i'll play devil's advocate. You're making a few assumptions,admittedly so. That ROI on investment will be greater than interest on your mortgage . Based on current rates and historical data odds are in your favor IF the investor knows what he's doing in the market (this is huge) AND the period is indeed a THIRTY year period. Historical data, is what it is- no guarantee going forward. What you can control is getting OUT OF DEBT ASAP-- that's actually an investment in itself. Suppose it all comes down to risk tolerance.
keep in mind a giant in the game doesnt see the next decade overly positive for equities ;
http://www.marketwatch.com/story/john-bogle-says-you-wont-make-much-money-from-stocks-2015-11-05
'Interest is is also on of your big tax deductions.'
wow, that's not allowed in Canada. That's cool.
unsure of your mortgage rules-- current 5 yr rates are what?.that 4 % is for how many years, the term ...i'd imagine rates can't be artificially low forever....or maybe they can face)(*^%. This is another factor in your analysis.
I've been in the mortgage business for 14 years and you all make some great points. Each person situation is different, so the decision to refi depends on a few variables.
Rates vary right now depending on what loan type you are doing. For example a 30 year FHA, VA, or USDA is around 3.375% and a conventional is around 3.75%. 15 year rates are lower.
also for some of you who haven't refinanced may be eligible for what's called a streamlined refi, where you don't have to have an appraisal completed.
Rates vary right now depending on what loan type you are doing. For example a 30 year FHA, VA, or USDA is around 3.375% and a conventional is around 3.75%. 15 year rates are lower.
also for some of you who haven't refinanced may be eligible for what's called a streamlined refi, where you don't have to have an appraisal completed.
The main point is that you should diversify. By taking the extra money and investing in something else you will be way further ahead if you can make more than 4 percent.
example if you have a 401k at work. Increase that versus paying off your mortgage. If it as a match an even bigger bonus.
Put out it in an index fund if you are not familiar with stocks.
heck if Donald trump just put his $40 million inheritance in a fund that matches s&p he would be worth $10 billion today....versus his $3 billion today.
by having cash versus no mortgage you have the ability to do something else if you want. Rates are just too low not to be leveraged some for the next 20 years.
Same situation here a month ago. Got 3.6%. Stuck with the 30 and will pay the extra payment per year approach to start with always the option of paying more than that with bonuses or just cause...always that option of paying the original payment also if needed to save for some reason. Too many positive variables for me to not stick with the 30. I'll easily make it up in the long run...
now if I keep my townhome to rent, I'll prob refi to a 15, but we are talking a payment 3x cheaper than my home, and a way higher rate currently...
that's for damn sure. And having vehicles that promote savings (tax-sheltered and tax deferred) is tremendous. BUT, personal finance knowledge is required (for you it's simple, it's NOT for others)
As an example; It doesnt work if the individual doesnt stay the course. It can be disastrous if an individual panics and sells if the market corrects say 30%. In addition, if the person decides to buy individual stocks and cant even make sense of a company's financial statement? 'hey, i'm going to buy Nike stock, i like their shoes'; let's call that fundamental analysis
personal finance should be a mandatory course in high school. In Ontario, it's an elective--better than nothing
as crazy as this may sound to you, for some, getting out of debt may be the better route even with rates this low.
btw- i don't understand US mortgages, so someone kindly help. If the Fed increases rates how are mortgage rates affected? are these numbers you are quoting fixed for 15-, 30 -years? variable?
A 30 year mortgage at 3.5 percent will stay at that rate for the life of the loan. That is why I think it is valuable long term to carry that debt because from a historical point it is so low.
i would rather have $200000 in the bank and a $200,000 mortgage at 3.5 percent than no mortgage and no cash in the bank.
When you start factoring in investing it makes this a much more tricky situation. A home is an investment first of all. The cash you put into your home is actually going to give you a return. Now how much? That's a guess.
I I also agree though, I'd rather have 200,000 in liquid or cash assets and a 200,000 mortgage than no money and no mortgage. In today's world, with the tax laws the way they are, there is reason to not have a mortgage.
