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acon40
11-29-2007, 07:08 AM
Refinance is my big question....

Right now I am a little over a year into our home loan. The market as we all know is tanking. Now, being new to the game and paying 2200 per month on the first two years of the interest only part on the 300k home, do I try to refinance or just stick with it? Lower payments would kick ass so much, but I doubt I could get them to the 1500 range.

Anyway, for you real estate guru's....whats my move? With the decline in the market is this something I should jump on?

Red_Chili
11-29-2007, 07:16 AM
You may just grab a new mortgage right before the rates drop again.

If you are in a bind, then yeah. Good thing you are only a year into the house, most likely its value has not dropped precipitously since then or you might be facing the 'squeeze' in not being able to get a loan on it. (I don't know what kind of equity you have, your down, etc. of course).

If you are looking to lower payments, obviously you are looking at another 3/1 or 5/1 interest only ARM or something? Pretty soon that may actually be a decent gamble, now that it is no longer all the rage. Not fond of 3/1s personally, lots can change and there you are in a bind again. Three years out I'd wager rates will be MUCH higher than now. Even five.

JMHO, caveat emptor, I don't even play an investment advisor on TV, etc. etc. etc.

treerootCO
11-29-2007, 08:01 AM
7% is the going rate for a 30 year with zero down as of 11/29/07 if your credit is in the 800s.

acon40
11-29-2007, 08:22 AM
yea, doing the math it just seems better for me to stay with it. I am up for a promotion and that will help out a ton. I just wish I could take a shot at the loan company. We are part of that sup-prime deal. Granted I am making the payments it does not leave a lot to spare with. As first time home buyers you get so wrapped up in the game and don't worry so much about the other factors.

nakman
11-29-2007, 08:32 AM
Just think of the tax return you're going to get... 2200*12*.4= ~$10K?

acon40
11-29-2007, 08:34 AM
How does that work out? We got the house at the end of Nov so we didn't file the house as per what the tax person told us. We really get that much back??

nakman
11-29-2007, 08:39 AM
If you got the house Nov 2006 then yeah probably didn't make sense to itemize deductions, you may have not even made a payment in 2006, right? But now that you've paid mortgage interest for a whole year you definitely need to itemize for 2007.. and basically you get back 40% of whatever interest you paid. You also get to pay 40% of whatever interest you've earned (like savings accounts, etc.) Your "tax person" will know all of this :)

MDH33
11-29-2007, 08:43 AM
Always some good reading here:

Patrick.net (http://patrick.net/housing/crash.html)

Red_Chili
11-29-2007, 08:53 AM
That site fails to consider regional aspects, and is truer for other areas that experienced an extreme real estate boom rather than the Denver metro area. It will be grim for a while but IMHO he overstates it (except for San Diego, Miami, etc.). It even varies between neighborhoods in the front range.

IMHO, it is a great time to have cash and credit and sniff around for some winners. This will get even better 6 mos. from now.

Generally you want to buy about the time everybody says it's horrible, and sell about the time everybody says it's wonderful. In other words, it takes stones. :lmao:

But IMHO a house is first a home and only secondarily an investment. You don't cry when you have to sell a mutual fund. DAMHIK.

acon40
11-29-2007, 08:57 AM
Haha...and I feel we made a good move. We really liked this house. While it was starting to fall apart then, this house was on the market for 7 days before we went into a deal.

The second day it was up we liked it and sat back. Next thing it turned into a bid war. Was I happy yes, we got him down 30k. Am I trying to make a quick buck no. To me, it will pan out over time. I am at least taking a chance then no chance at all with renting. plus all the cool cruiser kids are right around here right Bwahahha ;)

Thanks for all the advice guys....puts it into perspective...

MDH33
11-29-2007, 09:02 AM
That site fails to consider regional aspects, and is truer for other areas that experienced an extreme real estate boom rather than the Denver metro area. It will be grim for a while but IMHO he overstates it (except for San Diego, Miami, etc.). It even varies between neighborhoods in the front range.

IMHO, it is a great time to have cash and credit and sniff around for some winners. This will get even better 6 mos. from now.

Generally you want to buy about the time everybody says it's horrible, and sell about the time everybody says it's wonderful. In other words, it takes stones. :lmao:

But IMHO a house is first a home and only secondarily an investment. You don't cry when you have to sell a mutual fund. DAMHIK.

I'm not trying to be doom-sayer, I'm actually in the market right now since prices are plummeting. ;)

The daily news in the side bar on that site has a lot of national news, not just the Uber-bad stuff from California, Nevada, Florida, Ohio. I don't agree that it's only a regional problem, it's nationwide and will have effects that are worldwide. The effect all these bad loans will have on the economy has not fully come clear yet, but I guarantee it's not good and it's not going to get better for a long time.

