"Sgt.Sausage" <nobody[at]nowhere.com> wrote in message
news:410bf$447f8cdc$42a1e606$23024[at]FUSE.NET...
- quote -

It's the same mentality as when people think in terms of monthly payments
instead of the total cost of the product. I cringe when I see a TV or
newspaper ad for a car that says "499 per month" and nothing else. No
mention of how long you will be making monthly payments and how much you
will have paid when they stop.

"Don" <dwzimm[at]telus.net> wrote in message news:VUHfg.517$I61.452[at]clgrps13...
- quote -

Does this really surprise you ? Do you know what the term innumeracy
means: http://dictionary.reference.com/search?q=innumeracy

I haven't met someone "off the street" (without a technical degree)
that can calculate something as simple as compound interest that they
were supposed to learn in, what (?) , about the 8th grade? I've seen
folks in both the Finance and Accounting professional arenas that
actually have to look this stuff up and can't reason through it to come
up with an actual calculation and hard numbers to compare the two
(interest rate -vs- price). In fact, this is *exactly* the reason we let
go of a specific CPA firm back in 2001. Silly little CPA person with
a degree in *both* finance *and* accounting couldn't produce the
numbers for us, and I had to walk her through. I got done, printed
off the numbers to take home and mull over for a final decision in
the morning, and as I was leaving her office asked her " ... and what
is it, exactly, that we're paying you a buck-twenty an hour for ?" We
had a new CPA firm the next day . How pathetically sad.

I propose we do away with a few of the current curriculum (curriculae?)
in our public education system. It needs to start early, like in
kindergarten,
and continue through the last day in high-school. It ought to be required
in all degree programs at all colleges and universities. What is this thing
they're
calling "Social Studies" these days? Wouldn't our kids be better off
replacing
something as nebulous as "Social Studies" with something more along the
lines
of "How to Succeed in Personal Finance and Ensure I don't End Up In The
Poor-House and a Burden to the Rest of Society, 101"

"herlihyboy" <ryan.parmenter[at]gmail.com> wrote in message
news:1148992443.540526.321790[at]g10g2000cwb.googlegroups.com...

- quote -

That may be true. It surprises me, however, that many home buyers will go
to great lengths to find the right house and put a lot of effort in
negotiating the lowest possible price, but then take the first mortgage
product a bank offers. A reduction of one-fourth of one percent in rate can
mean more money in the long run than a reduction of a few thousand in the
asking price of the house.

BreadWithSpam[at]fractious.net wrote:
I hate the idea of folks who have $150k
- quote -

That's fine, but there are people out there who are so risk adverse that
the above actually looks desirable. People whose savings will be in the
bank and no place else. Which is why in my first reply to this thread, I
avoided the advice that would start "that in any 10 period, stocks would
outperform bonds" and finish "since the rates the OP quoted were low
enough, he should take the 30 yr mortgage and invest most of the
remaining money in index funds along with any new money that came along.
Likely, by year 15, he'd be so far ahead, he could use the dividends off
the portfolio to pay the monthly mortgage."
But the OP expressed his risk aversion, and the desire to own a house
free and clear.

A side note - when trying to assess one's risk tolerance, it's easy to
ask questions like "if the market went down X% tomorrow what would you
do?" You might even get an honest answer. I prefer this game; I pull out
a die and say to the client, "suppose I let you choose 4 numbers on this
die, and we then put up equal amounts of money. first, would such a game
interest you, and second, if the answer is yes, how much would you bet?"
There's no right or wrong answer, but the reaction will help gauge one's
risk tolerance. Some say they don't gamble. Some ask to play, but also
ask if they get to decide when to quit, as they can figure that with a
2/3 chance of winning on a given roll, that losing more than half of 100
rolls is pretty slim. I don't actually play. The question is just
theoretical.
JOE

"John" <john.corey[at]gmail.com> writes:

- quote -

Folks have given various bits of advice here (including
things like "as big a down payment as you can while leaving
enough cash for expenses" and "maybe get the 30yr but
use extra cashas you get it to prepay principal").

Two things that I haven't seen mentioned with respect to
asset allocation (and this is what we're really talking about here)
are (a) liquidity (actually, addressed somewhat below via HELOCs)
and (b) diversification.

Suppose you have $150k and were trying to build a diversified
portfolio - would you put all of that $150k into a single asset
class? Probably not. But that's basically what you'd be doing
if you put all $150k down. I hate the idea of folks who have $150k
equity in their house, some additional mortgage debt - and *no*
other asset classes. Their asset allocation looks like this:

Real Estate $275k
Fixed Income -$125k

ie. a highly leveraged portfolio consisting of a single asset class.
If it were any other asset class besides real estate, who would
ever consider it?