I I also agree though, I'd rather have 200,000 in liquid or cash assets and a 200,000 mortgage than no money and no mortgage. In today's world, with the tax laws the way they are, there is reason to not have a mortgage.
nothing wrong with that. And being an excessive saver is cool; one quickly realizes its easy to live with 'a little less', and that you're not 'sacrificing ' yourself in the now.
you may find the following website useful. The chap is outlier , for damn sure.
http://www.mrmoneymustache.com/
http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/
i hear ya regarding readily available cash. Need an emergency cash fund --kinda like to take care of 3 mths or so of living expenses. Byt apart from that, i simply don't get having massive amounts sitting in the bank earning near zero monies.
if one wants readily available monies to pounce on investment opportunity? why not consider a a personal line of credit (secured by the equity in your home)? pretty much prime plus 0.50%. And your NOT paying interest (as you are your mortgage) unless you use the funds.
$200,000 and have a debt instrument? i suppose you wouldnt have it sitting idle for long , right?
Couple problems with your solution.
first I didn't mean literally sitting in the bank collecting interest. I would be putting it into an Ira or maxing out my 401k and after that investing in an index fund. I could access the funds in an emergency or if I saw another great business opportunity I wanted to pursue.
Just run run the math. Take a 15 year mortgage and at the end of 15 years invest that same amount and use some estimated return on your investment. Option two is take a 30 year mortgage and invest the difference between a 30 and 15 year mortgage for 30 years also. Thirty years from now both have your home paid for and both options have a pile of money. The 30 year option will have a bigger pile which is what he goal is.
in regards to a home equity line. Not a bad thing to have but you also probably don't know the rules. The golden rule applies. Those with the gold make the rules. The bank can change the terms at any point in time. You probably didn't know this. They can send you a letter and let you know they have closed your home equity line effective immediately.
I get get the concept of not having debt but some debt at low rates is ok. The mortgage is the perfect example. I have a mortgage which I am in no hurry to payoff....instead I increase my investments. Having more liquidity gives you more options in life which is a freedom in itself. example if you hated your job and your boss and wanted to change careers......it is much easier to do with cash on hand.
when I was young an older coworker convinced me to do a $2,000 Ira. I was young and didn't see the benefit of it but he showed me the numbers. I borrowed $2,000 and took the added tax return and paid part of the loan off. Paid the rest off in about 6 months. I put it in a fidelity mutual fund and left it there. It is over $50,000 now. I am a big fan of having money taken out of my check before I see it because I think people tend to spend what they have. So paying yourself first ( investing for the future) is great. If you are not disciplined to do this....then get a 15 year because you will at least be investing in yourself .
first I didn't mean literally sitting in the bank collecting interest. I would be putting it into an Ira or maxing out my 401k and after that investing in an index fund. I could access the funds in an emergency or if I saw another great business opportunity I wanted to pursue.
Just run run the math. Take a 15 year mortgage and at the end of 15 years invest that same amount and use some estimated return on your investment. Option two is take a 30 year mortgage and invest the difference between a 30 and 15 year mortgage for 30 years also. Thirty years from now both have your home paid for and both options have a pile of money. The 30 year option will have a bigger pile which is what he goal is.
in regards to a home equity line. Not a bad thing to have but you also probably don't know the rules. The golden rule applies. Those with the gold make the rules. The bank can change the terms at any point in time. You probably didn't know this. They can send you a letter and let you know they have closed your home equity line effective immediately.
I get get the concept of not having debt but some debt at low rates is ok. The mortgage is the perfect example. I have a mortgage which I am in no hurry to payoff....instead I increase my investments. Having more liquidity gives you more options in life which is a freedom in itself. example if you hated your job and your boss and wanted to change careers......it is much easier to do with cash on hand.
when I was young an older coworker convinced me to do a $2,000 Ira. I was young and didn't see the benefit of it but he showed me the numbers. I borrowed $2,000 and took the added tax return and paid part of the loan off. Paid the rest off in about 6 months. I put it in a fidelity mutual fund and left it there. It is over $50,000 now. I am a big fan of having money taken out of my check before I see it because I think people tend to spend what they have. So paying yourself first ( investing for the future) is great. If you are not disciplined to do this....then get a 15 year because you will at least be investing in yourself .
price keeps dropping and if the state or utility company has an incentive it is even better. We have a program in minnesota where they give funds out via a lottery. If you invested $30000 in a solar array the federal government gives you $9,000 and the state of Minnesota gives you $22,000 plus you get the electricty for 30 plus years.