I agree with you that houses are not (primarily) investments, nor are they ATM's.

acon40
11-29-2007, 09:10 AM
hahaha. Point taken. But with the current loan, at which point next oct its not interest only anymore. With my budget allowing me to kick extra towards each payment and building equity starting around feb/march I (correct me if I am wrong) its in my best interest to ride this out and dump as much extra payment into equity, of course limited to budget needs and the sort.

Red_Chili
11-29-2007, 09:34 AM
Yup. Last thing you need is for values to drop below your equity, combined with something unforeseen. Coming up with a ton of cash in that scenario could be brutal.

Red_Chili
11-29-2007, 09:44 AM
7% is the going rate for a 30 year with zero down as of 11/29/07 if your credit is in the 800s.
From MarketWatch:
SAN FRANCISCO -- U.S. fixed-rate mortgages fell again in the latest week, according to Freddie Mac's survey released Thursday. The national average interest rate on the benchmark 30-year, fixed-rate loan averaged 6.10% in the week ending Thursday; it hasn't been lower since the week ended Oct. 13, 2005, when it averaged 6.03%. The current rate is down from 6.20% a week ago and 6.14% a year ago. The 15-year fixed-rate loan averaged 5.73%, down from 5.83% a week ago and 5.87% a year ago. The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 5.86%, compared with 5.88% a week ago and 5.95% a year ago. "Interest rates for U.S. Treasury securities have been drifting lower this month over market concerns that the housing slump and stress in the credit markets could slow future economic growth," said Frank Nothaft, Freddie Mac vice president and chief economist. "As a result, interest rates for fixed-rate mortgages had room to slip lower this week."

nakman
11-29-2007, 10:13 AM
hahaha. Point taken. But with the current loan, at which point next oct its not interest only anymore. With my budget allowing me to kick extra towards each payment and building equity starting around feb/march I (correct me if I am wrong) its in my best interest to ride this out and dump as much extra payment into equity, of course limited to budget needs and the sort.

Acon, only argument someone would make against socking extra money into equity would be if you had other debt, like credit cards, cars, or student loans. If you're paying higher interest on those debts than your mortgage then pay them off first. Then when all that's left is the house ok start paying it down, but also consider the liquidity nature of your investment.. might you want that money back at some point? Only way to get your money back from home equity is to sell the house, or take out another loan against it (HELOC). While a Roth IRA or mutual fund, OTOH, may grow just as fast or faster as your home equity, while allowing you to pull from it w/o much penalty whever you need the cash.

MDH33
11-29-2007, 10:41 AM
Acon, only argument someone would make against socking extra money into equity would be if you had other debt, like credit cards, cars, or student loans. If you're paying higher interest on those debts than your mortgage then pay them off first. Then when all that's left is the house ok start paying it down, but also consider the liquidity nature of your investment.. might you want that money back at some point? Only way to get your money back from home equity is to sell the house, or take out another loan against it (HELOC). While a Roth IRA or mutual fund, OTOH, may grow just as fast or faster as your home equity, while allowing you to pull from it w/o much penalty whever you need the cash.

x2. Also consider the forecasts of home values declining for the next several years due to the glut of unsold real estate and rising forclosures. Any money you put towards paying down your house could be lost as your home equity declines.

Red_Chili
11-29-2007, 10:58 AM
x2. Also consider the forecasts of home values declining for the next several years due to the glut of unsold real estate and rising forclosures. Any money you put towards paying down your house could be lost as your home equity declines.
Actually, that's why I "yep'd" him on paying toward some equity. If the value of the house goes down and he needs to refi or get out of it, he may not be able to - without coming up with a boatload of cash he doesn't have. Depends on his loan-to-value.

Agreed, right now the equity is not like a savings account (short term). But the reason so many people got screwed in a declining market is loan-to-value, secondarily ability to pay.

Uncertainty and the likelihood of unforeseen events starts playing into the equation as the homeowner ages, too. Imagine long term hospitalization, for instance. Combine that with a recession. Tough combo. A paid off mortgage means something different then. Ya gotta choose though, and no guarantees.

I doubt the market will continue to decline across the board in years to come (some market segments have yet to decline much in Denver and are unlikely to, though they are flat). Glut segments will, depending on region and neighborhood, and energy/water. I would hate to live way out of town, for instance; parts of Douglas County worry me. Some in-town land with mass transit nearby will continue to escalate in value as inbuilding and redevelopment becomes more viable than sprawl.

Time will tell.

Nay
11-29-2007, 05:39 PM
Buying equity is a zero percent return investment that will be eaten up by inflation over time, and you have to ask a bank to get your money back. In today's economic world, buying equity is a straight road to being house rich and cash poor as you near retirement. That is why "reverse mortgages" are being so heavily sold now.

