I’ve been thinking about refinancing our primary residence mortgage. Rate right now for a conforming 30-year fixed is 4-7/8%: no points, no origination fees, a few thousand in the usual appraisal, escrow, title insurance, and other miscellaneous fees… which sounds great…. until I read a prediction today on CNBC that rates might hit 4.2% by the end of the year.
Anyone out there considering a similar move? What’s your take on the market right now?
Replies
About a mont ago I was looking at TRW for 1.52.
It closed today at 5.31
I would have bought 1900 shares. You do the math.
Answer to your question? I don't have it.
I'm waiting for it to get to 4.5% to refi again.
my BIL has refi-ed three times in the last year or so!
His primary residence was nearly paid off,and he'd been building a spec on credit cards and free cash, but before it got finished he could see the market diving, so he re-fied to cover that property.
Then he got divorced, and re-fied again to cover that expense and buy out her half.
Then rates dropped enough that it was worth doing again!
Now if he can sell either place...
Welcome to the
Taunton University of Knowledge FHB Campus at Breaktime.
where ...
Excellence is its own reward!
At the end of the day you are better off to have no mortgage right? On a 30 year mortgage you will have paid the for the property 3 times over. I have a 7 year ammortization on a 1 year term. One year allows you to renegotiate for better rates, another mortgager etc. as needed.
At the end of the day you are better off to have no mortgage right?
Maybe, maybe not.
Say your interest rate is 5% on your principle residence, and your deduction on the interest payment gives back, (conservatively), 1/5 of that on your taxes.
Then as long as you're making more than 4% on your other investments, you shouldn't put extra $ towards paying off a mortgage.
Now, if you're not making 4% on your other investments, it's a different story, of course.
k
Your equation ignores "risk".A La Carte Government funding... the real democracy.
Your equation ignores "risk".
No, it doesn't.
k
The approach I take is " I pay $100 in interest. I get 20% ($20) back in taxes. I lost $80" Better to direct your money towards interest EARNING endeavors.
Beware of little expenses; a small leak will sink a great ship. ~Benjamin Franklin
The approach I take is " I pay $100 in interest. I get 20% ($20) back in taxes. I lost $80" Better to direct your money towards interest EARNING endeavors.
That's a huge oversimplification. By that logic, you should never borrow any money at any rate, however low.
At some point, the cost of capital (interest) is exceeded by the return on investments. Capitalism 101. (And I'm a hippie, but logic is logic...)
Where that point is depends on the cost of the capital, and the return on the investments, obviously.
But to believe that interest charging loans are always bad (and should be paid off as quickly as possible) is more of a religious thing than a rational thing.
k
Edited 4/9/2009 3:48 pm ET by KFC
I was taught that the only thing to borrow money for was an education and a mortgage. Everything else was to be saved for then paid in cash. Needless to say I am now educated, live in a reasonably comfortable home, am completely financially stress-free and have largely avoided making rash, regrettful purchases because of ready credit. Not to sound like an #### but seriously, if its too late for you chum, at least warn your kids!
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Wow. Not only are you irrational, but you're kind of a dick too.
(Sorry for the thread diversion, David. My guess is that rates aren't going to go much lower, by the way. I'd lock in a fixed long termer, personally. Just a guess, of course.)
k
"Not only are you irrational, but you're kind of a dick too."
why's that? for pointing out an ages old truth?
if more people followed his rules and less used your logic we'd not be knee deep in a reccession at the moment.
borrow to save ... BS!
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
He's irrational because he insists that paying interest (of any rate, no matter how low) is only ever a good idea if it's for a house or an education. And, he contradicts his own illogic by saying it's bad to do it on a house, too, and should be stopped as quickly as possible.
He made no attempt at reason. "it's what I was taught" may or may not have steered him well, but it is not rationality.
He's a dick for attempting to condescend to me, calling me "chum" and suggesting what ought to be taught to my child. Especially the last thing.
k
edited to add: The man's post includes: "Not to sound like an ####, but..."
So, he is aware he's being an ####. If he knows he's being an #### and proceeds anyway, then he is both an #### and a dick. Ergo, he's irrational, an #### and a dick, as long as we're clarifying.
Edited 4/10/2009 1:46 am ET by KFC
Edited 4/10/2009 2:11 am ET by KFC
"He's irrational because he insists that paying interest (of any rate, no matter how low) is only ever a good idea if it's for a house or an education. And, he contradicts his own illogic by saying it's bad to do it on a house, too, and should be stopped as quickly as possible. "
add car/truck to that and I agree 100%. (not that it's a good idea ...)
don't care what I sound like.
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
jeff
Buying a house is the only real break the average family guy ever gets.. in addition to the tax deduction he gains the chance to control a major economic commodity while using it for another purpose entirely..
It's called leveraged buying..
While it's true that you can leverage stock purchases, if the value of the stock should drop you lose completely.. However if the value of your home should drop you still retaina residence. The net interest paid is the only real cost of ownership and that is massively less than rent paid which would have no such benefit to the average renter..
And, the interest is deductable, as I pointed out earlier, making it even cheaper. And, eventual gains on a principal residence (if there are any) are excludable to the tune of 250k per person or 500k per married couple.
My wife and I are looking to sell this year, and we will have realized approximately $300k (probably more, knock wood) of capital gains with absolutely no tax. Zero. Not deferred, excluded.
Now, we do pay property taxes to the tune of $7800 a year, and insurance is another $700, and we put maybe $30k into the property over the years. But renting an equivalent house would run us about $30k a year. The current net savings of own vs. rent in our case is like $20,000 a year.
Add it all up, and it sure seems like it's been a good investment to me... and I never would have been able to do it without taking on a mountain of debt.
Debt is a tool. A very dangerous tool, if you don't know what you're doing. A very useful tool if you do.
I see you understand that, Frenchy.
k
edited for spelling. (twice)
Edited 4/11/2009 10:18 pm ET by KFC
Edited 4/11/2009 10:20 pm ET by KFC
Not only do I understand it but most people do as well.. This nation was founded on debt.. a debt we owed France and never repaid..
As for private residence and debt, I bought my home for $107,000 and have rode the wave of inflation up to it's last appraisel at 2.3 million.. Yes I have spent money improving it and yes I pay property taxes on it.. Those however have always been much much less than it has appreciated.. In addition it has sheltered me for 24 years in addition to the increase in value.
Market is down at the moment.. however with the looming inflation that won't last and during the time the market is down I still will be able to use it for the prime function I bought it for which is shelter..
Something no other investment will afford me..
Only homes provide both the ability to leverage a tiny amount of money into a large amount of equity while providing a major tax shelter. And provide a very basic human need (shelter)
Not only do I understand it but most people do as well.. This nation was founded on debt.. a debt we owed France and never repaid.. >>>>>>>>>>>.
Did you forget about WW1 and WW2?
Tell me, do you think we should have ignored the Germans?
You see, I understand that we defeated the Germans for our own reasons. If you read Mein Kamph you'll understand Hitler wasn't content to leave America alone.. He had every intention of conquering America as well.
Actually if the republicans and their support of America first movement had their way we would have stayed out of WW2 untill Germany was ready to invade America.. Would have been pretty easy at that point too..
America was about 20th in world military powers because of Hoover and damage of his economic policies..
Edited 4/19/2009 4:58 pm ET by frenchy
Take your head out..... of your.....
The world is not about rep and dems. Did you forget or not know that the progressive party was the rep in the early 1900?
I was referring to the debt that was rung up by the french in the world wars.
You ignore the negative things your party has done and go back even longer to blame the other party? Politics affect us all and while no party is flawless the republicans in their endless pursuit of profit for the rich over the average people seem to be more guilty of things than most..
frenchy what in the ....... are you talking about?
OOPs complex! I forgot I'm speaking to a republican..
I think you ad better check in with your psycologists and get a refill of your perscription.
Be a man and take that attitude and those comments back to the Tavern. That's why I stay out of the tavern. I grew tired of the petty bickering.C'mon man, let's stay civil. This can be an interesting topic if we stay on topic.Best, Mongo
We need to report this idiot. he must be lonely in the tavern. I withdrew from the tavern and have been very happy. I don't waste energy or time with those unable to process. Frenchy needs to get an "adjustment" from the web hosts.
