What type of mortgage APR do you think I can get?

[mazeroth]

I had my credit score checked a few months ago and it was 750 on the dot with a few thousand on credit cards. I had just paid off the car I bought new in 2003 and I now have zero debt on my credit cards. My wife will be going in on the loan as well and has had a credit card since she turned 18, like me. We're both 26. However, she's never had a car loan or student loans but has always made her payments on time and usually paid her credit card off each month. With that, we have absolutely no debt.

I'm just curious as to what kind of APR you guys think we'll get? I'm not worried about how much we'll get financed for because I'm not looking to spend over $125k and my goal is to pay the house off in 5 years, no joke.

Thanks.

 

[Dr. Detroit]

6.375% on a 30yr fixed

 

[mazeroth]

Yeah, a 30yr fixed sounds good if I want to pay it off in 5 years

 

[Semidevil]

125k off in 5 years?

man, you must be rich.

I'm paying 1100/month on mortgaget and only like 100 bucks is principal...:-(

 

[jdoggg12]

125k loan @ 6% interest will be making 2416.60 monthly payments on a 5 yr loan, plus another hundred or so for property taxes

 

[mazeroth]

Originally posted by: jdoggg12
125k loan @ 6% interest will be making 2416.60 monthly payments on a 5 yr loan, plus another hundred or so for property taxes

Yep

The key is having no other debts (both cars paid off and low mileage; no CC debt; no school loans) and living like a poor man which was the way my parents raised me. I worked full-time the whole way through school and we just put my wife through grad school on our own. If you can budget you can go very far in life.

 

[jdoggg12]

Rent one of the rooms out. That will, depending on the market you live in, pay your utilities and some of the mortgage.

 

[LegendKiller]

Paying off a cheap mortgage is not maximizing your future, especially if you can earn more money investing than paying down a mortgage or not taking out student loans.

My student loans have a weighted average interest rate of 3.75%. I could get a mortgage for ~6.1%.

If I can earn a long-term return of 10% equities, why would I pay off either loan? It's simply smart to not pay them off.

 

[jdoggg12]

Originally posted by: LegendKiller
Paying off a cheap mortgage is not maximizing your future, especially if you can earn more money investing than paying down a mortgage or not taking out student loans.

My student loans have a weighted average interest rate of 3.75%. I could get a mortgage for ~6.1%.

If I can earn a long-term return of 10% equities, why would I pay off either loan? It's simply smart to not pay them off.

Are you factoring in the return on his investment after he's paid the loan off instead of renting?

Once the loan is paid off, thats 2400 (potentially) to invest each month.

 

[RossMAN]

Originally posted by: mazeroth

Originally posted by: jdoggg12
125k loan @ 6% interest will be making 2416.60 monthly payments on a 5 yr loan, plus another hundred or so for property taxes

Yep

The key is having no other debts (both cars paid off and low mileage; no CC debt; no school loans) and living like a poor man which was the way my parents raised me. I worked full-time the whole way through school and we just put my wife through grad school on our own. If you can budget you can go very far in life.

Now you've got me curious.

Do you have any magazine subscriptions, Tivo or cable DVR, cable TV, broadband internet, cell phones?

 

[chuckywang]

Originally posted by: LegendKiller
Paying off a cheap mortgage is not maximizing your future, especially if you can earn more money investing than paying down a mortgage or not taking out student loans.

My student loans have a weighted average interest rate of 3.75%. I could get a mortgage for ~6.1%.

If I can earn a long-term return of 10% equities, why would I pay off either loan? It's simply smart to not pay them off.

Depends on how much more your investments are compared to your debt.

Consider the case if you have $100,000 invested earning 10% and a five year $10,000 loan with a rate of 6%.

It'll be much better for you to pay off the loan right now and invest the remaining $90,000 than it is to drag out the loan for five years.

Obviously the case is reversed if you only have $10,000 invested.

 

[LegendKiller]

Originally posted by: jdoggg12

Originally posted by: LegendKiller
Paying off a cheap mortgage is not maximizing your future, especially if you can earn more money investing than paying down a mortgage or not taking out student loans.

My student loans have a weighted average interest rate of 3.75%. I could get a mortgage for ~6.1%.

If I can earn a long-term return of 10% equities, why would I pay off either loan? It's simply smart to not pay them off.

Are you factoring in the return on his investment after he's paid the loan off instead of renting?

Once the loan is paid off, thats 2400 (potentially) to invest each month.

