should i go interest only or should i go interest and principal

[Clocker]

Hello I am the OP

This is what i did. I went with 5.625 5 year arm. I was hoping the interest only would also be 5.625 but it is still at 5.825. So, I figured i will go with the lower interest. however, if the interest only and principle/interest were the same rate i would have went with the interest only.

Last, some of these post seem to indicative of people who are struggling with money. I would prefer to have cash. But i have enough money to buy the house in cash if i want to. i just think it is better to invest elsewhere.

best

 

[LegendKiller]

http://online.wsj.com/article/SB117444618278043762.html?mod=todays_us_opinion

I love it when people think that good times will keep rolling. In a year I am going to be coming back to you Vic and yes, I will be arrogant enough to rub your face in it.

 

[dullard]

Originally posted by: Clocker
This is what i did. I went with 5.625 5 year arm. I was hoping the interest only would also be 5.625 but it is still at 5.825. So, I figured i will go with the lower interest. however, if the interest only and principle/interest were the same rate i would have went with the interest only.

Last, some of these post seem to indicative of people who are struggling with money. I would prefer to have cash. But i have enough money to buy the house in cash if i want to. i just think it is better to invest elsewhere.

Congrats for being on your way to owning a home. If you think you want to sell in a few years, and if you got a better interest rate, then a 5 year ARM with principal payments is probably the best route.

I believe your last sentence is your most important one. A house is a home. Your home should not be an investment. It is better to invest elsewhere.

 

[J0hnny]

Originally posted by: MasonLuke

Originally posted by: Greenman
The only time to do an interest only loan is if you're in a hot market and plan on selling soon.

:thumbsup:

please note that the market has cooooooled

Not in all locations! If he's buying in Manhattan, the appreciation for coop/condo is going up almost as fast as it was in 2005!

 

[Matthias99]

Originally posted by: J0hnny

Originally posted by: MasonLuke

Originally posted by: Greenman
The only time to do an interest only loan is if you're in a hot market and plan on selling soon.

:thumbsup:

please note that the market has cooooooled

Not in all locations! If he's buying in Manhattan, the appreciation for coop/condo is going up almost as fast as it was in 2005!

"All real estate markets are local." Don't know who came up with that, but I've seen it in a number of places.

Manhattan is a very different beast from most areas. Between rent control, co-op boards (who generally care a lot more about tenants than a lot of condo assocations elsewhere), and the utter lack of any open space, there's always a very limited supply of housing. The only way to make "more" housing is to knock something down and build higher-density on top of it, and the population keeps rising.

Real estate in truly desirable areas (like downtown NYC/LA/Boston, nice coastal stuff) is IMO not going to "crash" (at least in the broad scale; certain markets might); it might not go up much in the next few years, but unless it's owned by some desperate speculator they just won't sell if prices stagnate or drop, because eventually that stuff will go up. It's the people who bought suburban McMansions hoping to flip them in a year or two that are going to be in trouble. If foreclosures stay high (or get higher!), a lot of markets will be flooded with excess supply, since the banks sure don't want to hold onto the houses.

Speculators who bought fairly recently with no money down (or practically no money down, like 95% financing) will have negative equity if prices drop even a few percent (they'll have to pay to sell the house), and even flat prices may leave them with payments they can't afford once a teaser ARM rate is up. If they can't sell quickly without taking a huge loss, many will just let the bank take it. Of course, banks might decide to cut people a lot of slack (like refinancing them for free into reasonable fixed-rate mortgages) if the alternative is being stuck with a ton of houses that they would be forced to sell for a loss or hold for potentially years. Banks hate having all their money tied up in illiquid assets that aren't appreciating.

 

[Vic]

Originally posted by: LegendKiller
http://online.wsj.com/article/SB117444618278043762.html?mod=todays_us_opinion

I love it when people think that good times will keep rolling. In a year I am going to be coming back to you Vic and yes, I will be arrogant enough to rub your face in it.

How mature of you! You ought to search these boards some more. You'll see that I predicted the cooling of the housing market years ago. Nice to see that your ego isn't involved in this. God forbid you be wrong and millions of people don't suffer!