I'll give you a good example. In 1970, the year I was born, my parents bought a house in Northern VA for $50K. They put down $20K and took out a 20 year mortgage on the balance. In 2003, they sold that house for $505K. Sounds like a lot, but is only about a 7.25% return over the 33 years. But what will $50K buy now? Not even a Land Cruiser. Not a very good investment.

Had they had the option to fully finance the house and invest in the stock market over that time period, paying interest only, in 2003 they would have had a mortgage that was still $50K but a second asset in the stock market worth almost $700K. Write a check for the house and you have $650K left over.

That second asset becomes a hedge vs. having all of your eggs in one basket. If interest rates rise and stay high, the investments perform very well for low risk. If rates are very low, the house appreciates more.

Your interest only loan is a good thing - 2/28 doesn't have a long enough interest only period, though. Given you are a first time buyer and probably won't live out your days in this house, do not pay down equity. Invest instead to grow a nice liquid reserve. Watch the rates - they are going to come down over the next 6-12 months and you may be able to lock into a 5/1 interest only ARM for under 5%, and that will be an excellent move.

Remember, cash is king and cashflow is queen. You cannot spend home equity, it cannot grow as an investment, and it can be lost to value reductions. You would be better off putting cash in a zero percent checking account, because it would be guaranteed up to $100K by the Federal Government and you could withdraw it at any time.

Get your money into productive assets, you have a year to wait on refinancing to continue to build your credit history as a homeowner, rates are coming down, you should be freeing up investment money with a raise...why the stress :D?

BTW, I run a real estate investment company on the side that specializes in this stuff - the credit markets are terrible right now. Nobody is offering loans unless they can be sold to the GSE's (Freddie Mac/Fannie Mae), and that is a huge limitation. It will come back around. If you need a view of the wholesale market at any time, just drop me a line and I can give you an inside scoop. Not selling anything here - I've pretty much shut the business down right now due to market conditions and a focus on other areas, but I still have access to the data points.

Uncle Ben
11-29-2007, 06:09 PM
Nay,
Your little rant sounds win win but you forgot to add back in the $250k you just paid the banker on the house you still don't own that you had purchased for $50k!

acon40
11-29-2007, 07:39 PM
Thanks for all the info guys. I agree 100% about the equity now. I am think about how I have a fair amount of Apple stock I got in at $55ish and I see your point. If that was in the house no go. But it's not and thats a way I am sending my girl to oz in Spring to see a house.

I read a interesting article how its almost worth it to rent instead of own. Depends on location and other factors, but was interesting...

Nay
11-29-2007, 08:16 PM
Nay,
Your little rant sounds win win but you forgot to add back in the $250k you just paid the banker on the house you still don't own that you had purchased for $50k!

You pay that extra interest to the bank in a 30 year fixed as well. After 15 years of payments on a 30 year fixed you have paid off 25% of your loan. Not a great deal when the average mortgage is kept for 5 years. You pay so little equity down in five years that it is practically valueless as any kind of investment.

Investing your money conservatively @ 8% vs. investing it in home equity at 0% is a win unless the broad bond and stock markets crash in a fundamental long term way, in which case don't bet on your house price either.

At 0% rate of return you are making a negative 3% to 4% investment every year due to inflation - this is called "real return", which is return on investment minus inflation. Over 30 years a 3% to 4% real return devalues the investment into a completely different asset class. The present value of $200K 30 years from now at 4% inflation is $61,600. So in today's money, this $200K investment is worth $61K. And that is just about guaranteed given Federal Reserve policy to grow the economy (inflation) at 3%-4% per year.

You buy a $200K house now (good luck :D), put 20% down ($40K) and pay it off over 30 years in 2037 your $200K will still be worth exactly $200K in cash and will buy you a nice car (remember 30 years ago a car cost three grand). You invest the 40K @ 8% over 30 years and it grows to $402,506. At 10% it grows to almost $700K, although I think you don't model around 10% returns. This does not take into account the potential monthly investment cashflow from going interest only.

Where all of this falls apart is people buy houses they could not afford on a 30 year fixed, so they have no savings to invest. They simply grow the house price and use an interest only loan for qualifying purposes. The discipline is when you could afford the 20% down payment and the 30 year fixed and you choose a loan as a long term investment strategy to keep you cash from being tied up in your house.

Not many people do this, and first time buyers shouldn't be attempting it. Over time, though, that is your strategy to hedge against interest risk while growing your portfolio.