Ignorance is the most expensive commodity we have!!!
At its most basic level, capitalism offers people the freedom to choose where they work and what they do … the dignity that comes with profiting from their talent and hard work. … The free-market system also provides the incentives that lead to prosperity -- the incentive to work, to innovate, to save and invest wisely, and to create jobs for others.†-President George W. Bush
In other words, free-market capitalism is the best path to prosperity.
Good arguements have a differance of opions based on a variety of factors..
Indeed to assume that there are simple answers for all of the worlds complex problems is grossly wrong..
It is over simplifing things to claim one person or one party is solely at fault when things go wrong which is the nature of my response.
Which is the nature of my current arguement.. That there are complexities is the very heart of this issue..
Frankly frenchy, I don't give a hoot why you're arguing. I do care about where you're arguing.Take it to the Tavern is all I'm saying.Best, Mongo
2 neighbors both buy a house for $200,000. 1 pays cash the, other finanaces for 30 years with a $1500/month payment.
After 360 months they both sell for $500,000. Who made money... who lost?
Impossible to say!
What sort of opportunity did the person who paid cash miss on his house investment?
In addition how long did it take that person to acquire the cash? How many missed opportunities did he pass up in order to have the cash?
Frenchy has it dead right- it's impossible to say.
All my earlier posts contain words like: maybe; depends; and if, then.
Anyone who generalizes about this subject is oversimplifying. So far, no one has said it's always a profit to borrow, but at least one person has said any interest is always a loss.
If the guy who borrowed paid less for his interest (after taxes) than he made on the cash (after taxes) he put in other investments , he came out ahead. If not, then the other guy did.
---------------------------
But a fairer comparison would be two guys who each have 200k cash to buy a house (at an intelligent time, of course, like after a crash, not at a peak... buy low, sell high, and all that).
One of them hates debt. Pays cash, and gets a 200k house. One of them is ok with debt (if it adds up) puts 20% down, takes a loan for the rest, and gets a million dollar house (probably in a better area, better school districts, long term-job opportunities, etc.)
Now, the first guy doesn't have a mortgage. That's good. The second guy does. That's tough on him. I don't dismiss that strain, believe me.
But, when those houses sell for twice their initial value eventually, the first guy makes 200k, while the second guy makes a million, due to his leverage. (And incidentally, around here, at least, the million dollar homes have (more or less) held their value while the 200k tract homes in Merced have been really slammed. But I will allow for equal appreciation, just to simplify).
Unless the first guy has made the 800k difference up in other investments paid for by the $ he didn't spend on mortgage interest, he's behind.
<Edited to add: Actually, doubling the initial investment is the break even point in this scenario. Beyond that, The Guy Who Borrowed is ahead.>
Don't forget to factor in the tax laws which benefit homeownership, including the right to exclude up to 500k in profit from any taxes. (And I'm not saying those laws are good, or fair, or bad, or anything, just pointing out that they are there...)
So again, it comes down to: paying money to make money is good if you make more than you pay. If not, then not.
----------------------
Look, I'm a contractor, not a mortgage broker. If you have an aversion to debt, I'm not trying to sell you on anything. Just discussing scenarios and doing math. Illogic and generalities irk me, that's all.
If you had to oversimplify and say it's always good or always bad to be in debt, it'd probably be better to say it's always bad. Neither a borrower nor a lender be. period, end of story.
It might be a good general rule, too. But, you have to realize that's an oversimplification, a rule, not a truth.
If you choose to pay off your mortgage early, or never have a mortgage, good for you. But it may not make the most financial sense in strictest terms of the numbers. That's all.
Happy Easter, Passover and Pagan spring rabbit and egg fertility festivals, everybody. Hope it's a good year for all of us. I'm officially out of this thread now, I want to play with my daughter.
peace
k
Edited 4/12/2009 1:28 pm ET by KFC
"Frenchy has it dead right- it's impossible to say."
Not true. It is very possible and can be very accurately determined - but not easily. Takes a special program and from what I can determine early on, somewhere about 750 data entries consisting of 3 to 6 factors apiece. Tax advantages can be part of the entries.
This will give you the Internal Rate of Return (IRR).
However all of it would be based on assumptions of unknown factors.
Sort of like defining how high is up..
Assumptions?
Such as assuming the borrower will make his payments on time?
Or that an assumed rate of 6% for the note be included?
Or that Sledgehammer's original terms include an extra $300 per month principal repayment per month, thus reducing the term?
Them's the only assumptions I play with in my math. Maybe you're different.
And I don't have the program. But I have used it and there is NO room for assumptions in the calculations.
OK let's use some examples then..
Let's say that you selected another Microsoft and are an early investor? or that you went the opposit way and bought a real turd of a stock that quickly disappeared.. Your formula has everything covered?
This formula isn't made by that noble prize winning economist who came up with the idea for credit default options is it?
The methods of calculating the Internal Rate of Return are not MY formulas.
And they are based upon the actual (or presented) events and results in discussion.
Such as, "How has my portfolio of 10 mutual funds that I have been paying into for the last 25 years, done vs Microsoft stock purchased the same way over the same period? Including reinvested dividends?"
Welp.... You have all proved why banks don't buy real estate but are happy to lend you whatever you need....
They clearly have no clue how to make money.
Bawahahhahaha!!!!!
Sheep.
Why shoot
I got only one question for ya..
ready?
If the formula is so great and accurite why aren't you as rich as Warren Buffet?
The guy who paid cash got hosed.
The guy who borrowed put 5% down and got the balance as a fixed rate 30 year for 4-3/4%. He took the rest of the cash and bought three other properties on similar terms, turning them into rentals in a college town. After five years of good price appreciation he refi'd a couple of the properties and started buying commercial. Fifteen years in and he has five residential rentals, a commercial office condo occupied by a psychotherapy practice, a mini-storage on two acres, a couple of storefronts in the downtown core, and a couple of small light-industrial properties where he has small residential contractors with shop/office space (oh yeah, the best tenants, those guys). Part way thru the process he realized he was long on land, so he took some cash out and is sitting on a nice looking diversified portfolio of stocks and bonds, and is also a silent partner in a hardware store, a video rental place, and a pizza joint.
Frenchy,
For 90% of homeowners their primary home is a "good investment" in much the same way ENRON stock was a good investment......the day before all hell broke loose there.
Do the math and I'm willing to bet that when you factor in principal paid wth each payment, and deduct it from the proceeds at sale................and figure taxes, upkeep, interest payments, homeowners insurance............and PMI since most people don't put 20%?
90% of home owners suffer a net loss.
Said it before, say it agin....my home isn't an investment.........it's a place where I lay on my big leather sofa and watch scary movies with my dog.
Your calculations have one major flaw.. you also lived there.. thus to any home ownership calculations you need to add the cost to rent a similar property. Since in addition to appreciation, tax deduction, you also have shelter.
My father paid $2300 for a 3 new bedroom home when I was a young boy.. He later sold it for $7700. after living in it for 4 years and renting it out for another 6 years..
A new chevy convertable cost $1830 at the time and when he sold the house he could buy a new chevy convertable for about $2600. So thus that property made dad about three times the rate of inflation..
I won't bore you with the rest of his property acqusitions.. except to say that without exception dad showed a decent profit on every property he owned..
That's not as great as the profiit my uncle made. With the aide of his mother (who made her millions the same way) he bought countless properties and when he died having never had a job for a DAY IN HIS LIFE.. HE Left an estate worth tens of millions of dollars (this was back in the 1970's when a million dollars was really something)
IN my case I got out of the Navy in 1974 with about $1800 in my pocket.. a year later I bought my first property.. zero down and I borrowed $50.00 from the realitor for earnest money because I honestly didn't have a dime to my name..
Today I'm worth Millions. In spite of having a hobby that is only slightly less expensive then herion addiction.. (speed costs money, how fast do you want to go?)
Frenchy,
There are many areas of the country where there is almost no growth in housing prices beyond annual inflation.
Beyond that, in the time that I've been an employed adult my area has suffered TWO price set backs. The last time, anyone who purchased a house at the peak had to wait almost ten years in my area just to recover to purchase price.
