even more.

Originally posted by: ICRS
Principal is nothing more than forced savings. It does nothing to secure your wealth other than make the banks sleep better at night because you owe them less.

An extreme example: If I pay down my $500k mortgage to $100k and my house drops in value $400k then guess what? I just lost $400k of my "secure" principal.

If I leveraged my debt, spread out my $400k across multiple investment vehicles during that time I would likely be able to pay the entire mortgage off in a shorter amount of time *and* my wealth is at less risk because it is diversified.

Paid down principal has 0 earning power.

This is another good point. Having $500k equity in a house doesn't really do you a whole lot of good financially. The rates you can borrow this money at via HEL's and HELOC's are too high to make it worthwhile to invest.

Having said that, I think there is some value in owning a house free and clear. If you hit a rough spot financially, you can at least know that you have a place to live.

 

[FP]

Originally posted by: ICRS

Originally posted by: binister

Originally posted by: ICRS

Originally posted by: Special K

Originally posted by: ICRS

Originally posted by: spidey07

Originally posted by: Wheezer
do the 30 year fixed and make AT LEAST 1 extra payment on your principle a year.

Why would one throw money away by doing that? Do the math man. Debt used correctly creates wealth.

It isn't throwing away money. If you invested that money instead it would have to beat your mortgage rate every year on average. With a 6.25% mortgage are you so sure you will beat that rate every year for the life of the mortagage on average.

It would probably be less than 6.25% for most of the loan since the mortgage interest would be tax-deductible. I assume you would be paying enough in mortgage interest to exceed the standard deduction.

While stock market returns are not guaranteed, I would hope they do better than 6.25% over any 30-year time frame.

Stock gains are taxable though. It is eliminates much of the benifit of the tax deductable mortgage. It isn't 6.25 over 30 year, it is 6.25% every year for 30 year. On average the market does actually beat this in the long term. But it is still high risk, which not everyone can afford.

If you are able to risk your pinciple then I say invest in the money, if you must have your principle secure than pay down the mortgage. This is what most investment places will tell you.

Principal is nothing more than forced savings. It does nothing to secure your wealth other than make the banks sleep better at night because you owe them less.

An extreme example: If I pay down my $500k mortgage to $100k and my house drops in value $400k then guess what? I just lost $400k of my "secure" principal.

If I leveraged my debt, spread out my $400k across multiple investment vehicles during that time I would likely be able to pay the entire mortgage off in a shorter amount of time *and* my wealth is at less risk because it is diversified.

Paid down principal has 0 earning power.

You house losing value has nothing to do with if you should invest or pay down your mortgage. You will lose that money if you invest or not.

You invest that money instead, your house drops in value by $400K, guess what that savings did nothing for your lost of $400K. You still lost it. It shouldn't even be a factor at all.

Working in the mortgage industry, I can assure you. Banks do not like it when people prepay. It makes it much more difficult to the hedge their risk.

Uhh, actually I didn't lose anything. I still have my $400k invested in other assets and my house is worth $400k less on paper, but and this is a big but... my money is still working for me. I have my house plus $400k invested. In your example I have my house and 0 money invested elsewhere (in my simple example).

My entire point is that people tend to fear debt when the majority of "wealthy" people got there by being smart about how they leveraged debt.

I absolutely do not think people should overextend themselves when buying a house. If you can only buy the house by getting a lower rate via creative mortgages then you should not buy the house.

However, if you are less risk averse and want to leverage your debt then ARMs can help you do that. Especially if you don't plan on staying in the house for a long time.

 

[ICRS]

Originally posted by: binister

Originally posted by: ICRS

Originally posted by: binister

Originally posted by: ICRS

Originally posted by: Special K

Originally posted by: ICRS

Originally posted by: spidey07

Originally posted by: Wheezer
do the 30 year fixed and make AT LEAST 1 extra payment on your principle a year.

Why would one throw money away by doing that? Do the math man. Debt used correctly creates wealth.

It isn't throwing away money. If you invested that money instead it would have to beat your mortgage rate every year on average. With a 6.25% mortgage are you so sure you will beat that rate every year for the life of the mortagage on average.

It would probably be less than 6.25% for most of the loan since the mortgage interest would be tax-deductible. I assume you would be paying enough in mortgage interest to exceed the standard deduction.

While stock market returns are not guaranteed, I would hope they do better than 6.25% over any 30-year time frame.

Stock gains are taxable though. It is eliminates much of the benifit of the tax deductable mortgage. It isn't 6.25 over 30 year, it is 6.25% every year for 30 year. On average the market does actually beat this in the long term. But it is still high risk, which not everyone can afford.

If you are able to risk your pinciple then I say invest in the money, if you must have your principle secure than pay down the mortgage. This is what most investment places will tell you.

Principal is nothing more than forced savings. It does nothing to secure your wealth other than make the banks sleep better at night because you owe them less.

An extreme example: If I pay down my $500k mortgage to $100k and my house drops in value $400k then guess what? I just lost $400k of my "secure" principal.

If I leveraged my debt, spread out my $400k across multiple investment vehicles during that time I would likely be able to pay the entire mortgage off in a shorter amount of time *and* my wealth is at less risk because it is diversified.

Paid down principal has 0 earning power.

You house losing value has nothing to do with if you should invest or pay down your mortgage. You will lose that money if you invest or not.

You invest that money instead, your house drops in value by $400K, guess what that savings did nothing for your lost of $400K. You still lost it. It shouldn't even be a factor at all.

Working in the mortgage industry, I can assure you. Banks do not like it when people prepay. It makes it much more difficult to the hedge their risk.

Uhh, actually I didn't lose anything. I still have my $400k invested in other assets and my house is worth $400k less on paper, but and this is a big but... my money is still working for me. I have my house plus $400k invested. In your example I have my house and 0 money invested elsewhere (in my simple example).

My entire point is that people tend to fear debt when the majority of "wealthy" people got there by being smart about how they leveraged debt.

I absolutely do not think people should overextend themselves when buying a house. If you can only buy the house by getting a lower rate via creative mortgages then you should not buy the house.

However, if you are less risk averse and want to leverage your debt then ARMs can help you do that. Especially if you don't plan on staying in the house for a long time.

If you pay down your mortgage you still have the interest money you saved. The fact that your home lost value has no relevance at all. In my example you have a smaller mortgage, and more interest to invest in the future.

 

[NL5]

Originally posted by: Marlin1975

Originally posted by: XZeroII
Odds are, interest rates are going to soar in the next few years. Get the fixed.

Yep. Unless you plan to sell in 5years or less then the fixed is the way to go. And with the market the way it is right now I would not buy if you plan to sell in a short period.

Fixed % FTW

Only right answer given. If you plan on moving within 5 or 6 years, an adjustable would be better. 7 years maybe even. After that, I'd go fixed as rates are most likely going up, and we are still at pretty historically low rates.