A 2/28 is a pretty good loan choice for a first time buyer getting into the market where income is probably growing relatively rapidly. It is not a "subprime" loan, but a financial tool that seems to fit your needs today. First time buyers who have good earnings growth don't need long term insurance plans to hedge interest rate risk. You worry about that stuff in 30 years. Now is the time to create those investments that will accumulate powerfully over the next 30-40 years, and you can focus on protecting those gains as you near retirement.

wesintl
11-29-2007, 09:12 PM
Where all of this falls apart is people buy houses they could not afford on a 30 year fixed, so they have no savings to invest. They simply grow the house price and use an interest only loan for qualifying purposes. The discipline is when you could afford the 20% down payment and the 30 year fixed and you choose a loan as a long term investment strategy to keep you cash from being tied up in your house.


I will say this. I pretty much completely agree with you Nay. The problem is SO may people sell themselves on this idea or will agree with someone like you that told them this and then do an interest only. Then in reality the extra money NEVER gets invested even if it's house they can afford on a 30 fixed. They just see this extra cash and spend it on an escalade payment or blow it on vacations etc. It's all out the window.

It takes a VERY disciplined individual to do this. IMHO most people don't or can't.

I'll still take my 30 year fixed with enough left over to invest as well. Sometimes equity in a house can be a good hedge on other investments.

Red_Chili
11-30-2007, 07:21 AM
The other piece of the puzzle you only alluded to, Nay, is "cash flow is queen".

I did a cash flow analysis deciding whether paying off a mortgage or keeping investments going made more sense, where the investment paid for the mortgage, and including the tax benefits (after all, you have to service the debt). The analysis was a LOT closer than I expected, modeling 6%. At 8% there was a more appreciable gap, and of course at 10% it was significant - not allowing for the volatility a 10% portfolio would entail, with the mismatch between a fixed outflow and a variable inflow and the resulting impact to the model.

Growth in equity is indeed a hedge against inflation, it is not zero percent at all. The stock market has better returns over time, but with much more volatility than most real estate portolios even considering recent events - and it moves pretty much with real estate volatility I might add. Leveraging that can make sense in certain scenarios, but not in others.

What this illustrates is there is no one fixed plan that is the 'best'. It all depends on your situation and goals. Your plan is a young man's plan, and makes sense for such - if discipline and investment assets are involved.

Red_Chili
12-05-2007, 11:40 AM
Here is a good summary that addresses cash flow as well as return. The picture for paying off a mortgage is by no means black or white, but this sheds light. The scenario under discussion is whether to pay off a $50K mortgage with 10 years remaining with a $50K inheritance, or invest the $50K, based simply on cash flow:
Since no one knows whether the stock market will be up, down, or flat in coming years, your main criterion should be your risk tolerance. If you can't bear to lose any capital, your tolerance is extremely low. In that case, pay down the mortgage. If you can accept some risk and think you can do better by investing, consider going that route.


What do you believe the market will do over the next 10 years—the time remaining on your mortgage? Expecting average returns of 15 or 20 percent annually isn't realistic. If you're risk-averse, a return of about 6 or 7 percent annually over the long term may be a reasonable assumption; if you're more aggressive you might use 10 percent.


Your current and future tax brackets also play an important role in your decision. Let's assume you have short-term investment gains, on which you pay ordinary income tax. If you're in the 35 percent marginal tax bracket, a 7 percent taxable return is then equivalent to a 4.6 percent after-tax return; a 10 percent taxable return is equivalent to 6.5 percent after taxes. Comparing your after-tax investment return with your mortgage rate can help you decide which strategy makes the most sense.


Another option: Consider paying off the mortgage and then investing the monthly principal and interest you save. Let's compare that with simply investing the $50,000 lump sum. In both cases, we'll assume you get a 4 percent after-tax return. In example A (paying off the mortgage), after 10 years you'd end up with $98,291. In example B you'd have only $74,541.
What if the market returns 9 percent after taxes? Then investing the $50,000 up front would earn you $7,142 less than paying off the principal and investing the monthly savings. The crossover point is 11 percent, after taxes; then you'd do better by putting the entire $50,000 into the market than you would by paying off the mortgage. In the above scenarios, I've done the calculations using assumptions specific to your situation; the numbers may differ slightly for other people.


The number of years remaining on your mortgage is a key factor. If you had 20 years left, the figures would be different; then it wouldn't take such high returns to make investing the lump sum the more attractive alternative. Ultimately, you must do what makes you most comfortable. Only in retrospect will you know whether your choice was the most profitable one.


