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

[fisheerman]

Originally posted by: 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.

yes it is and one of the best investments in the world but you are missing one thing.

a 400k home will appreciate at the same rate no matter if you owe 400k on the house or you owe 0k on the house

value mortgage appreciation @ 5%
400k 400k 20K
400k 0K 20K


If you can borrow 400k @ 6.25 tax deductible and make more on it thru investing.

which at that rate isn't that hard, i think a savings account at 5.25% would come close to breaking even depending on your tax rate, you are money ahead. Plus still have the benefit of appreciation.

-fish

 

[fisheerman]

Originally posted by: 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)

One of the things that people miss is that most of the wealth generated through investing isn't made by what you put in it is generated by compounding interest over a long period of time. The sooner you can get that money generating interest the better.

I would much rather have a home mortgage that I can afford the payments and a large lump sum generating money over my lifetime than less money in the bank and no mortgage.

-fish

 

[waggy]

IF i can't pay for something in cash i do not buy it. I have one CC i use for a emergancy's. I invest what i can when i can. BUT i have a mortgage.

Legend is right on this (though no gurentee you are going to get 10% returns). IF you can afford to pay off a $150k in 5 years it would be better investing the money and paying off the house. in the end you are going to still have that investment and a house. win-win situation.

 

[lupi]

 

[waggy]

Originally posted by: lupi

I agree.

 

[LegendKiller]

I can definitely see where you are coming from. I came out of grad school with 89k in student loans. My wife has another 60k. Every month we write checks that total up to 1k just for our student loans. I am busy paying down some of the higher interest rate ones, the personal loans we took out to bridge the gap between tuition and government loans. These have rates that are about 7.5% after tax, too high for me to consider comfortable in getting a positive return.

Even after that we'll still owe about 90k combined and will have to write ~700/mo in checks. Would I feel better that these were gone? Absolutely. However, at a WAIR of ~3.5% after tax, I'd be foolish to waste my money paying them off.

I really applaud you on living a "lite" life, it must be really comforting. However, being able to have assets to pay off that mortgage and having them immediately available is just as good as being able to pay off your mortgage today.

Think of it this way. Your mortgage is a long term payment stream with a fixed amount of interest. While the stock market *IS* variable and volitile, over the long-run, over the same time period as your mortgage, it's not volitile. Long-run returns over the past 100+ years is ~10% (a pct pts +/- depending on who you ask). While this isn't assured, it's a pretty reasonable estimate.

To caveat that, you shouldn't *EVER* invest in individual securities unless you have done prolific amounts of research. Always invest in index funds. Wide diversification and long-term growth is the key to investment success.

 

[dullard]

Originally posted by: 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...:-(

Not necessarilly. A married couple on a $50k/year total salary can have that paid off in 5 years if they live like they did in college. They'd have a monthly mortgage payment of ~$2800. After taxes and mortgage, they'd have nearly $1000 a month available. You can live and ok life on $1000/month for food/utilities.

Considering they are both college eduated, $50k/year total for two college educated people is very easy to do. Heck, they may very well be closer to $100k/year if they are both engineers.

Paying off a cheap house in 5 years is a piece of cake.

If you have a $1100/month mortgage on a 30 year loan, by paying $1200/month you'd pay it off in ~22 years. Surely you can probably fit in a measly $100 more per month and give yourself another 8 years of in the prime of your life without any housing payments to make. Think about it, that $100 more will DOUBLE your principal payments when it matters most on your balance.

 

[dullard]

Originally posted by: fisheerman
yes it is and one of the best investments in the world but you are missing one thing.

No, houses are one of the WORST investments ever. Housing prices historically increase 2%-3% per year. That is basically on pace with inflation. Stocks and even bonds do far better.

A house is your home. A house is NOT an investment. Investments you can sell at any moment when the price is high and you buy in on another investment when it's price is low. Almost no one ever can do that with a house. Even if you can sell your house when the price is high, you can't find a house in your area to move into where the price is low.

 

[Mxylplyx]

You should get the best rates they have available. Anything over 720 doesnt matter I dont think.

 

[dullard]

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.

I agree with you completely on the student loans. Never pay them off early if you got in when the loans were cheap (note many people got student loans in the 6-8% range and then it may be another story).

But the house is a different picture. I agree with you in general, but there are good arguments against what you say.

Yes, you can get 10% (or more) if you invest it wisely. But you can also lose your shirt if you don't. At a time when the GDP is falling, inflation is running a bit higher than average, the housing market is tanking, and many stocks are at all time highs, you might not get 10% return initially. Rewind to the year 2000. Any investments made then probably netted you close to a 0% return so far. We may be in a similar situation now.