We're at the tail end of the bubble breaking and it's anticipated that prices will drop 8% this year.
In the age of now down payments and $300K mortgages a house is little more than a really really bad savings program.
In the ten years that I lived in my last house, I MADE a ZERO DOLLAR profit on it when I sold it...................and that was after selling it for double the purchase price.
And if I unload my house? I have to buy another...........another that has increased in price just as much as the one I just sold.
Don't get me wrong...I live comfortably...............but it's just a place to lay on the sofa with the dog......not a single thing more.
Robert.. there is absolutely no gurarantee that you will profit by anything..
Look at the stock market, or put your money in the bank and the return you get is guaranteed to be less than the rate of inflation.
Invest in a company and it can go broke as well.
Bottom line, to profit you must be smart..
I've figured out how to "be Smart" that is, wise investments in realestate..
If you buy a commidity which most homes are your "profit" changes with market conditions.. If you buy a home that is desired, You will gain over the common..
You said you sold your house for double what you paid for it.. Well, you made a profit. You had a place to stay at a rate cheaper than rent would be.. plus you doubled what the house was worth while only controlling a small portion of the value of the house..
People don't pay cash for a house.. so assume you bought a $100,000 with 10% down. That means you had $10,000 leveraged against $100,000. Assume it takes 10 years to double in price and your PITI on a 15 year mortgage is $900 a month.
the "profit" is $100,000 plus earned equity of roughly $60,000 means your gross profit was $160,000. minus down payment of $10,000.
and 10 years of $900 a month equals $108,000 plus the down payment of $10,000 means out of that $160,000 your net profit was $42,000 for ten years plus the rental value of that property.. (remember you still had a place to live)
Rents can be all over the board but normal rents are PITI + 10% for maintinace and profit.. so it's reasonable to use the number of $1000 a month to rent that place..
10 years of rent equals $120,000 plus the value of the tax deduction of interest paid added to the $42,000 means that your net worth increased by close to $175,000 over that decade..
That's on a very poor selection of homes that took a decade to double in price..
Lakeshore/ocean frontage/ other prime realestate has the ability to double in price every 3 or 4 years. In 25 years mine went from $107,000 to 2.5 million.
If the market is down right now I don't have to sell.. I still have the prime reason for ownership, that is shelter.. I still gain equity every month and I still get the deduction..
Markets recover.. we all know that.. the only question is when.. when it does I can capitilize on my investment or remain here..
In addition unlike a business I can take out home equity loans to meet cash needs.. I have a great deal more flecibility with home ownership than with a stock market investment which doesn't provide me with shelter, doesn't provide me with tax breaks and unlike profits from the stock market doesn't require me to pay capitol gains on up to $500,000 per person..
We sold our last house for double the purchase price. Paid off in seven years and sold after ten.
All expenses considered... interest, taxes, repairs, small upgrades, etc.
we broke even.
Play all you want with the numbers, frenchy, but a residence is only a home.
Rental property is an investment that (may) return a profit.A La Carte Government funding... the real democracy.
Did you take the tax deductions?
Did you have a place to stay?
If so you "paid" yourself the rent you would have needed to otherwise spend..
I'm not "playing" with numbers.. I'm simply putting home ownership in it's rightful perspective..
With regard to your "improvements"
If I buy a used car and paint it red because I like red cars, that's an improvement but it doesn't mean anyone will pay more to get my red car than they will to get a blue or white one.. Or if you replace your transmission with a new one you can't expect to collect the price of a new transmission over the book value of your car.
That's the case with a great deal of the "improvements" done to homes..
So you're saying all that leopard print wallpaper he put up may not have been a good investment?
And who pays rent, anyways??!! That's what mom's basement is for.
Save yourself, Frenchy. Walk away.
You're arguing that 1+1=2 with people who are arguing that they put one banana plus one banana on the dashboard of their truck and it now equals a pile of mush...
You can lead a horse to water...
k
You are correct that some people don't want to accept anything no matter how carefully it's explained..
On the other hand there are a lot of lurkers out there who learn things and quietly use those bits of information to their best advantage..
You're a better man than I, Gunga Din.
k
If I buy a used car and paint it red because I like red cars, that's an improvement but it doesn't mean anyone will pay more to get my red car than they will to get a blue or white one.. Or if you replace your transmission with a new one you can't expect to collect the price of a new transmission over the book value of your car.
That's the case with a great deal of the "improvements" done to homes..
You know what the improvements were and are qualified to make a derogatory statement like that?
You really have large bowling balls to start that kind of battle.
I've seen your house and, quite frankly, think it's "improvements" are very unattractive...
but I never typed that until now.A La Carte Government funding... the real democracy.
You're tilting at windmills here. Neither you nor I are in a position to make judgements about the desirability of improvements. You've changed the discussion from one about "improvements" in general to a attack on one persons taste..
Mine was a general overall comments about "improvements" in general. Someone tears out a 1950's kitchen for something more contemporary And one person may feel it's an improvement and another may moarn the loss of a 1950's classic.. That's just the way the market views such improvements..
A clean and tidy home is far more marketable than a home featuring all of the latest but in disaray.
Your feeble attempt at changing the tone of this discussion does not change the basic tennant of location, location, locatuion being the NUMBER 1,2 & 3 most important factor in the price of a house..
Hi Frenchy,
A clean and tidy home is far more marketable than a home featuring all of the latest but in disaray.
Your feeble attempt at changing the tone of this discussion does not change the basic tennant of location, location, locatuion being the NUMBER 1,2 & 3 most important factor in the price of a house..
I surely appreciate all of your plain english input here recently. Enough detail to understand the market in a broad sense which basically means each individual can work with your accurate take on real estate and leave room open for personal speculation.......I completely agree and thank you.
Now my bone to pick.....and it's not with you but you bring up a point that we need to keep up front and keep the fed's from doing.......that "rent free" shelter you pointed out......how true, how true but the fed's continue to discuss assigning a taxable value to that......now why should I work my mule tail to a nub to build a shelter that's paid for, only to have it taxed as income.....that leaves me less to invest elsewhere, meaning fewer jobs created for the public/real earners/producers.
Secondly is with local tax....property tax....growl......I wear myself out building a fine home for a small fraction of what it would cost to buy one....not only did they re-evaluate every 90 days while under construction....yes they charged me greater and greater property tax as construction progressed but wouldn't let me live in it until it was completed.....explain that one......anyhow, they've now re-valued the unfinished part of my basement including a room with $20 of plastic pipe in the floor they call an extra full bath as 80% completed value.....55% higher than finished garage space.
You had better believe I'm fighting it but "why"......why should I have to spend my time dickering over something that adds "no" real estate value in my area.....yes it adds value similiar to great landscaping but no dollar value in this area unless it is fully completed livable space and then only at a resale value less than the rest of the home. Yes, I will one day finish this space......working on it regularly but why should I pay increased property taxes on something that has added no value to the home.
And don't get me started on property taxes in general......this is simply a complaint about something outside the scope of operational waste.
Pedro the Mule - blisters on my hooves with too little to show for it
You bring up a valid issue Pedro..
Taxes..
no doubt we'll discuss this issue forever.. Is it correct to tax a persons work effort?
I feel it's not.. I think taxes should be based on what a person spends not what he earns..
Hi Frenchy,
no doubt we'll discuss this issue forever.. Is it correct to tax a persons work effort?
I feel it's not.. I think taxes should be based on what a person spends not what he earns..
I'm a full supporter of the fair tax.......plug..... http://www.fairtax.org ....far less complications than our current system....sure no plan is abosolutely perfect but it is the closest I've seen by far.....and it's "only" a begining.......it does nothing to stop the waste but does build our country's production back up.