Most investment planners will not recommend planning on returns @10%+. Most recommend 6-8% for planning long term. YMMV. I am NOT a CFP.
From: http://www.memag.com/memag/article/articleDetail.jsp?id=111463

Red_Chili
12-05-2007, 12:06 PM
Here is more info. Simple, and clarifying:
If you can earn a higher after-tax return on your investments than the after-tax interest rate expense on your debt, you should invest. Otherwise, you should pay off your balance.
Example of debt reduction vs. investing calculation

Scenario 1
Assume you have a thirty year, $150,000 mortgage with a six percent rate. Also assume you are in the 25% tax bracket. Due to the itemized deduction of mortgage interest, your after tax annual percentage rate is really 4.02% (not the 6.00% you are paying). Hence, if you expect to earn an after-tax return higher than 4.02% on your investments (odds are substantial you will if you have a long-term horizon<emphasis added>), then you should invest. To discover how much of your mortgage interest expense you can deduct, check out the myFico Mortgage Tax Savings Calculator (http://www.myfico.com/myfico/CreditCentral/Calculators/MortgageTaxes.asp).
Scenario 2
You have a $10,000 balance on a credit card with a 22% annual percentage rate. Credit card interest expense is not tax deductible, meaning you should only invest if you think you can earn a 22% after tax return on your investments. Given that the historical long-term return on equities has been somewhere around 11-12%, this seems highly unlikely. In this case, it would be foolish to invest.

The bottom line

Although you may be eager to invest, you need to do what is best for your bottom line. Regardless of which is the wiser course of action at this stage in your life, the ultimate goal should be to have no debt and an abundance of great, lucrative investments. With enough patience and hard work, this is a goal that you can, and will, attain.
From http://beginnersinvest.about.com/cs/personalfinance1/a/031901a.htm

It depends on your volatility tolerance, your cash reserves should disaster strike, and if you depend on your investments to partially pay for the debt. Loss of real estate value, capital loss on investments, and some other disaster such as a layoff can and do form an unholy trinity of timing.

Red_Chili
12-05-2007, 12:19 PM
Another good one:
http://www.realestatejournal.com/buysell/mortgages/20061215-cullen.html?refresh=on

RockRunner
12-05-2007, 06:26 PM
I understand all the comments made and tend to agree with most of them.

My question is this, does anybody put more than 5% down on a house anymore? We did put more down and lowered our payments to a level where one of us could pay the the mortgage if anything ever happened. Sure you have better cash flow if you invest in stock or mutuals vs a home but that can be dealt with an open home equity loan.

Part of the reason that Bush has to bail out the housing market is due to people buying homes with 0 down or loans for 110% to value. If I was a home owner that bought a home in the last few years and was making my payments vs one that wasn't but will be bailed out I would be PO big time.

It used to be that people bought homes and put 5-10% down and were able to afford the payments for years to come. Now that is something rare, and I feel that is part of the problem we are dealing with now.

I like to simplify things to much sometimes and that may be wrong but I still believe in some of the old time values, if you can't afford it don't buy it.

Aacon please don't take this the wrong way, I a not directing this to you. This is just in general and only my opinion regarding the WHOLE problem. I am sure there are a ton of people who will disagree with this and that is fine, it's just my 2c.

PS We do have money invested in several different areas that are doing OK and good, not just the house.

acon40
12-05-2007, 06:48 PM
Nothing wrong taken. We rushed into a house because the women above almost killed two of our dogs, call the cops on us and almost rammed my truck. Looooong story, but that gives you a idea of what was going on.

While I see your point, thanks to a VERY understanding family, we put 5% down.

But we did look at the zero down option. Payments were to high.

RockRunner
12-05-2007, 11:07 PM
I have had my share of neighbors like that and understand all to well. If somebody tried that with our dogs I too would be in a new home, 6x8 or something close to that ;-)

Family is a wonderful thing.

We kicked around a bunch of scenarios and in the end decided with a large down payment. We felt better that way, little conservative but it works for us. The other thing that really got me was the mortgage insurance, they have the title to the house already but they still want more.

Another thing that really bothered me was the mortgage company, he kept pushing us into a larger loan, we qualified for more than we borrowed. We tried to explain our thoughts to him but he kept telling our RE guy that we could afford more house. The RE was our friend so he did not push but I can't imagine what it must have been out there the last three years or so.

I hope all works out for you regarding your promotion and with some extra Cruiser money or ???? good luck.

nakman
12-06-2007, 10:38 AM
My question is this, does anybody put more than 5% down on a house anymore? ..

I think so, and one of the things to try avoid is private mortgage insurance, you know that special "tax" you get to pay if you own less than 20% equity. But you can get around that using 80-10-10 financing, also it's possible to negoatiate lender-paid PMI with your lender. When we bought our first two houses, we paid PMI on both to start but were able to refinance both after a fairly short amount of time, because of the rapid appreciation. Not so much the case today, obviously.

ScaldedDog
12-06-2007, 01:03 PM
My question is this, does anybody put more than 5% down on a house anymore?

That's a resounding "yes" from us. We've been house hunting since April and, if we ever find anything we like, we'll be putting as much as we can down, and will poor the equity from our current home into the new one once it's sold, with goal of owning the new place free and clear in ten years. Numbers can be tortured until they'll confess to anything, but I don't buy the whole "equity earns nothing" argument. My experiences say different.