It doesn't matter. The money he invests rather than paying off will continue to make more money in the long-run. Go into excel and figure it out.

 

[LegendKiller]

Originally posted by: chuckywang

Originally posted by: LegendKiller
Paying off a cheap mortgage is not maximizing your future, especially if you can earn more money investing than paying down a mortgage or not taking out student loans.

My student loans have a weighted average interest rate of 3.75%. I could get a mortgage for ~6.1%.

If I can earn a long-term return of 10% equities, why would I pay off either loan? It's simply smart to not pay them off.

Depends on how much more your investments are compared to your debt.

Consider the case if you have $100,000 invested earning 10% and a five year $10,000 loan with a rate of 6%.

It'll be much better for you to pay off the loan right now and invest the remaining $90,000 than it is to drag out the loan for five years.

Obviously the case is reversed if you only have $10,000 invested.

It doesn't make any difference. As long as the money you haven't repaid makes more than your rate of borrowing, you are ahead. No matter what.

 

[chuckywang]

Originally posted by: LegendKiller

Originally posted by: chuckywang

Originally posted by: LegendKiller
Paying off a cheap mortgage is not maximizing your future, especially if you can earn more money investing than paying down a mortgage or not taking out student loans.

My student loans have a weighted average interest rate of 3.75%. I could get a mortgage for ~6.1%.

If I can earn a long-term return of 10% equities, why would I pay off either loan? It's simply smart to not pay them off.

Depends on how much more your investments are compared to your debt.

Consider the case if you have $100,000 invested earning 10% and a five year $10,000 loan with a rate of 6%.

It'll be much better for you to pay off the loan right now and invest the remaining $90,000 than it is to drag out the loan for five years.

Obviously the case is reversed if you only have $10,000 invested.

It doesn't make any difference. As long as the money you haven't repaid makes more than your rate of borrowing, you are ahead. No matter what.

I know you're ahead, but sometimes you might be ahead even more if you paid if off all at once.

 

[LegendKiller]

Originally posted by: chuckywang

Originally posted by: LegendKiller

Originally posted by: chuckywang

Originally posted by: LegendKiller
Paying off a cheap mortgage is not maximizing your future, especially if you can earn more money investing than paying down a mortgage or not taking out student loans.

My student loans have a weighted average interest rate of 3.75%. I could get a mortgage for ~6.1%.

If I can earn a long-term return of 10% equities, why would I pay off either loan? It's simply smart to not pay them off.

Depends on how much more your investments are compared to your debt.

Consider the case if you have $100,000 invested earning 10% and a five year $10,000 loan with a rate of 6%.

It'll be much better for you to pay off the loan right now and invest the remaining $90,000 than it is to drag out the loan for five years.

Obviously the case is reversed if you only have $10,000 invested.

It doesn't make any difference. As long as the money you haven't repaid makes more than your rate of borrowing, you are ahead. No matter what.

I know you're ahead, but sometimes you might be ahead even more if you paid if off all at once.

You're never ahead. There is no "more ahead" when paying in full. It's impossible.


I just calculated the following

Scenario1: Take out loan for 10k at 6%/12 interest, invest 100,000 @ 10%.
Scenario2: Fully pay off loan, have 90k for investment at 10%.

Again, utilizing simple rates, you are ahead 13k after 10 years. That is about a 5.7% improvement. At the end of the period you have 227,984 under Scenario2. Under scenario 1 you have 240,013.

I could get more detailed than this. However, the end result is that provided you can make more in returns on investment than you pay on a loan, then you are *ALWAYS* ahead.

 

[jdoggg12]

Legend, i fail to see what you're getting at... by your logic, it would NEVER be practical to buy a home.

Look at it this way:

125k @ 6% for 30 years = $144798 in interest
125k @ 6% for 5 years = $19996 in inerest

A savings of $125k in 25 years.

This is all assuming no matter what, hes planning on buying a home. So, if he sunk all his cash into the mortgage, he'll own his home in 5 years and save 125k in interest as opposed to the 30 year loan.

Now... 5 years of investing. He STILL must pay rent. Lets say $1k/month. that allows for $1400/month investing.

1400 @ 10% for 30 years = 3.2 million
2400 @ 10% for 25 years = 3.1million + home (whatever the future value)


I'd say buying is better.

 

[LegendKiller]

Originally posted by: jdoggg12
Legend, i fail to see what you're getting at... by your logic, it would NEVER be practical to buy a home.