"Active Use Tax" is nearly perfect too.....nearly.....ex. tax on gas.....bigger vehicles cause more damage per mile but they get less miles per gallon thus those vehicles that cause the most wear per mile pay the most tax per mile....of course that's if you keep those collected dollars going to the maintenance/creation of the roads and "DON"T TAKE IT OUT FOR FRICKIN' PUBLIC PROJECTS".....I pay my fuel taxes to drive on the portions of roads I fund....it doesn't belong to someone that wants to ride a bus or train.....charge 'em enough for the ticket to use the services......that's why the private sector doesn't invest in public transportation....short of cabs.....mass transit is a leech on society. I walked many a mile when I couldn't afford transportation.....didn't hurt me one bit...it actually encouraged me to spend wisely and work hard so I could later afford my own vehicle......and to those that have never had to walk....slow down and give plenty of safe passage to those that do....they deserve the healthy safe life they are working for as much as you do!
Yes Frenchy I've never asked my government/aka hard working people for anything. This great country has afforded me the opportunity to "seek" a good living.....I have not been consitutionally guaranteed success....that's up to me and the great creator of all.
Like you, I'm tired of being taxed for mule busting my tail and watching people with cable tv, a home phone, hundreds in food stamps, low rent housing being paid for and now I just saw an ad on tv for government funded emergency cell phones.....dang I've already given all of my old ones to Wallyworld and they pass them on to a non profit to be distributed to battered women.....cell 911 service is already paid for on non service phones by every paying cell phone user by federal law.....now some BH group has set up a distributable business of more of my tax dollars for those SA to have one more thing they haven't earned.
OK, back to investing.......had to get on my pedestal and explain why I only have 47% of my earnings left after taxes each year......from that I have to figure out how I'm gonna pay for my housing, clothing, insurance, food, transportation, electricity, water and everything else that the terminally pregnant unemployed get for free and still find some way to tithe........dag gone...
Ok, I'll invest what's left to build the economy and create jobs.......so Frenchy.....where should I invest the 3 cents I found on the sidewalk last month.....and I hope I've made you proud speaking for us today......
Pedro the Mule - My back is broken today
Well if you wind up with only 47 percent left after taxes you need some good help.. whoever is giving you advice now isn't working for you.
I do accept that taxes are part of the cost of living in a civilized society..
But it's wrong for me to be able to dodge taxes down to 2 or 3% of my income when you pay so much..
`As for your never asking the governemnt for anything, I'm afraid you have..
You want to live in a free country and we all know that free isn't cheap.. Plus the enforcement of rules and such will cost you as well..
Bottom line we all need to pay our just due.. however the rules should be fair not baised as they are today..
Hi Frenchy,
Well if you wind up with only 47 percent left after taxes you need some good help.. whoever is giving you advice now isn't working for you.
Although borrowing as a part of an investment strategy can work for some, it's an area I've worked to minimize so interest deductions no longer exist.....I'm working my way towards the end of my taxable life....get the child through the rest of college and I'm quitin' the regular guys income production.....going to work more on fixin' flips to retain as rentals....use the depreciation of them to keep any investment income taxes to a minimum.....and current rentals, both commercial and residential are going to be transfered to my daughter as quickly as I can tax free.
Anyhow back to taxes....not to pick a fight but how do you get out for 2 to 3%......maybe we're on a different end of planning.......I'm including all taxes, fed, social security since it probably won't be around for me at my age, state, property, sales, fuel, communications etc.
My principles would never allow me to consider bankruptcy in the event an investment didn't work out......thus I won't take risks through being sheltered with a risk taking corporation.....I do utilize corporate setups to help protect me from idiots that drive off with hot coffee in their laps and pull out into rush hour traffic....of course as we see that doesn't always work either.......Hey are you familiar with Dave Ramsey and Clarke Howard......I run a similiar mindset.....and my CPA's continue to show me various ways to invest to obtain my goals.....they've helped a lot and I utilize 3 different groups to continually evaluate.
As for your never asking the governemnt for anything, I'm afraid you have..
You want to live in a free country and we all know that free isn't cheap.. Plus the enforcement of rules and such will cost you as well
Hmmm....maybe I should restate my too general statement.....I have no problem being taxed for the "efficient" support structure of my consitutional rights.....it's trash like.......who ever said I have a right to life long food stamps, public housing, free telephones etc......my constitutional rights don't cost 53% of my income......maybe 15% but the rest is fluff at my expense.
Does that help explain my disgust with what I pay in taxes and does that help put some understanding into what % I pay in taxes?.......Now I do know a fella that is worth millions and only pays the AMT each year plus state, local etc.......he's lived his whole life much like I'm making adjustments to do in a few years.....with all of his rental depreciations and moving every 2-3 years into a fixer upper, rehabing it selling at a non taxed equitable gain then moving into another etc........one twist on my part......my better half won't play that build and move game but one more time but she's far more than worth any tax loss I may incur.
So, where from here my trusted friend?
Pedro the Mule - Always willing to learn
OK confession time.. I've nearly always worked for others so I totally ignore what others pay into social security. What I've paid in I'll get back Just like I bought an annuity. You may feel that you won't get social security back however since social security is the third rail of politics and the politicians who tells people, "gee we aren't going to honor our obligation to you." Is going to be run out of office, tar and feathered and drawn and quartered..
There will be Bipartisan adjustments to it in the future just like there have been in the past.. But I'd never bet on not getting your money outa social security..
Back to the 2% federal income tax. There are ways to do that and I've gone on at length on how it's done in another thread..
Bottom line there are 60,000 + pages in the tax code and most of them are ways to evade income taxes.. But the 60,000 pages are merely the tip of the iceberg. The real skill is to know what those pages really mean.. To do that you need to read and understand all of the judgements rulings and revisions that amend the tax code.. That is the real task of doing income taxes.. not filling out the forms,, but knowing how and why things are deductible
As for being debt free.. as nice and simple as that sounds it's not the best way to maximize your earnings... Those who have gotten really rich learn to do so using other peoples money..
Hi Frenchy,
OK confession time.. I've nearly always worked for others so I totally ignore what others pay into social security. What I've paid in I'll get back Just like I bought an annuity. You may feel that you won't get social security back however since social security is the third rail of politics and the politicians who tells people, "gee we aren't going to honor our obligation to you." Is going to be run out of office, tar and feathered and drawn and quartered..
I agree and disagree....I'm completely optimistic about what "I" will do in the future and completely optimistic about what our one child will do......I'm very pessimistic about the single mom's popping out 8 kids on top of the ones they already have......in general children grow up to follow their parents lifestyle.....not entirely accurate but I do believe that "environment" plays a big part in how people choose to lead their adult lives......now with this math game.....we end up with my one child supporting the social security of two parents and a dozen good for nothing welfare children of her generation.......if the numbers don't add up properly.....it won't matter what politicians would "like" to do....at this point I don't see her future being as promising as my parents generation.
My wife and I spent a lot of time with two single mom's last year teaching them how to make budget and say "NO" to their children when they wanted yet another video game.....those kids need to be studying, reading and working around the apartment and mom needs to be saving the video game $ for her kids education. Both of them have tax $ supported education opportunities and the mental ability to pursue it. My wife is more than willing to look after the children while the mothers are in school but they'd rather sit around and do absolutely nothing.....they don't even bother to clean their apartments....it's awful.....I'd be happy to take the kids and raise them myself but the mothers would never let that happen because they'd lose their support system.
Had one mother last year ask for money because WIC only gave her 2 gallons of milk a week and the baby simply didn't get enough "fiber".....boy that mother sure had some nicely painted finger nails and hair extensions.....I think that ran around $200 for the two.
Sorry Frenchy....I've simply had it
As for being debt free.. as nice and simple as that sounds it's not the best way to maximize your earnings... Those who have gotten really rich learn to do so using other peoples money..
That's what my CPA's keep saying....two of them have offered to partner some things and I have done that but they know the risks so it's their problem if something doesn't flow as they expect. I'm simply not willing to carry the risks associated with personal loans any longer.....and with my principles, even $ borrowed from the bank for a business need is no longer worth it.....If I went into debt a couple of million again and lost it all through unforeseen conditions.....my character would require me to bag groceries or anything else to make money until I paid it back.....if I borrow and I fail....no bankruptcy....I pay my debts and that's what leaves me so high on my horse with all this bailout garbage, I, my child and my future grand children and beyond will be paying for these decisions instead of those that are directly responsible.
I will continue to succeed, I will continue to put my time and $ into helping others but I wish those that think taking from others is acceptable, would simply take personal responsibility. We used to have a pretty good system......way before I was born.....you didn't work.....you didn't eat......hungry people tend to get a clue real quick!