Mark

Red_Chili
12-06-2007, 03:34 PM
My question is this, does anybody put more than 5% down on a house anymore?
Absolutely. In our case, a ridiculously larger amount down. For a while there, the argument was, "with prices where they are no one can afford to buy a house with the old rules", which only fueled the price bubble to extend even further. You see what happens. Nature (and economics) abhors imbalance.

The inability to afford housing is a problem for sure - but rest assured that in the long run it corrects itself one way or the other. The correction can be painful if allowed to run laissez-faire, however.

Another pop of a bubble was when folks backed out all the equity that they could, so they could to put that into the stock market. If you can service the debt, great, but what happens in a bear market? Then you get laid off? I'm not that brave.

RockRunner
12-06-2007, 08:34 PM
We too put a large amount of money down on our house for most of the same reasons you all mentioned. Our thinking included some of the previous thoughts mentioned since our payment is smaller now we are able to invest and afford things we want. We aren't house poor like so many of our acquaintances are.

On another note I am a little upset with the new "bail out" that good ol President Bush announced earlier today. They are rewarding the people who gambled and lost, now they get a fixed rate. Of course that does benefit some people I know too, very much so to the extend that we won' have a house guest.

ScaldedDog
12-06-2007, 09:19 PM
On another note I am a little upset with the new "bail out" that good ol President Bush announced earlier today.

Me too! The only losers in all this are the poor slobs who didn't buy a house they couldn't afford, and are still living in an apartment. In other words, the responsible people.

Haven't the Republicans learned anything? They got their butts handed to them for not being conservative enough, and for not doing what we sent them to do. We've got the other guys feed the masses with the pablum of public bail outs. [/rant]

Mark

Jacket
12-06-2007, 10:09 PM
Maybe the better question is Does anybody believe they will one day pay down their 30 yr mortgage to nil and be house payment free?

I know the reality is that their are other reasons to maintain a reasonable mortgage even if you could pay it off, but isn't it said that this thing we call our "biggest investment" is really just a huge interest payment that consumes 20-50% of our monthly income?

Hulk
12-07-2007, 12:07 AM
Haven't the Republicans learned anything? They got their butts handed to them for not being conservative enough, and for not doing what we sent them to do. We've got the other guys feed the masses with the pablum of public bail outs.

The weird thing is how unconservative the W. administration has been on everything but stem cell research. When was the last time we had a true conservative in the White House? Eisenhower?

Reagan was a great man, but he was no fiscal conservative.

Here's the weird thing: it often takes a leader from the opposing party to achieve the goals of a party.

Cases in point:
Nixon established relationship with China.
Clinton ended easy welfare payouts.
There are a bunch of other examples of this, but I'm too lazy to go find them.

The theory is that only the leader of the party opposed to an issue can be "trusted" by his own party to do it right, and therefore won't get the full opposition that his own party would bring on the leader of the other party.

For example, the Republicans trusted Nixon and knew he was no pinko commie -- therefore, they allowed him to lead the U.S. to talking with communist China. Had a leader of the Democrats attempted to do this, the Republicans would have opposed him with all their might.

In Clinton's case, the Democrats trusted that his heart was in the right place concerning the poor -- so they allowed him to reform welfare. Had a Republican leader attempted this, the Democrats would have opposed him with all their might.

This obviously isn't a blanket rule, but it's occurred often enough that the phenomenon has been observed by many.

Red_Chili
12-07-2007, 06:50 AM
Maybe the better question is Does anybody believe they will one day pay down their 30 yr mortgage to nil and be house payment free? Yes. Right about retirement. Maybe sooner.

Red_Chili
12-07-2007, 06:54 AM
The weird thing is how unconservative the W. administration has been on everything but stem cell research. When was the last time we had a true conservative in the White House? Eisenhower?

And Kennedy was an early trickle-down, reduce taxes advocate and it worked. I am rather a Kennedy Democrat. Clinton was no Kennedy. Except in the area of women.

Regards stem cell, dunno if you've been following it, but the most recent research has had good success turning adult human skin cells into viable stem cells, so much so that the guy who 'bred' Dolly the cloned sheep is giving up embryonic stem cell research in favor of altering adult cells. This is beyond huge. What this means is that we are on the verge of all the benefits of stem cell research without the controversy of creating human life in order to 'harvest' it. Makes the whole controversy moot.

We live in fantastic times.

ScaldedDog
12-07-2007, 08:34 AM
Maybe the better question is Does anybody believe they will one day pay down their 30 yr mortgage to nil and be house payment free?

Absolutely. I'm 49, and will not be making house payments past 59, Lord willin', and I'm interested in doing that only if we can find the perfect place. If we can't can't pay it off in ten years, then we can't afford it.