 

[fisheerman]

Originally posted by: J0hnny

Originally posted by: MasonLuke

Originally posted by: Greenman
The only time to do an interest only loan is if you're in a hot market and plan on selling soon.

:thumbsup:

please note that the market has cooooooled

Not in all locations! If he's buying in Manhattan, the appreciation for coop/condo is going up almost as fast as it was in 2005!

same here in VA tax assessment just went up an average of 12% for the year.

 

[JEDI]

Originally posted by: Clocker
interest only is at 5.875

and the principal plus interest is at 5.625

so what should i do. i would really like to sell the house in 3 years if the market gets better.

since mortages are front loaded with interest, you're basically paying interest only for like the 1st 5yrs of a 30yr note.

if the rates were the same, then it's a no brainer to chose interest only if you are *SURE* you are moving out 3yrs or less.

but since the principal plus interest rate is lower, pick that.

 

[LegendKiller]

Originally posted by: Vic

Originally posted by: LegendKiller
http://online.wsj.com/article/SB117444618278043762.html?mod=todays_us_opinion

I love it when people think that good times will keep rolling. In a year I am going to be coming back to you Vic and yes, I will be arrogant enough to rub your face in it.

How mature of you! You ought to search these boards some more. You'll see that I predicted the cooling of the housing market years ago. Nice to see that your ego isn't involved in this. God forbid you be wrong and millions of people don't suffer!

Refusal to accept reality is what lead to the current situation in the first place. This was driven largely by realtors, assessors, and lenders.

Moderating and even bearish language has been trampled by the go-go'ers, from your industry. This only lead to further stupidity in the market.

Will I revel in the thought that people like you, who refused to acknowledge reality, and trampled pragmatists like me, were ultimately proven wrong? Yes, I will revel in that. However, the sad thing is, just like 7 years ago, fools will always rear their heads to spread allaying language and continue a boom, at all costs. Ignorance is bliss and most people are orgasmic.

Will I revel in the fact that people like you, who refuse to be pragmatic, allowed people to continue beliving in the solidity of the market, fooling them into a false sense of security, causing millions to lose houses? Not at all. In fact, I will actually be quite disappointed that so called educated people would continue this problem.

It is a sad state of affairs when people ignore fundamentals and people in the financial sector or related fields refuse to acknowledge the reality of a situation. It reflects poorly on us all and only increases the inherent distrust between borrowers and lenders, or insiders and outsiders.

When it comes down to it, I'll be able to sleep at night knowing that I at least tried to prevent some people from buying into stupidity. THe question is, how many sleeping pills will you have to take to do the same?

When it comes down to it, the graph at the top of the page here...


http://calculatedrisk.blogspot.com/2006/07/goldman-sachs-on-housing-prices.html

Looks a lot like the NASDAQ graphs from 1995- 2000.

Only thing missing is Blogdet and Gubmann. But who needs those two clowns when you have NAR, MBA, and peeps like you.

 

[fisheerman]

Originally posted by: LegendKiller

Originally posted by: Vic

Originally posted by: LegendKiller
http://online.wsj.com/article/SB117444618278043762.html?mod=todays_us_opinion

I love it when people think that good times will keep rolling. In a year I am going to be coming back to you Vic and yes, I will be arrogant enough to rub your face in it.

How mature of you! You ought to search these boards some more. You'll see that I predicted the cooling of the housing market years ago. Nice to see that your ego isn't involved in this. God forbid you be wrong and millions of people don't suffer!

Refusal to accept reality is what lead to the current situation in the first place. This was driven largely by realtors, assessors, and lenders.

Moderating and even bearish language has been trampled by the go-go'ers, from your industry. This only lead to further stupidity in the market.

Will I revel in the thought that people like you, who refused to acknowledge reality, and trampled pragmatists like me, were ultimately proven wrong? Yes, I will revel in that. However, the sad thing is, just like 7 years ago, fools will always rear their heads to spread allaying language and continue a boom, at all costs. Ignorance is bliss and most people are orgasmic.

