And if you think of it this way… if you have any high interest debt (credit cards, etc.) you are paying on average more than double or even triple in interest as you would pay for a mortgage payment. If you own a home and have equity into it, you can borrow against it and eliminate all high interest debt and save yourself literally hundreds of dollars a month in finance charges you would normally just be ‘pissing away’ paying it gradually over time. You pay more in interest each month by making a minimum payment than you actually pay on the principal. Why just get by in life when you can get ahead?
Very true… I love the type of person who pats themselves on the back for investing in a 4% APY HSBC Direct online savings account, and is paying 20% to American Express on a maxxed out credit card.
Also, on home mortgages (or other loans in general), you can save a shitload of money by paying more than your minimum payment.
My current payment of my mortgage is going to have my 30 year fixed mortgage paid off in full in 12 years.
I always pay more than the minimum on my mortgage, at least $100 a month or more. Will be paying mine off about 8-10 years early if I was to keep it that long, I’ll probably own several more properties in addition to that one in the next 5-10 years.
if you’re only getting the average then you really suck at investing. beating 10% yearly for most people who actively invest is easy. the downside being, you still need to live somewhere.
This is just an average… think of how many people have lost money investing and it evens out.
this means nothing without knowing the purchase price and how much you paid for one point in interest points.
a good read on points:
Should I Buy Points?
Whether or not paying points makes sense for you depends in part on how long you plan to keep the loan.
Use a mortgage calculator to help you decide.
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Calculate the amount of your monthly payment at the interest rate you will be charged if you do not pay points.
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Calculate the amount of your monthly payment at the lower rate if you do pay points.
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Deduct the lower payment from the higher payment to find the amount saved each month.
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Divide the amount charged for points at closing by the monthly amount saved. The result is the number of months you must keep the loan to break-even on paying points.
Break Even Example
$100,000 Loan - 30 Year Term
* 7.5% Interest, no points = $699.21 monthly payment
* Buying 1 point for $1,000 = monthly payment $690.68
* Monthly Savings = $8.53
* $1000 / $8.53, = 117 months
Your break-even point is 117 months—or nearly ten years to recover the cost of buying the discount point (considering only the simple calculation of those funds at today’s value).
Do you plan to stay in the house that long? If not, buying points might not make sense.
http://money.cnn.com/galleries/2007/real_estate/0704/gallery.stocks_v_realestate.moneymag/index.html
http://finance.yahoo.com/real-estate/article/102603/why-your-home-is-not-the-investment-you-think-it-is
think of all the people you know who invest… probably only 20-30% have any idea what they are doing, the rest just pick randomly from a 401k. It’s not hard to profit, but the stats will never look as good because of how few people do it right.
Does this sound correct?
I have 15-20% set aside. Although I would suffer less withdrawl penalties (and less buyers remorse) if I went with 5-9% down.
you can buy points to lower your rate (which is what viper did). The other option is to put more money down so you’re financing less. You really just need to play with a mortgage calculator once you have all the hard numbers. It really is a personal choice based on how long you plan to own, how much you want to improve the place, other debts you need to pay. Don’t be afraid to spend more on a place that needs less work. If you buy a house for $100,000 that needs 40k to update to your liking - maybe you’re better off just spending 140,000 up front and getting it all right away with one loan with a nice low rate.
so as you can see, there is no “one size fits all”
Previous owner holding my morgtage FTW
I wanted to buy the house right away but he could not sell because of a stipulation in his divorse. His loss is my gain, in 2 years iI only have to borror 80k for a 150k house
yeah, I’ve been playing with all the morgage calcs www.mortgage-calc.com . I’ve already come to the conclusion that it doesn’t make sense to be remodling for years on end just to save $300 a month and in the end not have any advantage over the comps in the area. And at a rate of $300 a month it would take years of saving to afford the remodles anyways. Last time I checked my time is worth money, I would rather put XX hours of at work time into my house than XXX hours of leisure time.
the lead post is full of exaggerated BS. BUT… renting is very often a better idea than buying for alot of people.
I bought my home because i got married and had a baby on the way. However, i stood fast on the requirement for income generation. We bought a home with a lower apt. that we are now renting for $600 a month.
When considering the two options; rent vs. buy, you absolutely must consider all costs. not just payments and taxes.
when you rent an apt. for $600 a month including utilities, you must then factor in the utility costs at the home you are looking at buying.
when you factor in the mortgage payment, interest, taxes, utilities, maintenance, and other costs associated with buying a home and then subtract an all inclusive monthly rental payment you begin to understand why it makes sense to rent in alot of cases.