Of course, if you're 25 and just starting out, ten years may be too aggressive, but the goal of living in a home you own should still be the goal IMHO.

As far as I know, all my siblings and my parents own their homes free and clear. We're not rich people - we all just work for a living like everyone else. However, we did have parents who grew up during the Depression, and the values they imparted to us have served us well.

Mark

Uncle Ben
12-07-2007, 08:39 AM
Maybe the better question is Does anybody believe they will one day pay down their 30 yr mortgage to nil and be house payment free?

I know the reality is that their are other reasons to maintain a reasonable mortgage even if you could pay it off, but isn't it said that this thing we call our "biggest investment" is really just a huge interest payment that consumes 20-50% of our monthly income?

Not for a long time! I will continue to reinvest my equity into profitable ventures....it has worked very well so far! I would much rather use my deductions instead of polishing marble with my capital gains taxes! :rolleyes:

MDH33
12-07-2007, 09:11 AM
Maybe the better question is Does anybody believe they will one day pay down their 30 yr mortgage to nil and be house payment free?

I know the reality is that their are other reasons to maintain a reasonable mortgage even if you could pay it off, but isn't it said that this thing we call our "biggest investment" is really just a huge interest payment that consumes 20-50% of our monthly income?


My thought has always been that if you're spending more than 25% of your monthly gross income on housing costs, you're living beyond your means.

Red_Chili
12-07-2007, 09:15 AM
Not for a long time! I will continue to reinvest my equity into profitable ventures....it has worked very well so far! I would much rather use my deductions instead of polishing marble with my capital gains taxes! :rolleyes:
First $500K of cap. gains is tax free dood...
if married. Federal anyway, don't recall Colorado. I'm sure a certain lurking real estate lawyer will chime in... :thumb:

nakman
12-07-2007, 09:20 AM
Or $250K if single, or MFS. :) you can also get out of the 2 years thing (legally) if your new house is closer to your work.

SteveH
12-07-2007, 09:49 AM
The MSN Money columnist guy yesterday seemed to be defending a single mother with 3 kids whose income was 36K/year and bought a $350K+ house she now can't afford - as if this was 'someone else's problem - not hers. I sure the bank spun her a great story about how she really *could* afford this place. But, sheesh - use your head! Not 15 years ago, this person would have been tossed out of the bank for considering a house over 100K, and now what she's doing is suddenly the norm. The basic laws of economics haven't changed in this example, I think.

What I find hard to swallow is people whose first house is a 3500-5000 sq foot new-age mansion with a 375K mortgage and no down payment. The conventional wisdom of 20% down (or even 10%) simply disappeared. What was so wrong with putting down some real money and buying a lesser home (like all the 2200 sq foot homes around Colo Springs) and upgrading when funds or equity permit? Is it to hard to imagine that 'you can't have it all' - at least not right now? This is a simple matter of self control (in some cases), and yet the entire concept seems suddenly outmoded. I realize that a 375 house in Denver and LA is more the norm than the exception, but if you're only making 40K/year, then perhaps it's not time to buy.

The book 'Rich Dad, Poor Dad' dismisses a house as an 'investment' - and while I don't agree with the entire contents of the book, it does put a monkey-wrench into many things your father told you about money, so to speak. Good reading.

Steve

RockRunner
12-07-2007, 11:30 AM
The MSN Money columnist guy yesterday seemed to be defending a single mother with 3 kids whose income was 36K/year and bought a $350K+ house she now can't afford - as if this was 'someone else's problem - not hers. I sure the bank spun her a great story about how she really *could* afford this place. But, sheesh - use your head! Not 15 years ago, this person would have been tossed out of the bank for considering a house over 100K, and now what she's doing is suddenly the norm. The basic laws of economics haven't changed in this example, I think.

What I find hard to swallow is people whose first house is a 3500-5000 sq foot new-age mansion with a 375K mortgage and no down payment. The conventional wisdom of 20% down (or even 10%) simply disappeared. What was so wrong with putting down some real money and buying a lesser home (like all the 2200 sq foot homes around Colo Springs) and upgrading when funds or equity permit? Is it to hard to imagine that 'you can't have it all' - at least not right now? This is a simple matter of self control (in some cases), and yet the entire concept seems suddenly outmoded. I realize that a 375 house in Denver and LA is more the norm than the exception, but if you're only making 40K/year, then perhaps it's not time to buy.

The book 'Rich Dad, Poor Dad' dismisses a house as an 'investment' - and while I don't agree with the entire contents of the book, it does put a monkey-wrench into many things your father told you about money, so to speak. Good reading.