Look at it this way:

125k @ 6% for 30 years = $144798 in interest
125k @ 6% for 5 years = $19996 in inerest

A savings of $125k in 25 years.

This is all assuming no matter what, hes planning on buying a home. So, if he sunk all his cash into the mortgage, he'll own his home in 5 years and save 125k in interest as opposed to the 30 year loan.

Now... 5 years of investing. He STILL must pay rent. Lets say $1k/month. that allows for $1400/month investing.

1400 @ 10% for 30 years = 3.2 million
2400 @ 10% for 25 years = 3.1million + home (whatever the future value)


I'd say buying is better.

Ok, let me explain this to you.

It's called "Present Value". If you invest today, all of your money, it gets compounding returns. That money, if invested at a rate greater than what you are paying will ALWAYS yield more money. It is *IMPOSSIBLE* for it not to.

It's never practical, from an investment standpoint, to pay off a loan at 5% if you can invest your money at 10%. *NEVER*

This is a pretty simple financial topic to understand. Leverage has been around forever and investors use it every day to multiply their returns.

I could create a good model to show it to you, but I am feeling too lazy right now, as I spent all day creating a model to look at 250 million in bonds amortizing over 12 years. I do this crap every day.

If you took all of that 125k and invested it, you'd have 2.18 MILLION dollars. After paying off the 125k, you'd have 2.05 million. Subtract your interest and you have your money.

Not utilizing leverage is not optimizing your returns.

 

[jdoggg12]

Could you screen shot it for me in excel? In your example, i assume he never owns a home, right?

The way i'm looking at it, if he does not take the 5 year loan, what proportion of his $$ are you assuming he spending on housing vs. what he's investing?

If you look at my breakdown - we assume his total outflow is ~2400. If he DOESNT take the 5 year loan, he STILL must pay for housing, whether its rent or Long term mortgage. So i assumed that he'd be able to invest $1400/month starting now, every month, for 30 years. If he DOES take the 5 year morgage, in 5 years he can dump $2400/month into investing. So in 30 years from today he will have 25 years of investing at $2400/month instead of 30 years inversting at $1400.

Do you get what i'm saying/asking?

 

[HopJokey]

Originally posted by: LegendKiller

Originally posted by: jdoggg12
Legend, i fail to see what you're getting at... by your logic, it would NEVER be practical to buy a home.

Look at it this way:

125k @ 6% for 30 years = $144798 in interest
125k @ 6% for 5 years = $19996 in inerest

A savings of $125k in 25 years.

This is all assuming no matter what, hes planning on buying a home. So, if he sunk all his cash into the mortgage, he'll own his home in 5 years and save 125k in interest as opposed to the 30 year loan.

Now... 5 years of investing. He STILL must pay rent. Lets say $1k/month. that allows for $1400/month investing.

1400 @ 10% for 30 years = 3.2 million
2400 @ 10% for 25 years = 3.1million + home (whatever the future value)


I'd say buying is better.

Ok, let me explain this to you.

It's called "Present Value". If you invest today, all of your money, it gets compounding returns. That money, if invested at a rate greater than what you are paying will ALWAYS yield more money. It is *IMPOSSIBLE* for it not to.

It's never practical, from an investment standpoint, to pay off a loan at 5% if you can invest your money at 10%. *NEVER*

This is a pretty simple financial topic to understand. Leverage has been around forever and investors use it every day to multiply their returns.

I could create a good model to show it to you, but I am feeling too lazy right now, as I spent all day creating a model to look at 250 million in bonds amortizing over 12 years. I do this crap every day.

If you took all of that 125k and invested it, you'd have 2.18 MILLION dollars. After paying off the 125k, you'd have 2.05 million. Subtract your interest and you have your money.

Not utilizing leverage is not optimizing your returns.

I agree with Legend, paying off interest when you can invest at a rate of return much higher is not a good idea; however you must also factor in taxes (i.e. mortgage deduction, taxes on investments, etc.) when you are running the numbers.

 

[mazeroth]

Haha! You guys crack me up.

I totally understand what you're saying about investing at a higher rate will yield a better return. Sure it will, however, there is risk involved in doing that. I'm a low risk type of guy. Right now I'm putting all my money into a 5.3% savings account. My friends tell me I should be putting my money into long-term stocks, but if I would have taken their advice a year ago I wouldn't have made much money, just like them. Once I get the house paid off we're going to have kids and my wife can stay at home. I will have practically zero worries, unlike if I had my money tied up in stocks and the market or stocks I had decided to take a turn for the worst.