Here's a cool idea to mess with......25% of everything you make....you don't get to keep....15% is divided up between all constitutional necessities.....the other 10% goes to your choice of charity.....don't like charities.....fine then the other 10% goes right along to the same place as the first 15%......not entirely realistic but is something to tinker with in the head.
Pedro the Mule - still the best country in the world no matter how little common sense is left
Pedro The Mule
Well I think we need to stop looking at the exceptions and start looking at if a program is successful..
Single mothers who pop out 8 children are rare.. the average here in America is slightly less than the replacement required to sustain our population.. I think it's 2.3 children per family and we are now giving birth at 2.1 Don't forget for every couple who have more there are couples who have less or none.. (just for information the additional .3 is required to replace those who are stillborn or or die before adulthood..)
I agree that it's hard seeing abuses of the system to be casual about welfare, however if you saw as much of it as I do (my wife works for the local welfare agency) you'd understand just how effective welfare really is..
In general the average welfare recipiant is a single white girl between 17 & 24 who remains on welfare for 19 months before leaving it..
Yes there are plenty of exceptions, however the average is 19 months (that means a lot of them get off before the 19 months) because some remain on for up to 5 years..
The vast majority of those on welfare have been abandoned by the father and the sole remaining support for care of the 1.7 children is the mother..
Another words if you are looking for fault here, look at the male gender! Yes sometimes girls want to get pregant to leave home. However that is actaully the exception.. (and makes you wonder what their home life was prior to that decision)..
So is welfare working? Well, few children are starving to death. Or freezing to death in old cars parked by the road.. So yes that means it's achieving the goals..
Now as to cost..
Welfare wishes that 10% of the federal budget went to welfare.. the reality is less than 1% that includes all federal programs such as WIC etc.. Much less percentage wise than the rest of the civilized world..
Now you judge, is less than 1% of your federal tax dollar worth saving the life of children? Giving them a chance?
I sure can agree with you regarding all this bailout business.. The existing rules should have been enforced before all of this was allowed to happen..
Rules we learned the hard way as a result of the great depression and the savings and loan scandle.. But NO!!!
Powerful campaign contributors kept pressure on to "deregulate" the banking industry and now we are paying the price for ignoring hard learned lessons of the past.
Notice nobody is asking who wanted to deregulate the banking industry? That's because most politicians took money from bankers to get elected..
OK now that we have accepted that we're in a pickle what should we do?
We know from histoory that doing nothing leads to deeper and deeper depression.. The Crash occured in OCT. of 1929 FDR didn't take office untill well into 1932 the Economy kept going down and down untill he took office and his programs began to have effect.. But even with massive government spending it really took WW2 to make America the economic powerhouse she became.. (and that Only because the rest of the world was in ruins)
Hi Frenchy,
Yes there are plenty of exceptions, however the average is 19 months (that means a lot of them get off before the 19 months) because some remain on for up to 5 years..
I must have gotten nothing but the few permanents last year on our all volunteer team hehheh.
Hey, gotta question for your wife....why aren't they putting a photo on the food stamp cards?......Around here they've been known to sell their card for cash and report it stolen a month later....that way the low dollar purchaser can max it out and then the mother gets a fresh one the next month.....with a photo on the card, it could only be used by the one it is entrusted to....just one little area that we have the technology to handle. Could require a second photo ID and cashiers would have to pair both photos with the user.......have 'em sign it too and it should match one that is imprinted on the card with the photo......sound like too much trouble to ensure that the children eat right?
looking for fault here, look at the male gender
If he can be found.....he can pay the bill.....if not is it being reported on his credit report for as long as the children are in school plus 7 years???? Dang hard to ever have much of a life until he takes care of his reproductive responsibilities.....and that should require a minimum 4 years of college.
sole remaining support for care of the 1.7 children is the mother
The ones I worked with had no business raising the children.....foster homes are a tough choice in the beginning but long term is better for the children.....my 3 cents worth....had one mother kept telling me just how horrible her son was and how she wished he was never born until I offered to adopt him, care for him and send him to college 11 yrs down the road....she never spoke good nor bad of him after that. I really hadn't planned to start over but I would have for this bright, inquizitive boy with good energy and his behavior was excellent....I would explain to him what we were doing and what we needed him to be doing while we were busy with mom....always got a yes sir and will you cut my hair like yours next time you're here....and I did.....mom saved $12 and I gave her a set of clippers and taught her how too do what I did...my year is up but I still see the young lad every few months and his hair is nice and neat although his clothes could always use a good run through the washer.
Now you judge, is less than 1% of your federal tax dollar worth saving the life of children? Giving them a chance?
Yes of course but back to the last statement.....the mothers I ran into were not qualified.....not so much because they didn't know how.....we all need to learn something.....but they weren't qualified because they didn't give a flip. I think we need to do "far" more for the kids than welfare......even if it costs me more than leaving them with their unqualified mother.
We know from histoory that doing nothing leads to deeper and deeper depression.. The Crash occured in OCT. of 1929 FDR didn't take office untill well into 1932 the Economy kept going down and down untill he took office and his programs began to have effect.. But even with massive government spending it really took WW2 to make America the economic powerhouse she became.. (and that Only because the rest of the world was in ruins)
I say that the FDR plans did "nothing" to help the situation.....I say the situation of WWII required the entire country to knuckle under and take a load of responsibility as a nation like we've hadn't seen in 175 years. I also think it was a kick in the seat of the pants to the richest of the rich that had financially survived the depression.....it forced them into a financial commitment to this country beyond anything they had ever realized just to keep this coutry from being conquered which would have ultimately taken them down as well. I say FDR got lucky and his history rode the coat tails of WWII.....just like so many think the Civil War was about slavery.....it was about states rights....slavery was brought to the front of the war by way of the emancipation proclamation as a military tactical maneuver...bright idea but got twisted around to the public throughout history......and "I don't owe nobody no apology or restitution for what somebody's great grandpa did to somebody's elses great grandpa".....part of my ancestry was here somewhere around 1200 A.D. and got marched right off their land after welcoming the European vermin and adjusting to their way of life. And, I ain't taken no payments for it and don't want any.....I live in the best country in the world whether others like it as is or not.....take advantage of what you've been given and that given is the right to "pursue".....not a guarantee to success.....you have the right to pursue as long as it doesn't infringe on the right of another to pursue.....any unconstitutional/unjust/unneccessary taxation IS infringement on my right to pursue........I digress........Angry Native American White Boy....uh Hybrid Mule!
OK now that we have accepted that we're in a pickle what should we do?
Well we could go to war......nah...that doesn't work......congress tries to armchair quarterback it....then when they fail they blame it on the president even though they have the ability to stop it and don't....then the president blames the military who tried to win anyhow but couldn't because congress wouldn't let them and congress blames the presi........
And Frenchy, thank you so much once again for a wonderful opportunity to share in your thougths and wisdom.....I am grateful.
Pedro the Mule - Knowest not that you've been concurred - knowest that thou hath learned a great life lesson
Edited 4/26/2009 7:15 pm ET by PedroTheMule
You are absolutely correct that some parents should have had their tubes tied at puberty.. I mean I've known more than my share of unworthy parents and I don't mean just poor parents..
Down the street from me is a really nice kid who parents leave her alone while they vacation all over the world.. Her mom loves to fly around with her boyfriend/ Husband? and leave the kid at home alone. She's now old enough to be left alone legally but I recently found out that this has been going on for years.. She used to buy her groceries and bring them home on her bicycle So I'd guess this has been going on for nearly a decade..
On average I see the parents there about 6 weeks of the year..
Clearly they have a great deal of money so it's not about economics..
Go into the local high school and talk to some of the councilers. Now none of the homes that are in that school district are worth less than 1/4 million and some are worth tens of millions.. Yet some of those kids are so screwed up you can't believe it..
Finally as to FDR..
Look at the record.. The crash occured in oct. of 1929.. FDR took office in 1932..