Steve

:clap::clap::clap::clap::clap::clap::clap::clap::clap::woot::woot::woot:

Steve I could not agree more. It does not matter if you put 10 or 20% down as long as you are living within your means. The lady with three kids at $37k should be living in a 1000sq' town home if that :mad:

Kevin, you are right too. We took out a small loan against the house last year and bought some stock. After three months we were able to repay the loan and still have the same amount of shares we started with. I wanted to wait a little longer before selling half but my wife is real cautious. We could have made some more $$$ of the deal but so far we are 137% ahead, not to bad.

Everyone has a different style and level of comfort regarding debt and financial security. Some are more cautious while others take more risks. Neither is wrong, just a different approach. Just like Bill and me on Chinaman Gulch.............:D Just messing with you Bill.

Uncle Ben
12-10-2007, 02:52 PM
From: Williams and Juliet Idreen
Please dear hear our cry for help,

Dearest one ,

I am Williams Idreen the only son of late Chief PHILLIP IDREEN former Director of finance,diamond and mining corporation Sierra-Leone .
We must confess my agitation is real, and my words is my bond, in this proposal. My late father was the director of finance of Gold and diamond industry in my country, during the disastrous civil war in my country, now he has deposited the money with a security company here in Abidjan, where I am residing under political asylum with my younger sister Juliet Idreen nNow the war in our country is over with the help of ECOMOG soldiers, the present government of Sierra Leone has revoked the passport of all officers who served under the former regime and now ask countries to expel such person at the same time freeze their account and confiscate their asset, it is on this note that I am contacting you, all we needed from you is to furnish us with your particulars:

1) Full name
2) Home address, telephone and fax number For you to assist me transfer this money in your private bank account, the said amount is (ten Million Five hundred american Dollars) $10.5 Million US Dollars. we are compensating you with 15 % of the total money amount, now all my hope is banked on you and we really wants to invest this money in your country, were their is stability of Government, political and economic welfare.

Honestly we want you to believe that this transaction is real and never a joke. Our late father Chief PHILLIP IDREEN, gave me the photocopies of the certificate of deposit issued to him by the security company on the day of deposit, for you to be clarify because, We do not expose our self to anybody we see, we believe that you are able to keep this transaction secret for me because this money is the hope of our life, it is important to us. Please call us immediately after you must have gone through my message feel free and make it urgent. That is the reason why we offered you 15 % of the total money amount, and in case of any other necessary expenses you might come acrossduring this transaction.

N.B Try and negotiate for us some profitable blue chip investment opportunities which is risk free which we can invest with this money when it is transferred to your account, personally I am interested in estate management and hotel business, please advise me. mail us back at immediately you receive this message for more explanation.And promise me and my younger sister to be a guidian considering our situation and not to betray us.

Thanks and God bless.

Best regards,

Williams and Juliet Idreen

nakman
12-10-2007, 03:58 PM
The book 'Rich Dad, Poor Dad' dismisses a house as an 'investment' ...

IIRC, that's because Kiyosaki defines investments & liabilities in terms of cash flow. So your house with a $2500/mo mortgage payment is a $2500/month liability, but your stock porfolio is an asset since it pays a dividend. He would be more in favor of buying a duplex or condo building where you can get tenants to pay your share of the monthly bill, than he would be for just buying a single family home. Agreed though, great reading as is the next book, Rich Dad Secrets.

treerootCO
12-10-2007, 07:25 PM
You can invest in your house though. The equity is not really liquid but you can borrow against it using the house at collateral. That is know as the "rich Uncle" equity feed. You would, of course, use your rich Uncle if you had one. I have about 4,000 into the kitchen and the return, if I sell, is around 20,000+. This is a conservative estimate if I had hired someone to do the same work.

Inukshuk
12-10-2007, 08:13 PM
First $500K of cap. gains is tax free dood... if married. Federal anyway, don't recall Colorado. I'm sure a certain lurking real estate lawyer will chime in... :thumb:

I checked with a CPA because I never considered Colorado capitial gains and I'm not just satifsied with answers, I want to know reasons. (But I did guess right! :woot:)

Question: Is there a Colorado tax on capital gains from the sale of a personal residence? I think the answer is that since Colorado tax is based on Federal, the Federal exemption results in no tax on the first 250/500 (single/married).
Answer: You’ve got it correct – Colorado piggybacks the feds so whatever is exempt for federal purposes is also exempt for Colorado.

I have to say that this is an impressive thread. We might have to rename this the "Rising Sun Four Wheel Drive and Investment Club." I read the thread and plan to re-read it for ideas. Frankly, I really like the conservative approches written here. I believe that for most people a home should be a home, a place to live, and not a piggy bank. If you are in the real estate business or like to fix and flip your own place, that's different.

I know we are in the club for fun and not business, but has there ever been a list of what members do (other than our great 4x4 business members), because given a choice I'd certainly like to consider fellow members first if they do something I need. I could also certainly understand not doing that.