Will I revel in the fact that people like you, who refuse to be pragmatic, allowed people to continue beliving in the solidity of the market, fooling them into a false sense of security, causing millions to lose houses? Not at all. In fact, I will actually be quite disappointed that so called educated people would continue this problem.

It is a sad state of affairs when people ignore fundamentals and people in the financial sector or related fields refuse to acknowledge the reality of a situation. It reflects poorly on us all and only increases the inherent distrust between borrowers and lenders, or insiders and outsiders.

When it comes down to it, I'll be able to sleep at night knowing that I at least tried to prevent some people from buying into stupidity. THe question is, how many sleeping pills will you have to take to do the same?

dude the nasdaq is up like 1.7% right now!

not the best time to be preaching doom and gloom.

wait till tomorrow and repost if the dow is in the toilet.

-fish

 

[JS80]

Originally posted by: Clocker
interest only is at 5.875


and the principal plus interest is at 5.625


so what should i do. i would really like to sell the house in 3 years if the market gets better.

get an ARM. Yield Curve suggest rates will drop in the future.

 

[LegendKiller]

Originally posted by: fisheerman

Originally posted by: LegendKiller

Originally posted by: Vic

Originally posted by: LegendKiller
http://online.wsj.com/article/SB117444618278043762.html?mod=todays_us_opinion

I love it when people think that good times will keep rolling. In a year I am going to be coming back to you Vic and yes, I will be arrogant enough to rub your face in it.

How mature of you! You ought to search these boards some more. You'll see that I predicted the cooling of the housing market years ago. Nice to see that your ego isn't involved in this. God forbid you be wrong and millions of people don't suffer!

Refusal to accept reality is what lead to the current situation in the first place. This was driven largely by realtors, assessors, and lenders.

Moderating and even bearish language has been trampled by the go-go'ers, from your industry. This only lead to further stupidity in the market.

Will I revel in the thought that people like you, who refused to acknowledge reality, and trampled pragmatists like me, were ultimately proven wrong? Yes, I will revel in that. However, the sad thing is, just like 7 years ago, fools will always rear their heads to spread allaying language and continue a boom, at all costs. Ignorance is bliss and most people are orgasmic.

Will I revel in the fact that people like you, who refuse to be pragmatic, allowed people to continue beliving in the solidity of the market, fooling them into a false sense of security, causing millions to lose houses? Not at all. In fact, I will actually be quite disappointed that so called educated people would continue this problem.

It is a sad state of affairs when people ignore fundamentals and people in the financial sector or related fields refuse to acknowledge the reality of a situation. It reflects poorly on us all and only increases the inherent distrust between borrowers and lenders, or insiders and outsiders.

When it comes down to it, I'll be able to sleep at night knowing that I at least tried to prevent some people from buying into stupidity. THe question is, how many sleeping pills will you have to take to do the same?

dude the nasdaq is up like 1.7% right now!

not the best time to be preaching doom and gloom.

wait till tomorrow and repost if the dow is in the toilet.

-fish

lol, NASDAQ 6,000 here we come! Is that you Grubman?

The real funny thing is, compared to 7 years ago, the market is *barely* at where it was in nominal terms. In real terms the DJIA is MUCH lower due to lack of appreciation above inflation.

Yet, parrots will sqawk.

Just wait till a non-subprime portfolio starts hitting the skids. You want to see the market curbs kick in? It'll make 2000 and 87 look puny.

 

[LegendKiller]

Originally posted by: JS80

Originally posted by: Clocker
interest only is at 5.875


and the principal plus interest is at 5.625


so what should i do. i would really like to sell the house in 3 years if the market gets better.

get an ARM. Yield Curve suggest rates will drop in the future.

Yield curve has been inverted for a while. Personally, I think the market is looking for the Fed to switch from a inflation-hawkish stance to an economic fiscal control policy, something which the Fed has been loathe to do and has not done since before Volker (sp). If inflation worries are reduced I'd expect a decrease or a continuation of flat, but I highly doubt a cut will come.

The last thing they need to do is trigger another borrowing bonanza, further increasing the bubble and future economic variance.