That same $150k of assets may be spread across several asset
classes pretty easily with a larger mortgage - the leverage is
a bit higher, but the portfolio is way more diversified:

Real Estate $275k
Fixed Income -220k
Equities 80k
Cash 15k

(split Equities into various subclasses - large-cap, small-cap,
value, even some international).

The portfolio is still very heavily weighted in real estate,
and the amount of leverage is higher - but if we get past the
emotional aspects of "but it's my *house*", this portfolio
is very likely to significantly outperform the all real-estate
portfolio in the long run, and depending on the definition
of "risk" used (ie. time-periods for volatility measures),
not much more risk. (Note that size of mortgage was chosen
to allow for 20% down payment and no PMI, and cash was chosen
to be enough to pay several months of mortgage payments and/or
get a new roof/boiler/whatever if necessary).

That all said, this is not for everybody. I just want to
make sure that the OP understands that, with respect to buying
a house, debt-aversion may imply *under*diversification.

- quote -

That's a very good thing, btw - especially using a HELOC for
things which specifically help the house itself (ie. new roof, etc).

- quote -

ie. it's awfully hard to pay current bills (including the mortgage!)
with equity in one's home. Liquidity is *very* important -
a larger mortgage plus some cash/other liquid investments is
in many ways safer than a paid off house and no outside assets.
The HELOC is a compromise - feel good about low debt, but get
access to the equity in the house for a price (and the risk that
the HELOC may be closed/locked if you have a bad credit event).

Note that the OPs indicated they can get a fixed rate mortgage
for under 6%. Cash is now paying in the mid 4% range, so keeping
$10k cash while having an outstanding mortgage costs them a
bit of money on an ongoing basis (ie. suppose 6% and 4.5% -
meaning 1.5% difference - meaning that keeping $10k in your bank
account costs you $150/yr. But that $150 buys you a certain
kind of security - I wouldn't want to rely on the availability
of an HELOC to make mortgage payments if I lost my job!)

- quote -

ie. diversification.

For a young couple with a very long time horizon, with
steady incomes, I'd certainly lean towards the larger
mortgage with the longer time horizon (ie. an 80% loan
at 30yr fixed) and diversify the portfolio (and certainly
max out any 401k/IRA opportunities). Again, this may not be
for everyone, but if they don't do this, it should be an
informed decision, not simply debt aversion.

I'm not saying to go mortgaged to the hilt, but with $140k
annual income, a $220k mortgage is *very* manageable. Sure,
they could pay off the house in only a few years by cranking in
the principal payments and *then* start diversifying by
investing outside of real estate, but so long as they save
the same amount either way (ie. live equally within their
means and put the excess into investments) a diversified
portfolio which includes real estate *and* equities (and
cash for liquidity) makes me lots more comfortable and is
likely to do better in the long run - but it takes discipline.
Not everyone can do that - for many people, paying off the mortgage
is the only way they can force themselves to save - and
for many people the perceived security of a paid-off home
is valuable enough to offset the sacrifice of what would
probably have been higher long-term returns. There's
nothing wrong with that, so long as one does it knowingly.

Overall, though, it sounds like this couple is very much on the right
track -buying a home well within their means and clearly
having been careful with their money in order to save up a
good bit. Keep it up.

Unfortunately, we don't really have a whole picture of
your financial situation, so take any advice you get here with
a grain of salt. Consider it more like speculation and
ideas rather than actual advice. (ie. the numbers I used
above assumed that that $150k was the totality of your assets -
and all cash in a taxable account - which is probably not really
the truth).



--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

Don wrote:
- quote -

Based on the averages I have seen lately, those rates are really good.
I had seen [and been quoted] 6.25% for 15-year and 6.75% for 30-year
fixed, with A credit.

Ryan

"ag" <arghgirl[at]hotmail.com> wrote in message
news:1148564243.645228.3780[at]y43g2000cwc.googlegroups.com...

- quote -

It is not often mentioned by people giving advice in this newsgroup and you
may already know it, but interest rates on mortgages are negotiable. Are you
sure the 5.5% and 5.75% figures are the lowest you can find? By getting the
rate down just a little, you can save handsomely over a period of 15 years
or more. The savings would be worth the bother of getting quotes from three
or four more lending institutions. When you are getting those quotes, be
sure to let the loan officers know you are shopping around. You are in a
very negotiating strong position, because you are making a big down payment,
and your income and credit rating presumably are excellent. Lenders will try
hard to get your business, so by all means shop around!

Gil Faver wrote:
- quote -

Try this link, I think this is what the OP asked for (you'll need
javascript turned on, maybe you don't, and that's why you get an error?:

javascript:cOpen('http://www.fincalc.com/hom_04.asp?id=6')

-Will

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote in message
news:gb2dneEdfc94murZRVn-iw[at]comcast.com...
- quote -

didn't work for me. gave an error message. I gave up.