If the market would have corrected itself isn't 3 years enough? Instead it went worse.. to the point where unemployment reached 25%
(actaully much worse than that because of the ratio of ag workers to employed workers)
If leaving the economy alone would have worked Look at Germany in the similar period.. Germany had massive inflation in the run up to the crash and when Hitler took office he pumped massive amounts of wealth into the economy to stimulate it..
It's flawed conjecture to believe that fowled up market place will self correct it without massive government intervention.. Unproven in history!
Finally imagine for a minute that FDR had left the economy alone..
Can you spell communism? The third largest political party and fastest growing political Party in America was the communist party prior to the great depression.
It would have quickly passed the republican party and become a real threat to the democratic party without FDR.. Look at it's world wide growth during that period..
You like capitolism? Thank FDR.
Hi Frenchy,
Can you spell communism? The third largest political party and fastest growing political Party in America was the communist party prior to the great depression.
It would have quickly passed the republican party and become a real threat to the democratic party without FDR.. Look at it's world wide growth during that period..
You like capitolism? Thank FDR.
Good points...not knocking some of the control issues he faced and handled nearly flawlessly but I still think the country's economic boom was on it's inner cohesiveness and not government redistribution of wealth......government spending is only a slice of financial pie removed from the control of free enterprise while money left at the hands of free enterprise builds business and business builds jobs and we possess the greatest melting pot of brainpower that has ever been tapped anywhere. As a result wealth is actually increased...not simply a redistributed slice...government isn't productive.....it's simply a necessary evil to ensure the protection of wealth.....it'll never "create it".....unfortunately our government produces such a stiffling burdon that the smart leadership takes it's corporate headquarters overseas killing our country's resource of profit and business development. Now we give control of our military development over because we need to sell some of the same stuff that protects us to make twisted ends meet. Now we're back to jumping on the fairtax as a stepping stone to returning productivity and inverstment to this fine land we call the great experiment.
Hey, if you haven't seen this....it's a real interesting watch......
http://www.wimp.com/thegovernment/
Let me know what you think of the explaination given.
Pedro the Mule - The only thing better than this is homemade icecream
I'm sorry I''l read it later,, I'm in a bit of a rush so let me simply say this.
The fundamental purpose of government is to provide stability.
Nothing else..
To gain that stability we need a military, we need civil rules and we need economic cohesiveness. (among other things).
It's reasonable that in times of economic distress we use the economic strength of the government to return us to strength..
OK
You seemed to deem our improvements as "maintenance" on our old house... and I got defensive.
BTW
I included in the numbers the TWO years we took the mortgage interest deductions on income taxes...
and we did pay ourselves "rent" in order to improve our location when the time came.
We do the same today.
Costs are costs regardless of their source and destroy the myth that land/property is the best hedge against inflation.A La Carte Government funding... the real democracy.
We need to seperate the "house" from the property.
Land will always appreciate because there is a fixed amount of it while the population grows.. In addition highly desireable land because of a variety of factors will set prices far higher than the raw land value would command.
The house is will always depreciate because of the steady need for maintinance and modernization.
If the value of the land is greatest then the property will always appreciate at a rate greater than inflation..
If the value of the house is greatest then the property will depreciate at a rate equal to the deterioration of the value of the building..
Aside from that individual circumstances and marketing ability will factor into the final price of realestate..
Hopefully you agree with all of those statements.. If so we can move on to the numbers.
"today I am worth millions" So is Chrysler. stinky
Well last year I made more income than Ford, GM , Chrysler, and dozens of other companies.
And I was unemployed..
IN fact a bum on the street made more if he picked up a dime...
So what?
Frenchy I am sure your home is worth millions but you will have to sell it first to see what it is really worth. Remember timing is brutally crucial in residential properties. Even cma's(comparable market anaylsis) will not give you the truth. My point with Chrysler is they have assets but are broken. Their muti-million dollar home office is probably going to be sold for fractions for what it is worth.This is not the time to be smug about your property. stinky
Why do I need to sell it? To satisfy your couriosity? It's my home and I built it for myself, not for someone else..
However it is part of my net worth.. It reflects part of what I've achieved in my lifetime. If that number fluctuates so what?
Just for information back during Vietnam I used to day dream about owning a place here on this lake and I sort of designed it in my head..I've been here over 25 years. Yes it took me a long time to build but I did it my way.. Not for anyone else but for me..
So tell me again why I need to sell my home?
"don't care what I sound like."
All that sounds like is someone who has a fairly conservative view about debt. Nothing wrong with that at all, IMO.
I sure as hell won't be telling you your kids ought to be taught some other way.
peace.
k
True. That point still stands.
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
Paying interest to make money is a good thing. Houses are a poor investment.
If you get a 30 year fixed the house will ultimately cost 3 times the purchase price. At 10 years parts of the house that aren't yet paid for start their jouney to the dump. By the 30 year mark little that you originally bought will you still have. Refinanceing and extending the mortgage past 30 years is a whole new level of wasting money.
"Paying interest to make money is a good thing. Houses are a poor investment."
It all depends really.
Paying interest to make money is a good thing if your after tax gains are more than your after tax interest costs. If not, then not.
It's that simple.
As to whether a house is a good investment or not, that depends too. When and where (and good relative to what) all come into play. I am familiar with both sides of the rent vs. own argument.
My wife and I own our own house in Berkeley (with no mortgage, by the way, for emotional, not rational reasons). I bought in 1993 (with a variable rate loan, incidentally, which decreased from initiation to the time I paid it off in 2005).
It has been a very good investment.
k
The approach I take is " I pay $100 in interest. I get 20% ($20) back in taxes. I lost $80" Better to direct your money towards interest EARNING endeavors.
what few ever talk about and I bring it up alot... as do a few others here.. is...
what you have to earn to pay that note... if you make/earn 100k a year chances are you only see about 60k of it... so to pay a $1000 note you have to earn about $1700.00...
anything you don't spend is ... money well spent :)
yes the best thing you can do is have zero debt.... even if the money you borrow makes you money... it's still far better to have your own money make'n you money vs someone elses...
P:)
Yes, but you have to pay taxes on the return on your investment.So you need to get more than 4%. How much depends..
William the Geezer, the sequel to Billy the Kid - Shoe
You are of course correct.
I imagined it was clear that I was talking about net gains, not gross. if that wasn't clear, I apologize.
k
Ouch.How's that one year term going to look if rates are going up steadily?
My experience is that year over year, you are in the best position to leave your options open and be able to renegotiate your mortgage yearly. However, at this time with rates based on 0% prime they are not likely to go much lower. Even then I would go for the one year mortgage.
Keep in mind that while it may be a one year mortgage, the key issues are a) use as low an ammorization period as you can handle, then go a little lower... b) make bi-weekly rather than monthly mortgage payments and c) making sure your mortgage allows you to dump cash onto the principle if you wish to do so.
Interest payments = baaaaad
I understand your approach and for some it works well. Some just do not want to owe anything secured by their home and I respect the position.I also know several people who opted for one or two year term loans who've since had less income due to various reasons and less equity in their homes due to the economy in their home areas. Now they have been offered higher rates and can't qualify for any other loan. That's a rock and hard place for them.There is a difference between paying all you can on your debts and binding yourself to pay all you currently think you can and riding that into an unknown future. Or maybe I, and lots of my friends, are just getting old. <G>
I suspect we're at or near bottom.. if you gamble on hitting exact bottom you may get approved a day too late and risk losing the very bottom..
Here is a pretty good reference for past rates, Trends? but who knows....
You can change the State to yours , and check 3/mo, 1/mo, 1 week, and day rates.
I like it.
http://www.zillow.com/California_Mortgage_Rates/
Right now I've got one paid for and the other at 30 year, 5-5/8%, thinking about going to 15 year, hoping for a 4-3/8% (but is it going lower??) Currently at 4-5/8%.
My in-laws are going through bankruptcy. Long story, silly story.
As part of their bailout, I was watching rates every day for the past two months. They've been up and down repeatedly.
I ended up buying their house a couple of weeks ago, short sale (which was a pain), did a 15-year, no points, 4.25% with an APR of 4.38%.
Same lender is in the 4.75-4.8% range today.