To RossMAN:
"Now you've got me curious.

Do you have any magazine subscriptions, Tivo or cable DVR, cable TV, broadband internet, cell phones?"

We have two Sprint SERO plan cell phones, no cable (OTA HDTV only), a landline that has free incoming calls and 3c/min outgoing calls for $13/month (that we rarely use for outgoing) with SBC DSL Pro for $15/month (must have a phoneline for DSL). It adds up to less than $100/month for those.

I have subscriptions to Golf Digest and Men's Fitness, which I got both for under $5/year through some FatWallet deals.

 

[Roguestar]

I'll lend you it at 50% :thumbsup:

 

[sourceninja]

Isn't a home an investment? So if you buy a home, pay it off, it will most likely increase in value. So he can sell it as a either a liquid asset and get back what he put into it, or the more likely case is as an investment and get back more then he put into it.

 

[SearchMaster]

Originally posted by: mazeroth
Haha! You guys crack me up.

I totally understand what you're saying about investing at a higher rate will yield a better return. Sure it will, however, there is risk involved in doing that. I'm a low risk type of guy. Right now I'm putting all my money into a 5.3% savings account. My friends tell me I should be putting my money into long-term stocks, but if I would have taken their advice a year ago I wouldn't have made much money, just like them. Once I get the house paid off we're going to have kids and my wife can stay at home. I will have practically zero worries, unlike if I had my money tied up in stocks and the market or stocks I had decided to take a turn for the worst.

To RossMAN:
"Now you've got me curious.

Do you have any magazine subscriptions, Tivo or cable DVR, cable TV, broadband internet, cell phones?"

We have two Sprint SERO plan cell phones, no cable (OTA HDTV only), a landline that has free incoming calls and 3c/min outgoing calls for $13/month (that we rarely use for outgoing) with SBC DSL Pro for $15/month (must have a phoneline for DSL). It adds up to less than $100/month for those.

I have subscriptions to Golf Digest and Men's Fitness, which I got both for under $5/year through some FatWallet deals.

:thumbsup: I applaud you. There is a huge sense of relief and satisfaction to being debt-free and it gives you so much more financial freedom in the future. Is it the "best" financial decision, according to a spreadsheet? Maybe not, but it has fringe benefits that cannot be measured monetarily. I hope to have my house paid off about the same time you do, though I've been at it for a few more years. That'll give us a few years to save up for three college educations (which, of course, we've already begun)

 

[fisheerman]

Originally posted by: mazeroth
Haha! You guys crack me up.

I totally understand what you're saying about investing at a higher rate will yield a better return. Sure it will, however, there is risk involved in doing that. I'm a low risk type of guy. Right now I'm putting all my money into a 5.3% savings account. My friends tell me I should be putting my money into long-term stocks, but if I would have taken their advice a year ago I wouldn't have made much money, just like them. Once I get the house paid off we're going to have kids and my wife can stay at home. I will have practically zero worries, unlike if I had my money tied up in stocks and the market or stocks I had decided to take a turn for the worst.

To RossMAN:
"Now you've got me curious.

Do you have any magazine subscriptions, Tivo or cable DVR, cable TV, broadband internet, cell phones?"

We have two Sprint SERO plan cell phones, no cable (OTA HDTV only), a landline that has free incoming calls and 3c/min outgoing calls for $13/month (that we rarely use for outgoing) with SBC DSL Pro for $15/month (must have a phoneline for DSL). It adds up to less than $100/month for those.

I have subscriptions to Golf Digest and Men's Fitness, which I got both for under $5/year through some FatWallet deals.

mazeroth reminds me of ......... well me about 5 years ago.

i was raised by some very financially conservative parents who made a lot of money the old fashion way. They saved it. I saved every penny i could

Against every fiber of my being I subscribed to the philosophy of what legend is speaking and I can tell you that my net worth has increased by 100's of K over the past 5 years.
Now do have what i would consider an abserd amount of debt...........absolutely(did i just say that?)

But the difference between my debt is that I have the $ in investments and cash to back it up.

Think of it this way it is like running your household like a company. Leverage here to make there and reap the difference.

Im willing to take any spread on money that I can borrow?

Against all of my parents values I can say that it works.

 

[lupi]

I feel sorry for your (future) kids.