Gil Faver wrote:
- quote -

The links under "samples" were fully functional, and after filling in
the numbers you wish to use, output a PDF file. They also are selling
software to advisors, but the saples covered a good range of financial
calculaotors.
JOE

Beth,

You asked a question that is really part of a much bigger conversation
(savings, taxes, estate and retirement planning, emotional aspects of
buying a house, use of debt, etc).

Many folks have provided some great suggestions. Rather than repeat
what has already been covered I want to raise a few topics to consider.

IHMO your views on debt are not well developed. Debt is neither good or
bad. It is a tool in ones toolbox and can be used to accomplish both
positive and negative outcomes. Debt is only bad when the person using
the tool uses it badly.

If you could buy a car for a fixed price and you could borrow from the
car company at 0% would you do it? Assume that you could not get a
better price for all cash. If you would take the loan and then pay it
off at 0% interest what would you do with the cash that would have
otherwise been used if you paid all cash? The opportunity is to
increase your income from the spread between the rate at which you can
borrow and the rate at which you can lend or invest.

Cash reserves vs. lower debt.

You could put the full $150K into the house but you would lack cash for
emergencies (assumes no other need for the $150K and that you have no
other savings - big assumptions but necessary for my point).
Alternatively you can keep out a significant chunk of cash just in
case. A middle ground is to get a HELOC that lets you tap back into the
equity if something major comes up. You lower the average loan balance
while not having your cash all tied up in a home. The risk with equity
in a home is something happens and you can not refinance when you
really need to access the cash (you lose your job or there is some
other event that limits your access to a fresh loan even through you
have a lot of equity).

Alternative investments...

You can put in a lot of the cash into the property. Or you can get an
80% 1st mortgage at a low rate. If you can then invest the cash at
something closer to 10% you would be earning a return that is greatly
in excess of the cost of the funds (the interest rate on the mortgage).
Hence you would produce more income and that could actually be used to
help pay down the loan or otherwise just grow your net worth faster
than having a lower loan balance.

The real measure of success is not the exact debt level as much as ones
true net worth. Hence it can be better to have a bit more debt and more
investments than a free and clear home with little other tangible
assets.

Tax impact...

A minor point that should not drive the ultimate decision is the tax
impact. You can offset some of the taxes owned on your current income
if you have a larger mortgage. If you happen to use Turbotax or similar
you can see what the impact would be if you had more deductions. Best
when combined with the idea of investing the cash at a rate of return
higher than the cost of the loan.

What should you do right now?

1. Assume that you need to learn more about the alternatives. Also
assume that will take time. Hence I would lock down an 80% loan at a
good rate and term. You can then learn how to invest the cash
difference.

2. A less aggressive approach is to put most of the $150K into the home
and secure what ever else is needed as a 1st. Immediately set up a
HELOC that is at a good rate or term. Assume you will not use the HELOC
until you know more about investing and the other ways to put the
equity to work. Once you find useful ways to invest at a rate of
return greater than the cost of the HELOC you can take advantage of the
opportunity.

Liquidity, net work, tax efficiency and planning for the future (good
and bad versions of the future) are all part of the eventual mix.

John B. Corey Jr.
Chelsea Private Equity, LLC
+1 (503) 906 7840 x1108
+1 (503) 210 0227 (efax)
john.corey[at]ChelseaPrivateEquity.com

Looking for hard money for your latest real estate deal?
Visit www.ChelseaPrivateEquity.com

- quote -

which either don't work, or cost money, I can't tell.

ag wrote:
- quote -


Does anyone know of
- quote -

Found it - http://www.fincalc.com/
This sight has a number of calculators, as do Smart Money, and
Kiplingers, among others.

Excel is also a great way to play with different scenarios. You can
easily calculate the difference adding $100 vs $500/mo to your mort
payment would maker on the time to payoff, etc.

JOE

ag wrote:
- quote -

The interest rates are pretty close, so it doesn't matter that much.
30-yr would give you more flexibility to pay less if needed. Just make
sure that there are no prepayment penalties for extra principal
payments.

- quote -

As much as you can, while leaving a comfortable emergency fund.

- quote -

Since you say you don't like being in debt, then make extra principal
payments whenever you can.

- quote -

If your goal is to avoid debt, then you probably just want to pay off
the mortgage instead of investing it elsewhere.

"ag" <arghgirl[at]hotmail.com> wrote in message
news:1148564243.645228.3780[at]y43g2000cwc.googlegroups.com...
- quote -

Beth, you already have a lot on the ball. It is refreshing
to hear that you are planning to buy a house you can
actually afford, rather than going for a mega house, with a
wacky interest only, low rate (for the first couple of
years) loan. You are not only asking the right questions,
you have the right instincts (no debt? I was beginning to
think I was the only one . . .).


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a few lines to add context, the previous post is deleted.