The state lottery last year had about 50 percent chance of winning.
i met with a guy who only does investments for a living yesterday. Everything was about numbers and long term investments. He was 68 years old and only gets federal deduction and energy savings. He went to Michigan for his degree. One of his assignments was to do an analysis of three companies. He did ford, gm and Chrysler. His 10 year outlook was Chrysler would go bankrupt. Based on this when he graduated he moved from Michigan to minnesota because he thought Michigan was so tied to the auto industry that there was going to be trouble. He researched larger cities and picked minneapolis because of the diverse economy and weather( funny but he likes four seasons and not heat). His analysis was dead on.
i told him it will take him 10 years to get his money back and he was fine with that investment because then he would get 20 plus years of electricty. Plus he wants to design it to add batteries in the future and go off grid.
Probably one one of the most analytical people I have ever met.
ah, k you're putting it to work immediately. My bad. To be clear, i'm not saying your plan is wrong and that there are better 'solutions'. Many ways to skin a cat; risk tolerance and a plan that one STICKS to . Again, as long as the individual stays the course the plan is cool (especially given that crazy low rate is fixed for 15-30 yrs). History tells us the market has a 30% correction every 7-10 yrs. Last time was 2008; we may be approaching that time,
. That's not fear mongering, just sharing historical data; hopefully no folks panic and sell when the market has a major correction. If they do, paragraph 2 just went down the toilet. have had a personal line of credit for 15 yrs or so- has always been prime plus .50%. Maybe they change the rules next week on me and cancel it? Not sure why they would do that as they're in the business of making money. Of course prime can change -it's variable not fixed
'I am a big fan of having money taken out of my check before I see it because I think people tend to spend what they have. So paying yourself first ( investing for the future) is great'
totally agree. personal finance 101, chapter 1...
I have a home equity line at prime minus 0.5 and had drawn about $100k off of it. Had another $100K available and the bank closed the line when the housing market started to crash. I would have drawn the other $100k and bought a cheap investment property.
A huge financial mistake I think people make is not having assets in just the husband or wifes name. Too many assets they own jointly. A perfect example is a coworker dad died at 58 about a month ago. He made 2/3 of the income. Wife 1/3. She wants to live the same lifestyle. To do so she is going to need to sell some assets to accomplish this.
They have a cabin they bought for $100k and worth $500k. Easy solution is to sell the cabin because she cant and doesnt want the upkeep of a cabin and her home. They own it jointly. She gets to pay capital gains tax on her share of the assets gain. I think capital gains tax on real estate is 25% so she gets to pay uncle sam $50K.
If they had put the property in his name because A. male most likely dies first and B. If he dies this is what would happen. She gets a step up in basis and sell the property with no tax liability.
Dont have them owned jointly and unlike Prince have a will to say where you want your assets to go. Tomorrow is not guaranteed....unlike some of the picks on the forum.
A huge financial mistake I think people make is not having assets in just the husband or wifes name. Too many assets they own jointly. A perfect example is a coworker dad died at 58 about a month ago. He made 2/3 of the income. Wife 1/3. She wants to live the same lifestyle. To do so she is going to need to sell some assets to accomplish this.
They have a cabin they bought for $100k and worth $500k. Easy solution is to sell the cabin because she cant and doesnt want the upkeep of a cabin and her home. They own it jointly. She gets to pay capital gains tax on her share of the assets gain. I think capital gains tax on real estate is 25% so she gets to pay uncle sam $50K.
If they had put the property in his name because A. male most likely dies first and B. If he dies this is what would happen. She gets a step up in basis and sell the property with no tax liability.
Dont have them owned jointly and unlike Prince have a will to say where you want your assets to go. Tomorrow is not guaranteed....unlike some of the picks on the forum.