Invest in a 6% mortgage and you get a guaranteed 6% return no matter what. That is a good stabolizing influence on your portfolio. Heck, 6% would do better than most bond funds now. So, get a portfolio of 80%-90% stocks and 10%-20% house (instead of bonds) and you'll do well with high return and minimal risk.

Plus, there is something of value to having your house paid off. You can get access to your equity in a couple of days (compared to retirement savings where you might need to wait 40 years). In times of an emergency, it is damn nice to know you have a roof over your head, don't have to spend a fortune to move to a dump (realtor costs + moving expenses), and have no mortgage payments to worry about. That is a very good intangible effect. It may be far more valuable to them than the small additional gain they'd get by investing in stocks instead.

Heck, if you invest in taxable accounts (ie you maxed out your IRA), after tax your investments may only be making near 6% and the house vs. investment argument is all a wash anyways.

 

[akubi]

Originally posted by: dullard

Originally posted by: fisheerman
yes it is and one of the best investments in the world but you are missing one thing.

No, houses are one of the WORST investments ever. Housing prices historically increase 2%-3% per year. That is basically on pace with inflation. Stocks and even bonds do far better.

A house is your home. A house is NOT an investment. Investments you can sell at any moment when the price is high and you buy in on another investment when it's price is low. Almost no one ever can do that with a house. Even if you can sell your house when the price is high, you can't find a house in your area to move into where the price is low.

what are you smoking, of course it's an investment. the appreciation is just icing on the cake.

you may pay the price now by forgoing possibly more lucrative investment opportunities, but once it's yours you only pay tax/maint forever, which usually comes out to waaaaaaaay less than what you'd pay to rent a property of the same size. once he pays it off in 5 years he'll be living in it rent free for life.

 

[dullard]

Originally posted by: akubi
what are you smoking, of course it's an investment. the appreciation is just icing on the cake.

you may pay the price now by forgoing possibly more lucrative investment opportunities, but once it's yours you only pay tax/maint forever, which usually comes out to waaaaaaaay less than what you'd pay to rent a property of the same size. once he pays it off in 5 years he'll be living in it rent free for life.

Yes, in many cases buying a house is better than renting. But that isn't the discussion at hand. Do you buy a house and pay it off, or do you buy a house and invest the extra money elsewhere? Renting vs buying is neither here nor there for answering that last question.

And face it, housing prices don't appreciate very much historically and it is better to invest it elsewhere.

Buy a house for a home. Don't buy it for an investment. You can't do much worse for an investment (massive costs just to have it, massive costs to buy it, massive costs to sell it, slow transaction times, and a minisucle return historically). A no-load, low expense mutal fund can be a far better investment.

Most financial experts say the same thing. A house is a home, a house is not an investment. If your house goes up in value, that is icing on the cake, but it isn't something you should do as an investment.

Flipping a second house, or other house related business ventures can be an investment. But we are talking about your own home here.

 

[markgm]

Not to hijack anymore than has already been done, but this topic has come up before...

You have 1000 a month. You have a 100k loan at 5.5% for 30 years. You can do 2 things.

Pay 567.79 a month on the loan for 30 years and invest the remainder at 8% for 30 years. Doing this at the end of 30 years you'll have a house plus about $634,549.29.

Pay 1000 a month on the loan, and have it paid off 11.25 years. So for 18.75 years you can invest 1000 at 8%. At the end of 30 years you'll have the house and about $537,143.57. As you can see, paying off the house is the worse of the two ways.

Text

That said, you'll probably qualify for whatever the lowest rate out there is.

 

[SoulAssassin]

Stop, do no pass go, do not collect $200 until you read this:
http://www.chicagofed.org/publications/workingpapers/wp2006_05.pdf

We show that a signficant number of households can perform a tax arbitrage
by cutting back on their additional mortgage payments and increasing their contri-
butions to tax-deferred accounts (TDA). Using data from the Survey of Consumer
Finances, we show that about 38% of U.S. households that are accelerating their
mortgage payments instead of saving in tax-deferred accounts are making the
wrong choice. For these households, reallocating their savings can yield a mean
bene¯t of 11 to 17 cents per dollar, depending on the choice of investment assets
in the TDA. In the aggregate, these mis-allocated savings are costing U.S. house-
holds as much as 1.5 billion dollars per year. Finally, we show empirically that this
ine±cient behavior is unlikely to be driven by liquidity considerations and that
self-reported debt aversion and risk aversion variables explain to some extent the
preference for paying o® debt obligations early and hence the propensity to forgo
our proposed tax arbitrage.

For those with less time, read:
http://www.ricedelman.com/planning/home/BLTmortgage.asp

 

[chuckywang]

Originally posted by: markgm
Not to hijack anymore than has already been done, but this topic has come up before...