What other people have said. Do you have an emergency fund, 401(k)
plan, Roth IRA? Those should be a higher priority than paying off
your mortgage. You might also want to start setting aside money in
a college fund for your child.

If you "know nothing about investing" and "don't like being in debt",
then using your extra savings to pay off your mortgage on an
accelerated schedule is probably a reasonable choice for you. It's a
risk-free form of investment, but at the same time it's highly
illiquid. If you need to tap into that capital at some point, your
choices are to refinance or take out a home equity loan, so don't lock
up more money than you can afford this way.

-Sandra

"ag" <arghgirl[at]hotmail.com> wrote:

- quote -

This topic comes up regularly in various forms. My take on it is that this is
more of an emotional decision than a financial one. My suggestions:

1) Put enough down so you don't have to pay mortgage insurance (20%?).
2) If you really hate debt, get the 15 year mortgage.
3) If this is your first house, don't underestimate the miscellaneous expenses
involved -- curtains, decorating, landscaping, lawn mowers, trash cans,
furniture, etc. It could easily be $15-$20K over a year or two.
4) Pay off the mortgage quickly, but don't tie up all your assets in the house.
Make tax deferred investments such as 401K, IRA, etc. Keep a reasonable
emergency fund.
5) If you find yourselves with excess cash, send it to the mortgage company
marked as "principle" to pay down the mortgage.

-- Doug

- quote -

There are many possible scenarios to suggest here.
First, though, there are missing bits of information; Do your employers
offer a 401(k) with matching? Saving enough to capture the match should
be the first priority. Second, with you income, you are able to save
($4K each) in a Roth IRA.

If you borrow 80% ($220K) at 5.5%, you will have a mortgage of just
under $1800, or 15% of your gross monthly pay.

There's a part of me that would suggest that if you went to the 30, that
you are very likely to beat the rate you are paying, but I wont go
there. You'd only drop your payment $500, and given your aversion to
debt, this is a situation where your heart must win out over your head.
(Or the analytic heads of numbers people who don't have an entry for
'feelings' in their spreadsheet.)

You would be wise to determine your comfort level for the emergency
fund, and begin to invest the balance in a broad based index fund (ETFs
or a mutual fund) There are many rules of thumb on this, but again, if
you are comfortable at your jobs, and can live on the one income, the
need for those funds is reduced.

That's it for now......
JOE

On Thu, 25 May 2006 09:07:46 -0500, ag <arghgirl[at]hotmail.com> wrote:
- quote -

A sensible question is, do you actually plan to live in your house for
more than 15 years. if not, then taking a 30 year mortgage in your
situation (more than enough funds to pay for the 15 year mortgage),
does not make that much sense. You would pay for what you would be
unlikely to actually use.

It would make sense to have a year of expenses in readily available
form, so I would not plop down the entire 150k.

(my theory is that the suggestion to necessarily have "a year of
expenses in cash" is only an approximation. If one has 10 years worth
of expenses invested in several fine companies, rental real estate
etc, there is no reason to necessarily have one year of expenses in
cash. This comment does not apply to your situation).

If you have no particularly great investing insights, it would make
sense to keep one year of expenses (say 70k), put 80k down, borrow
195k, and then accelerate payments somewhat, while investing the
remainder of your monthly savings in some sensible manner. It is also
good to consider tax advantaged ways to save, such as IRA and 401k
(which you may already have, but have not mentioned).

There are plenty of calculators, but they are all based on assumptions
and so their predictions are fuzzy and nebulous.

i

hi all,

Apologies for barging in here and asking for advice without being a
regular contributor. I plan on sticking around and learning a lot as
this group looks great, but am a newbie to investing and have not much
to contribute atm.

I could really really use some sound advice on finances and would be
very grateful if anyone could point me in the right direction.

We are buying a house that is 275k. We have 150k in the bank. We have
secured a 5.5% mortage (15-yr fixed term). We could probably change
this to a 5.75% 30-year term mortgage if we wanted. We are wondering a)
which term to get b) how much to put down and c) how soon to pay off
the loan. We don't like being in debt (we have no credit card or other
debt) and our natural inclination is to put down as much as possible on
the house (100k or so..saving some for house repairs and additions) and
then pay off the mortgage entirely as fast as possible. If we put all
our earnings into this we can probably do it in 5 years or so. However,
would we be better off putting a lower amount into the house at first,
and taking longer to pay it off, and investing our money elsewhere? We
know nothing about investing and are just not sure. Does anyone know of
any good calculators that would estimate what our net worth would be
in, say, 30 years for different scenarios? We have a good opportunity
with a good amount of money to invest and a low mortgage interest rate
and don't want to blow it.

We are 33 and 36 with one kid, btw. We both work and make 140k total
and don't anticipate losing our jobs or stopping work anytime soon.

thank a lot
beth