Additionally, there is a very strong case for renting from a flexability stand point. you can exit a rental agreement alot faster and alot cheaper than a mortgage. This is why ALOT of businesses lease mall space, plaza space, office space etc. rather than buying. It gives them the flexibility to relocate, expand or close up and liquidate fast.
i dont want to get into detailed examples, but i have seen and known young people to get into mortgages that were $1600 a month, with another $400 a month is associated payments (taxes, utilities, incidentals) adding to a $2000 per month commitment (about $500 of which is equity per month). When they could have received the same living space and no decrease in quality of living in that $600 a month inclusive rental payment at a decent apt.
that is a $1400 per month positive cash flow for renting vs. buying.
that $1400 invested moderately will always be better than investing in home equity.
CASH > EQUITY
Banks loan against equity because it can be converted into cold hard digital cash
^ You talk about exaggerations and then try to claim 600/month rent can get you the same living space as a 1600/month mortgage before taxes? 1600/month is around a 250-300k house depending on rate/down payment. You aren’t renting anything similar to a 275k house for 600/month, especially a utilities included 600/month.
It is like i said earlier in the post when comparing the two people always just look at $$$ for some reason and are almost never looking at similar living conditions. If the person is really that happy to have a few extra bux and live in their nice 650sq. ft. apt then cool for them i suppose.
Also bing, taxes are a lot different in US vs canada…
The government in the US is pretty much pro - land ownership, and pro business.
To not take advantage of those tax benefits, well… kinda stupid.
then i did not imply specifically enough about making a reasonable sacrifice.
The guys i am talking about that are buying homes dont need to buy homes. They are barely ever there and only really need a bedroom, kitchen and a toilet. Guys like Newman, Josh, guys without families to house.
Yeah you may WANT to own a mortgage, but the cost of doing so is that $1400 per month, or in a generic example, the differences in monthly cash output.
In the end you may feel you have made a great decision buying the home. That’s fine that you feel that way, and you can justify it by comparing rates and gains but in the end you have to remember that a $250,000 home over the life of a mortgage costs you $500,000+ in after tax dollars.
The cash difference in rent vs. buy decisions can very often be enough to offset and best the equity achieved.
I didnt say it’s always a good decision. Homes are cheap in Buffalo and around the nation right now. But it is not as clear cut as “buying is always better”
Arbitrarily chasing tax benefits is kinda stupid. Net dollars is all that matters.
Cash flow, like in business, is the often more important than the bottom line. Companies can grow too fast, but can never have too much cash flow.
Similarly, stretching your credit to be “house rich, cash poor” is very dangerous.
Anyone in this thread that is unequivocally pro-equity / pro-mortgage is a product of the same construct that has led to the state of America’s credit. You guys are paying car payments, home payments, credit card payments that are probably for your car or car stuff.
You have no cash flow or very little.
This creates dependency on work, reduces your ability to take financial risks (starting businesses when you have a young family to provide for), exposes you to great danger in the event of physical injury and therefore requires you to ouptput more cash on insurance.
it is an all around unhealthy way to manage your funds.
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buying is not necessarily bad, like i said… i just bought a home… but renting can be a way better investment depending on what you do with your free cash.
If you have your own business or if you are a savvy market player you can make your cash flow (difference between renting and buying) earn greater returns than a home.
PM me any issues you had financing 100%, I am curious if this is a viable option for me or should I wait to get 20% down…
I still don’t understand how fry got around pmi without it getting rolled in somewhere else…
pm me also if you don’t care to post.
thom: no reason to wait for 20% but I would try to have 3%-5% + 3 months mortgage in the bank + (another 5-10k for closing closes OR use sellers concessions to cover those)
Won’t help you with PMI, but: 1st time buyer program offers 3% down, 30 years, + unsecured personal loan (10 yr) for closing costs. Generally preferential rates.
IIRC You need to be buying in a “moderate” income tract though. Its been a while.
EDIT: I read this incorrectly the first time. If you would have said this:
“I don’t want to do work on my house”
Then this would have made more sense:
I was waiting for someone to post this.
What you’re employer is willing to pay you and what you are worth at home are 2 completely different things. You don’t pay yourself to be home, and if you did, you’d lose money.
At my house, when I’m mowing the lawn for 4 hours… I don’t get paid. Sure, it’d be great to make a couple hundred bucks… but it aint happening. You don’t get paid to paint your house either… these are things that you get rewarded for in the end, when you sell the house, or when you are just satisfied with your work.
Someone tried to make that point to me the other day… but unless you’re “working from home” you’re not making any money.
If you have the time and the drive… buy cheaper. You’ll make out in the end.