"in the 4.75-4.8% range"The news babe on the TV the other night called 4.78% "record low"I forgave her because she was young and good looking, but there was a time when that was a record highÂ
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Welcome to the
Taunton University of Knowledge FHB Campus at Breaktime.
 where ...
Excellence is its own reward!
Edited 4/10/2009 7:02 am ET by Piffin
I already did it and at almost exactly the terms you described.
My take is this: The existing rate is the lowest in my life. Yes, it could go lower. Or it could go up. Which financial experts do you want to bet on? (Seems that none have done very well lately.)
It's the more conservative move, IMO, to secure the bird in the hand.
4% is a wow return on cash these days. CDs we have coming due in July will only renew at less than 2%.
Seriously, since we have met and 'know where you live' <G>, would seriously consider a personal loan at just 4.0% with your residence as collateral.
Can talk 'Turkey' at Jim's place in August or sooner if you want.
Heck , DIY banking is good too ??
I'm in no way trying to dissuade you from what sounds like a potential win-win (and very good karma) deal with David. As long as the payback period makes sense, obviously...
But, just for the record, you can currently get FDIC insured CD rates up to 4% (APY). Discover Bank in DE, for instance.
Still, I'd talk turkey with you, if I were in David's shoes... Good on ya!
k
Interesting you mention that. We have an acquaintance in a difficult position financially and considered providing a 1-2 year second mortgage to extend the period of time available to sell (if a reasonable sale happens a lot of equity will be left over, and new plans can be made). I spent about 45 minutes with my lawyer yesterday talking it over and he easily dissuaded me. The potential complications are massive.
On the other hand, if I can borrow at 4% I can buy Halliburton bonds at 7%, or maybe Russian government bonds at 22%. Seems like there's a spread in there somewhere!
A number of folks I know have cash parked at ING or Emigrant Direct. Not sure what that pays.
Russian government bonds at 22%.
Have looked at similar from a bank in Antiqua ... no thanks....I'd bet on 'bama having a good pogam first. I'd bet on you much sooner!
Thanks for the confidence. The 'economy' such as it is here depends on a steady supply of good times at places like Boeing, Microsoft, etc., as well as all sorts of smaller companies. Folks need to be able to sell out, buy up, keep a second home, etc. etc. The picture right now is a lot different than it was a few years ago. My appointment to a post in the Obama administration has not come thru.
Can you pay a little more for a float down? Here in Jersey, it 500 bucks for 90 days. Well worth it if rate drops even lower.
The lock thing this time around is a little more confusing. Shorter periods, different lenders do things differently, etc. I opted for a lock at 4-7/8 and if he can switch me lower he will, by switching lenders. The broker I use is very good. He beat the pants off of the 5-6 others I talked to last time we did this, with lower rates by 1/4 to 1/2% and lower fees.
At this point the only real commitment I have is to paying for an appraisal, about $400. Obviously I won't sign a deal that locks me higher than the going rate.
I was dealing with a broker also. Half way through they pulled out, I'm 1000 into this at this point. They refunded the float down, 500, and it came from a bank I looked into prior, a bank I could have been dealing with directly at 1/4 point less. Not knocking brokers, just telling you my situation in the hope it helps.
I did a lot of legwork last time, really nailed down all the costs of several different deals. I could not match this broker's rate no matter who I talked to. Ended up with a B of A loan and their retail reps quoted me 1/2 a point higher than what I ended up with. Go figure. I guess it's worth it to them not to deal directly with the customer.
Everything is crazy now a days. up is down. i can't believe the sh** i'm reading on yahoo finance, just trying to figure out how to profit from this current environment.I take the bird in the hand approach, if you can get in at 4 7/8 who cares if it gets to 4.2.
I considered and did, about 6 weeks ago.
Had a construction to perm loan that had a 6.75% rate, and that was from September of 2008. One thing I learned with the construction to perm, they have you at the back end and can pretty much do what they want with your rate.
Anyways, refinanced for a 4.875% rate, and the closing costs will be recouped in 19 months. I hope to sell the current home before then (we built to sell in 2 years, plan to keep on that schedule if it works out $$ wise), but the lower rate was a hedge against the market and it's wiles.
Worst case scenario, I lose a couple of thousand if we sell right at 24 months, best case scenario??? Who knows how long we could be here.
Regardless, I think the market is close to the bottom. Do I have any hard evidence to that end? Not really. But consider these two points.
1) The closer to zero you get, the more dear every quarter point looks. When the rates were at 21% (fortunately wasn't really around for that time, at least as a paying citizen), a 1% break probably didn't mean that much. Sure, it was 1%, but that's like Sean Penn bailing New Orleans out with a 5 gallon bucket. Now, if you needed to dewater a footer trench for a 12x16 addition, Sean with an empty mud bucket would be welcome; right now, 1% is a very big deal (you wouldn't even be asking this question if someone offered your 3.875%).
2) The closer your rate gets to zero, the less benefit you get from a given rate reduction. My excel loan info schedule says that, for $100k at 30 years, a drop from 10% to 9% will give you $73 extra per month, while 6% to 5% will give you $63 per month. I would give you the drop from 4-7/8% to 3-7/8%, but my table only goes to 5.0% (you can tell that I wrote it about 7-8 years ago in school, never thought we would see the low side of 5%).
Ok, I've been verbose enough. I say go for it!
Jon Blakemore
RappahannockINC.com Fredericksburg, VA
Jon,
On $100k for 30 years the drop from 4.875% to 3.875% would net you right at $59 per month. Just in case you were curious...
Just completed refi on our primary residence for 15 yrs @ 4.7%. We looked at the differences between what it is now and what it might be in a few months and didn't seen issue with it since what we have now was real and the future is fantasy. The key factor was the 2 facts, what we had and what the rate was the day we sat down in the bank office.
Have you ran the numbers through an amortization calculator yet? Search the internet and you can find free Excel sheets ready for you to punch numbers. The difference on interest paid for the life of the loan on $100k over 30 years with rates of 4.875% (from your OP) and the forecasted 4.2% is $14,469.03. $482.30/year. $40.20/ month. Run your own numbers and start figuring the difference.
15yr rates are lower than 30s. If you can go 15yr that's the best but not always an option.
What you really need to do is compare the current rate you could lock in at for the refi and the current rate you're paying.
This might be the same sheet I DLed a while back. http://www.vertex42.com/ExcelTemplates/loan-amortization-schedule.html Save it twice under two slightly different names so you can open both files simultaneoulsy and then run the different scenarios in them. You'll be able to see both results on the same screen then.
DW and I bought a 2nd home September 30, 2008 settlement, will ultimately be our retirement home. 30 yr fixed at 6.25%.
Refied yesterday, 30 yr fixed at 4.875%, no points, usual appraisal, etc. fees.
Rolled all fees into new loan.
Will recover cost of refi in 14 months - then it becomes gravy.
No way will we take 30 years to pay the loan off, smart enough to read an amortization schedule - we make 6 payments a month early on in the loan. One check = P&I, 2nd check = 5 months additional P only.
We will taper off additional P payment as the loan matures - have no clue what the "realized" interest rate will be over the life of the loan - except that it will be less than 4-7/8%.
People ak why we would do this as opposed to getting a 10 or 15 year mortgage at a lower rate, answer is simple ---- if money gets tight for one reason or another, we can simply drop back and just make a single payment per month until our situation improves.
Mortgage company loves the single payment, will not generate any complaints.
Jim
Wouldn't you be a little better off not borrowing the additional 6 months principal, rather than borrowing it and paying it right back?
We also do the 2 payments per month deal, just divide the payment in half and make one part on the 1st, second part on the 15th. No skin off my ####, shortens the loan a lot.
>>Wouldn't you be a little better off not borrowing the additional 6 months principal, rather than borrowing it and paying it right back?<<
Probably, in our case current cash flow would not permit this option.
>>We also do the 2 payments per month deal, just divide the payment in half and make one part on the 1st, second part on the 15th......<<
Not being terribly financially savy, we have always found that by simply adding additional "principal only" payments in "even month" increments from the schedule, we were able to easily keep track of exactly where we were in payment of the loan.
Since we know our precise status at all times, we can (and have) sucessfully challenge any statements from the lender if their numbers do not agree with ours.