It's quite a conundrum. Ignore the asset bubble and let the economy take care of itself while fighting inflation, or flatten the economy and let inflation get a touch out of hand? Catch 22.

 

[HopJokey]

Originally posted by: torpid
Roth IRA is not tax free. You pay the tax before you invest and can't deduct it on your tax returns.

The earnings of an Roth IRA is tax free, however. In the long run (i.e. by the time you retire) this is better than a traditional IRA which is funded in pre-tax dollars and is taxed upon withdrawl.

 

[dullard]

Originally posted by: HopJokey
In the long run (i.e. by the time you retire) this is better than a traditional IRA which is funded in pre-tax dollars and is taxed upon withdrawl.

I think you are referring to a common misconception. People think Roth IRAs are better financially due to the pre-tax vs post-tax difference. Lets try numbers and see what happens.

* Assume you are 10 years from withdrawing the money.
* Assume you earn 10% interest every year.
* Assume you have $1000 coming from your employer.
* Assume you are in the 25% tax bracket now.
* Assume you are in the 25% tax bracket when you retire (studies are coming in showing that people withdraw as much after retirement as they earned during work, thus they end up in the same tax bracket).

Traditional IRA:
* You get the full $1000 from your employer since it is tax deductable.
* Year 0: $1000.00 invested
* Year 1: $1100.00
* Year 2: $1210.00
* Year 10: $2593.74
* Pay 25% tax: $1945.31 left to spend in retirement.

Roth IRA:
* You don't get the full $1000 from your employer since you pay tax now.
* Year 0: $750.00 invested
* Year 1: $825.00
* Year 2: $907.50
* Year 10: $1945.31
* Since this is tax free, you get all of it: $1945.31 left to spend in retirement.

Look! They are the exact same amount of money.

Roth has other advantages (no mandatory withdrawls, penalty free principal withdrawls in some cases, etc). But saving money due to tax isn't one of the advantages.

Note: we do have to consider what congress will do. In those 10 years will the tax rate for your bracket go up? This is possible due to the massive debt and incoming retirement boom. Lets suppose your bracket goes up to 30% by the time you withdraw the money. If so, the Roth IRA will be financially better (pay 25% now is better than 30% later). But what if your tax bracket goes down to 20%? If so, the traditional IRA will be financially better (pay 20% later is better than 25% now).

A good argument can be made that we don't know what will happen to the taxes in that time. Thus to diversify, put half of the money in each form. Not only diversify in the stocks you buy, but diversify in your tax planning strategy.

 

[Vic]

Originally posted by: LegendKiller

Originally posted by: Vic

Originally posted by: LegendKiller
http://online.wsj.com/article/SB117444618278043762.html?mod=todays_us_opinion

I love it when people think that good times will keep rolling. In a year I am going to be coming back to you Vic and yes, I will be arrogant enough to rub your face in it.

How mature of you! You ought to search these boards some more. You'll see that I predicted the cooling of the housing market years ago. Nice to see that your ego isn't involved in this. God forbid you be wrong and millions of people don't suffer!

Refusal to accept reality is what lead to the current situation in the first place. This was driven largely by realtors, assessors, and lenders.

Moderating and even bearish language has been trampled by the go-go'ers, from your industry. This only lead to further stupidity in the market.

Will I revel in the thought that people like you, who refused to acknowledge reality, and trampled pragmatists like me, were ultimately proven wrong? Yes, I will revel in that. However, the sad thing is, just like 7 years ago, fools will always rear their heads to spread allaying language and continue a boom, at all costs. Ignorance is bliss and most people are orgasmic.

Will I revel in the fact that people like you, who refuse to be pragmatic, allowed people to continue beliving in the solidity of the market, fooling them into a false sense of security, causing millions to lose houses? Not at all. In fact, I will actually be quite disappointed that so called educated people would continue this problem.

It is a sad state of affairs when people ignore fundamentals and people in the financial sector or related fields refuse to acknowledge the reality of a situation. It reflects poorly on us all and only increases the inherent distrust between borrowers and lenders, or insiders and outsiders.