You have 1000 a month. You have a 100k loan at 5.5% for 30 years. You can do 2 things.

Pay 567.79 a month on the loan for 30 years and invest the remainder at 8% for 30 years. Doing this at the end of 30 years you'll have a house plus about $634,549.29.

Pay 1000 a month on the loan, and have it paid off 11.25 years. So for 18.75 years you can invest 1000 at 8%. At the end of 30 years you'll have the house and about $537,143.57. As you can see, paying off the house is the worse of the two ways.

Text

That said, you'll probably qualify for whatever the lowest rate out there is.

So what is an investment that consistently returns 8% every year?

 

[markgm]

Originally posted by: chuckywang

Originally posted by: markgm
Not to hijack anymore than has already been done, but this topic has come up before...

You have 1000 a month. You have a 100k loan at 5.5% for 30 years. You can do 2 things.

Pay 567.79 a month on the loan for 30 years and invest the remainder at 8% for 30 years. Doing this at the end of 30 years you'll have a house plus about $634,549.29.

Pay 1000 a month on the loan, and have it paid off 11.25 years. So for 18.75 years you can invest 1000 at 8%. At the end of 30 years you'll have the house and about $537,143.57. As you can see, paying off the house is the worse of the two ways.

Text

That said, you'll probably qualify for whatever the lowest rate out there is.

So what is an investment that consistently returns 8% every year?

Long term? The stock market. I'd pick an index fund.

Here are the results using the actual numbers the OP would use:

125,000
6.1%
757.49/month for 30 years
147,697.65 in interest
Invest 2422.42-757.49=1664.93 monthly for 30 years at 10% will give you $3,763,554

125,000
6.1%
2422.42/month for 5 years
20,345.01 in interest
Invest 2422.42 monthly for 25 years at 10% will give you $3,214,148

It's a difference of $549,406 by not paying your mortgage off early.

 

[KCfromNC]

Originally posted by: mazeroth
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.

ORLY?

True, there is risk involved and you shouldn't invest short term money in the stock market. But there's also a very real risk that, after taxes and inflation, you're actually losing money by taking the "no risk" approach.

 

[chuckywang]

Originally posted by: KCfromNC

Originally posted by: mazeroth
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.

ORLY?

True, there is risk involved and you shouldn't invest short term money in the stock market. But there's also a very real risk that, after taxes and inflation, you're actually losing money by taking the "no risk" approach.

Taxes are unavoidable, however.

 

[Thegonagle]

Originally posted by: Mxylplyx
You should get the best rates they have available. Anything over 720 doesnt matter I dont think.

The major credit score "barriers" in the mortgage industry, IIRC, are 650, 680, 700, and 750. Be sure of all three of your scores. Mortgage bankers use the median score ("mid-score") to determine which rate tier your mortgage will be written at.


Best way to quickly raise your scores: pay down all credit card balances to less than 20% of their limits. (Don't close accounts though--average age of accounts is a factor in scoring.)

 

[Vic]

16% :roll:


A few clarifications here:
- Mortgages with 5 year maturities don't exist in the conforming world. 10 years is the shortest term you can get.
- Anything better than a middle score over 720 doesn't matter. The best is the best. I'm happy you're well-qualified, now go measure your e-penis with someone else.
- The reason to own your own home is to own your own home. It's not an "investment" unless you're not living it.
- Paying off loans with low cost of funds (like mortgages) early is not necessarily a wise financial decision.

That is all.

 

[ebaycj]

Originally posted by: chuckywang

Originally posted by: markgm
Not to hijack anymore than has already been done, but this topic has come up before...

You have 1000 a month. You have a 100k loan at 5.5% for 30 years. You can do 2 things.

Pay 567.79 a month on the loan for 30 years and invest the remainder at 8% for 30 years. Doing this at the end of 30 years you'll have a house plus about $634,549.29.

Pay 1000 a month on the loan, and have it paid off 11.25 years. So for 18.75 years you can invest 1000 at 8%. At the end of 30 years you'll have the house and about $537,143.57. As you can see, paying off the house is the worse of the two ways.

Text

That said, you'll probably qualify for whatever the lowest rate out there is.

So what is an investment that consistently returns 8% every year?

S&P500 index ETF.

 

[RaiderJ]

Originally posted by: 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.

Very true. The numbers speak for themselves. Points to ponder:

What's your rate of return on home equity? 0%
How much mortgage interest can you write off on your taxes? 100%
What's better, cash in the bank generating interest, or home equity? CASH!

There is absolutely no reason to pay a mortgage off sooner rather than later if you have a good interest rate.

 

[D1gger]

I just signed a $150,000 mortgage for 5.3%. Six months, fixed rate, with a 15 year amortization.