I think whichever course you are comfortable with will work and achieve roughly the same goal -- shorten the term of the loan and lower the effective interest rate.
JimNever underestimate the value of a sharp pencil or good light.
I make a living managing money, and have for 25 years. No one can tell you timing and direction. So we try to do one or the other. My direct reaction to your question is that we are within 10% of the bottom of interest rates. I won't go into all the technical reasons for that comment, but if you can get anything, ANYTHING within 10% of the bottom, you will be in excellent shape.
I don't know how LONG rates might stay at these levels, but I don't think they will go much lower. Even if the government decides to target a few more industries to destroy, mortgages are pretty well chewed up here at these levels. I think now is an EXCELLENT time to refinance. DO IT!!
In other words, free-market capitalism is the best path to prosperity.
Quoting George W? Consider these recent pearls...
"One of the very difficult parts of the decision I made on the financial crisis was to use hardworking people's money to help prevent there to be a crisis."—Washington, D.C., Jan. 12, 2009
"In terms of the economy, look, I inherited a recession, I am ending on a recession."—Washington, D.C., Jan. 12, 2009
Different perspective on whether to borrow money or not, pay interest or pay cash, etc.
I have had the priviledge of spending some wonderful time with gentlemen that later in life died of old age.
Some of these men died and left behind millions, having seen the world and exhausted virtually everthing there is to do on this planet.
Others have whittled their lives away watching traffic pass by, chatting useless endless politics on the filling station bench. Having great solutions to all the worlds problems but doing nothing to make it happen.
And yet I've witnessed countless others who used what little they had in the way of time, money, possesions, talents and invested in the lives of others to improve their quality of life.
My two cents? I think you have to ask yourself, what do I want, how am I going to get there.....and ultimately "do" what is necessary to get where you want without negatively impacting the lives of those you share this planet with. If your chosen destiny involves borrowing money and paying interest, so be it. If it involves paying cash, so be it.
The happiest gentlemen I've ever met in the world are those who are content with whatever it is they have or don't. My grandfather recently passed and had a little, about forty grand and a paid for house in a safe neighborhood.....but what he really had was the endless stream of family with him constantly the last 4 weeks in the hospital.....children, grandchildren and great grandchildren......he was a week shy of 91. Never paid interest in his life, in fact he wouldn't even move his savings to a CD for a higher interest rate of return, didn't want to be greedy, never had want for anything the last 50 years of his life and had everything in the way of loving family. The only thing he lacked for in latter years, money couldn't buy, but he now joins his lifelong soul mate as granny had passed before him.
Pedro the Mule - So how are you going to get where you want to be?
Actually, I chose the one I wanted to use. It's the truth and I can validate it personally. There's plenty I am unhappy about with GW. He was NOT a conservative and he abandoned those of us who are. But the quote I am using is a true statement. When you find a perfect person to quote...let me know. It will be a first. By the way, do you UNDERSTAND the quote???
At its most basic level, capitalism offers people the freedom to choose where they work and what they do … the dignity that comes with profiting from their talent and hard work. … The free-market system also provides the incentives that lead to prosperity -- the incentive to work, to innovate, to save and invest wisely, and to create jobs for others.†-President George W. Bush
In other words, free-market capitalism is the best path to prosperity.
On April 15, I suggested you get on with it and noted that we probably were at the bottom. Looks like we WERE at the bottom. Here is an interesting analysis from someone who covers this area....
http://www.fieldcheckgroup.com/2009/05/28/5-28-potential-consequences-of-55-mortgage-rates/
_______________________________________________________
Mortgage Rates - It Could be as Bad as You Can Imagine
With respect to yesterday’s in the mortgage market — yes, it is as bad as you can imagine. No call can be made on the near-term, however, until we see where this settles out over the next week of so. If rates do stay in the mid 5%’s, the mortgage and housing market will encounter a sizable stumble. The following is not speculation. This is what happens when rates surge up in a short period of time - I lived this nightmare many times.
Yesterday, the mortgage market was so volatile that banks and mortgage bankers across the nation issued multiple midday price changes for the worse, leading many to ultimately shut down the ability to lock loans around 1pm PST. This is not uncommon over the past five months, but not that common either. Lenders that maintained the ability to lock loans had rates UP as much as 75bps in a single day. Jumbo GSE money — $417k - $729,750 — has been blown out completely with some lender’s at 8%. I have seen it all in the mortgage world — well, I thought I had.
A good friend in the center of all of the mortgage capital markets turmoil said to me yesterday “feels like they [the Fed] have lost the battle…pretty obvious from the start but kind of scary to live through it … today felt like LTCM with respect to liquidity.â€
The consequences of 5.5% rates are enormous. Because of capacity issues and the long time line to actually fund a loan in this market, very few borrowers ever got the 4.25% to 4.75% perceived to be the prevailing rate range for everyone.
A significant percentage of loan applications (refis particularly) in the pipeline are submitted to the lenders without a rate lock. This is because consumers are incented by much better pricing to lock for a short period of time…12-30 day rate locks carry the best rates by a long shot. But to get this short-term rate lock, the loan has to be complete enough to draw loan documents, which has been taking 45-75 days over the past several months depending upon the lender’s time line. Therefore, millions of refi applications presently in the pipeline, on which lenders already spent a considerably amount of time and money processing, will never fund.
Furthermore, many of these ‘applicants’ with loans in process were awaiting the magical 4.5% rate before they lock — a large percentage of these suddenly died yesterday. From the lows of a month ago to today, rates are up 20%. To make matters worse, after 90-days much of the paperwork (much taken at the date of application) within the file becomes stale-dated and has to be re-done with new dates — if rates don’t come down quickly many will have to be canceled out of the lender’s system.
To add insult to near-mortal injury, unless this spike in rates corrects quickly, a large percentage of unlocked purchases and refis will have to be denied because at the higher interest rate level, borrowers do not qualify any longer. For the final groin kicker, a 5.5% rate just does not benefit nearly as many people as a 4.5%-5% rate does. Millions already have 5.25% to 5.75% fixed rates left over from 2002-2006.
This is a perfect example of why the weekly Mortgage Applications Index is an unreliable indicator of future loan fundings and has been for a year and a half with the market so volatile. As a matter of fact you will see this index crumble over the next few weeks at the same disproportional rate as it increased over the past several months if rates don’t settle lower quickly.
With respect to banks, mortgage banks, servicers etc, under-hedging a potential sell-off with the Fed supposedly having everybody’s back was a common theme. Banks could lose their entire Q2 mortgage banking earnings and middle market mortgage banker may never recover or immediately have to close shop.
Lastly, consider sentiment — this is a real killer. This massive rate spike may have invalidated hundreds of billions spent to control the mortgage market literally overnight. This leaves the mortgage and housing market very vulnerable.
Mortgage loan officers around the country are having a very very bad day today explaining to their clients why their rate was not locked and how rates are going to come right back down. They are also taking calls from borrowers with locked loans to confirm that the loan is indeed locked, inquiring as to when it will be approved or fund, and to rush the process in order to fund the loan by end of the lock-in term. This creates a customer service log-jam that chews through lender capacity quickly making the loan process even longer. Loans with second mortgages that need to be subordinated, are in a world of their own. Essentially, everything becomes a rush. Subsequently, loan officers will not feel like getting too aggressive taking new loan applications at least for the next month unless this corrects quickly.
At its most basic level, capitalism offers people the freedom to choose where they work and what they do … the dignity that comes with profiting from their talent and hard work. … The free-market system also provides the incentives that lead to prosperity -- the incentive to work, to innovate, to save and invest wisely, and to create jobs for others.†-President George W. Bush
In other words, free-market capitalism is the best path to prosperity.
Edited 5/29/2009 12:30 pm ET by unTreatedwood
Edited 5/29/2009 12:31 pm ET by unTreatedwood
I closed on 5/20.... conforming loan, fully documented, 30 year fixed, no points, no origination fee, total costs of about $2200, 4.875 APR. Had not looked at rates since, but you are right, they seem to have gone up 1/4 to 1/2%. Ouch.
I've been hoping for one more transaction this year, a purchase, and was hoping for low rates (of course) but I'm going to have to think again.