When it comes down to it, I'll be able to sleep at night knowing that I at least tried to prevent some people from buying into stupidity. THe question is, how many sleeping pills will you have to take to do the same?

When it comes down to it, the graph at the top of the page here...


http://calculatedrisk.blogspot.com/2006/07/goldman-sachs-on-housing-prices.html

Looks a lot like the NASDAQ graphs from 1995- 2000.

Only thing missing is Blogdet and Gubmann. But who needs those two clowns when you have NAR, MBA, and peeps like you.

Blah blah blah irrational exhuberence followed by irrational panic is not "reality." It's just the herd mentalities that create boom and bust cycles. In a way, you're just as responsible for the bust as those who were responsible for the boom.

 

[LegendKiller]

Originally posted by: Vic
Blah blah blah irrational exhuberence followed by irrational panic is not "reality." It's just the herd mentalities that create boom and bust cycles. In a way, you're just as responsible for the bust as those who were responsible for the boom.

It's not irrational panic. I have never said we'd lose our shorts and it's not heard mentality, especially when I have been saying that this is inevitable for the past 2 years.

I am not responsible for something that was inevitable. That's like saying I am responsible for the tide when it lowers the water level. Merely predicting an easily predictable event is not creation of fault. However, parroting that the tide will not fall, despite knowledge that it must be cyclical, is creation of false information and does result in the placement of blame.

This is why many in your industry will be wearing white/black/orange.

 

[Vic]

Originally posted by: JS80

Originally posted by: Clocker
interest only is at 5.875


and the principal plus interest is at 5.625


so what should i do. i would really like to sell the house in 3 years if the market gets better.

get an ARM. Yield Curve suggest rates will drop in the future.

Problem with that thinking is that the initial rate on most ARMs is also the floor, meaning that it can't and won't go down in the future, even if the index drops. I would have adviced the OP take a fixed, but then again according to some emotional-driven posters in this thread, I'm some kind of evil bogeyman who probably has to take 10 Ambiens just to sleep at night because I won't help them with their short-sells. :roll:

 

[Vic]

Originally posted by: LegendKiller

Originally posted by: Vic
Blah blah blah irrational exhuberence followed by irrational panic is not "reality." It's just the herd mentalities that create boom and bust cycles. In a way, you're just as responsible for the bust as those who were responsible for the boom.

It's not irrational panic. I have never said we'd lose our shorts and it's not heard mentality, especially when I have been saying that this is inevitable for the past 2 years.

I am not responsible for something that was inevitable. That's like saying I am responsible for the tide when I say it's coming in.

By your own logic, you are. You might want to read your crap again. Take out your little graphs and articles and read your words. If the boom was just a fantasy of emotional exhuberence then the bust is just the opposite. If the boom was created solely by over-optimistic speculators (as you assert), then the bust was created solely by pessimistic naysayers and panickers.

These are markets, not the tides. Gravity and other natural laws don't apply.

 

[LordSnailz]

hmm, quick question about IRAs, our combined AGI is over the limit for Roth IRA, but I heard that in 2010, the limit will be removed? Anyone know what the limit is for the married people, for single it'll be >100k but what is it for married folks.

Also, does it make sense then, to start a traditional IRA right now and convert to a Roth IRA in 2010?

 

[LegendKiller]

Originally posted by: Vic

Originally posted by: LegendKiller

Originally posted by: Vic
Blah blah blah irrational exhuberence followed by irrational panic is not "reality." It's just the herd mentalities that create boom and bust cycles. In a way, you're just as responsible for the bust as those who were responsible for the boom.

It's not irrational panic. I have never said we'd lose our shorts and it's not heard mentality, especially when I have been saying that this is inevitable for the past 2 years.

I am not responsible for something that was inevitable. That's like saying I am responsible for the tide when I say it's coming in.

By your own logic, you are. You might want to read your crap again. Take out your little graphs and articles and read your words. If the boom was just a fantasy of emotional exhuberence then the bust is just the opposite. If the boom was created solely by over-optimistic speculators (as you assert), then the bust was created solely by pessimistic naysayers and panickers.

These are markets, not the tides. Gravity and other natural laws don't apply.

No, but inevitability *DOES* apply. There are reasons why mean appreciation is just that, because if the world were perfect then things would appreciate at a long term mean. However, people become irrational when times are good (or bad).

Now, I have *NEVER* avocated nor believed in a situation where we should regress *BELOW* the mean, I have merely stated and shown cases where we should regress *TO* the mean.

That is the fundamental difference. I recognize that if we have exceeded the mean by 50%, then I predict we will at least get down to that 50%. You, on the other hand, think that somehow, magically, we will fall only 10% and then forget about mean regressions.

That is the difference between my position and yours. You somehow think that history is not a predictor at all. Whereas I believe that, while it isn't perfect, it is a good predictor. History predicts that we are somewhere around 75% over valued (according to Shiller Index). I predict we will fall at least 2/3 of that, either through *actual* price declines, or real price declines (0% actual appreciation, leading to an inflationary depreciation).

You, sir, are the one who lives in a fantasy land of "soft landings", non-mean regression, and MBA/NAR poof-ball fuzz. I live in the statistical and economic reality of the cyclical nature of the economy (ie, the tides).

You, and your friends, somehow think that the tides will fall less than they have for the past 100 years. Now, you could be right, but I have 100 years of history and sound statistical information backing me. You have nothing but supposition and fuzz.

 

[Vic]

Originally posted by: LegendKiller

Originally posted by: Vic

Originally posted by: LegendKiller

Originally posted by: Vic
Blah blah blah irrational exhuberence followed by irrational panic is not "reality." It's just the herd mentalities that create boom and bust cycles. In a way, you're just as responsible for the bust as those who were responsible for the boom.

It's not irrational panic. I have never said we'd lose our shorts and it's not heard mentality, especially when I have been saying that this is inevitable for the past 2 years.

I am not responsible for something that was inevitable. That's like saying I am responsible for the tide when I say it's coming in.

By your own logic, you are. You might want to read your crap again. Take out your little graphs and articles and read your words. If the boom was just a fantasy of emotional exhuberence then the bust is just the opposite. If the boom was created solely by over-optimistic speculators (as you assert), then the bust was created solely by pessimistic naysayers and panickers.

These are markets, not the tides. Gravity and other natural laws don't apply.

No, but inevitability *DOES* apply. There are reasons why mean appreciation is just that, because if the world were perfect then things would appreciate at a long term mean. However, people become irrational when times are good (or bad).

Now, I have *NEVER* avocated nor believed in a situation where we should regress *BELOW* the mean, I have merely stated and shown cases where we should regress *TO* the mean.

That is the fundamental difference. I recognize that if we have exceeded the mean by 50%, then I predict we will at least get down to that 50%. You, on the other hand, think that somehow, magically, we will fall only 10% and then forget about mean regressions.

That is the difference between my position and yours. You somehow think that history is not a predictor at all. Whereas I believe that, while it isn't perfect, it is a good predictor. History predicts that we are somewhere around 75% over valued (according to Shiller Index). I predict we will fall at least 2/3 of that, either through *actual* price declines, or real price declines (0% actual appreciation, leading to an inflationary depreciation).

You, sir, are the one who lives in a fantasy land of "soft landings", non-mean regression, and MBA/NAR poof-ball fuzz. I live in the statistical and economic reality of the cyclical nature of the economy (ie, the tides).

You, and your friends, somehow think that the tides will fall less than they have for the past 100 years. Now, you could be right, but I have 100 years of history and sound statistical information backing me. You have nothing but supposition and fuzz.

Wow, dude... have you tried switching to Sanka?

In the meantime, your plan of saving every homeowner by making sure people don't buy houses anymore is a wee bit flawed if I may say so.

edit: BTW, the rest of your assumptions about my so-called "position" and yours are so flawed that straw man doesn't even describe it. We could start with the fact that I've never even taken any such positions and then we'll just call the rest pure fantasy on your part. Next time, try reading my posts.