Makes sense that if you have money, no reason to pay interest at all. But for the rest of us, I have to borrow from a bank to own a home.
OT: Mortgage Rates
- Thread starter huskerbaseball13
- Start date
Agree with most, but the advisor in this case has no financial interest in me. It was a neutral party who said not only should I dump it into an S&P 500 fund - specifically Vanguard because of low fees. He was giving me self-help advice - nothing he would benefit from.
So in essence, if you had money pulled directly from your bank account around each paycheck, you could accomplish this.
Note: He gave me this advice a month ago and I haven't set this up yet, so point taken about the "I'll put this money away in savings". lol
Haha!
I know how that goes! And it is so easy to set it up but we still don't do it! ha
Nice rate - to clarify, was that a refi or purchase loan?
Mine is guaranteed ROR and interest avoidance, it’s also not either/or as I invest as well. I could diversify in bonds at a low interest rate or o could pay off my house instead.
Agree with this. I would never try to persuade anyone else to pay off their home ahead of schedule, because it's likely not the absolute best way to maximize your money. But if you have a good rainy day fund, are saving for retirement AND you can pay off your house, it gives you a lot of peace of mind. I look at the paid-off home as a big part of my retirement plan, because I don't plan to leave unless it's feet first.
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Turned out to be 2.125% with no points and no appraisal fee, but those crazy rates disappeared the next day. Processing nightmare apparently stopped the insanity, at least temporarily.
I got his contact from a coworker and went with a 15 year refi at 2.5%. Will have to pay some closing costs, but worth it. Has been really good to work with this far.
The guy is super busy right now. But seemed to work all weekend last weekend to get my paperwork done and approved. He’s been really good so far.
We're about to close on 3.375 and my buyer's remorse is real. But how was I to know any of this was coming, shaving almost a full percent sounded amazing.
Still will be, I'm getting cash at close plus skipping two mortgage payments. Should let me just about eliminate my credit card balance that is running like 12% interest. I'll get a bunch of points when I sock those big payments in, too.
Hoping I have some left over to buy a fat chunk of S&P500 index fund.
Still will be, I'm getting cash at close plus skipping two mortgage payments. Should let me just about eliminate my credit card balance that is running like 12% interest. I'll get a bunch of points when I sock those big payments in, too.
Hoping I have some left over to buy a fat chunk of S&P500 index fund.
This is a good question, and something I gave a lot of thought to recently.
In mid Feburary, I got incredibly lucky with selling a lot of stocks to pay down substantially all of our mortgage. The timing was related to the time when my wife and I received our work bonuses more than some great analysis on my part. We just used the cash from our bonuses and the stock sales to basically get rid of the mortgage.
I second guessed those sales for a week or two since I didn't sell at the exact top, but now feel incredibly fortunate.
Our thought process was really all about trying to decrease out monthly expenses more than anything. We're in our forties, and to be honest, I'm not real happy with my job. I should say I wasn't real happy with my job, but now I'm grateful for it. I was considering trying to get a different job, with a potentially lower salary, so the flexibility gained from no longer having the mortgage payment was important to me. Assuming this thing passes in a few months, I still may change jobs, but for now, I am just looking to ride it out.
I think in pure financial terms, one would probably come out ahead just investing in the market over a longer term, rather than paying down a mortgage, especially at today's rates, but the optionality is worth something for me, so I'm glad to not have a mortgage.
Generally it's simple math, if you have a typical mortgage rate between say 3% and 4.5% you're comparing that to an "average" stock return. For the S&P over the last 90 years the avg annualized return is 9.8%
To be more modest, since 1957 it has averaged about 8%. Source: https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
People hate the way debt feels and I don't blame them. But if you're looking at the return, it becomes very obvious in a big hurry that you lose money in the long term by paying off your low-interest mortgage rather than getting over double that in the market.
TIME is what people fail to take into account when they think about these things. They go, "Oh see? Look at that the market is way down, pretty smart paying down my mortgage now, huh?" Well no, not really. You could be getting great stock at a discount, I got like 20-30% returns my first years of having a 401K in 2009 and 2010.
If you compare the performance of your money over the 30-year life of that mortgage, the ROI on stocks is going to destroy the savings from paying down the debt.
And it doesn't really start getting impressive until that last decade. Play around with these to get a basic idea of what a drastic difference the difference between 3.5% and 8% is over 30 years. You plunk in $1,000 to start and then kick in $100 a month let's say. Roughly what you might expect the amount to be if you're deciding between an extra mortgage payment or something else.
You lose almost $100,000.00 over 30 years being at 3.5% compared to 8%. https://www.nerdwallet.com/banking/calculator/compound-interest-calculator
http://www.mortgagenewsdaily.com/consumer_rates/939364.aspx
Read this its from a week ago but the mortgage industry is still in turmoil - Jumbo market is also experiencing a severe liquidity emergency - Ultimately we will see really low rates but not now and even then the process is a nightmare
Read this its from a week ago but the mortgage industry is still in turmoil - Jumbo market is also experiencing a severe liquidity emergency - Ultimately we will see really low rates but not now and even then the process is a nightmare
I'm hearing speculation of a big tank in the real estate market this summer. Not sure if that includes linear markets in the midwest or not, but the speculation is people and investors need cash and will try to sell to free that capital up.
Yeah it's time to play that game of:
"We want our money now."
"Oh, we don't actually HAVE your money. We have the IDEA of your money but we actually get our money from these other guys and they don't have the money either..."
You are definitely correct about stocks outperforming paying low interest rate debt in the long term, so no disagreement there.
I think the other items to consider besides just absolute returns are optionality from not having a mortgage, and also overall stock market exposure.
My family is still over indexed to the stock market when taking into account 529 plans for our two kids, our 401ks, IRAs, and the fact that we both work in financial services.
I would bet that in dollar terms we will be behind from paying down debt rather than just investing in the stock market, but there are other factors than just absolute dollars and returns.
Well the banks are supposedly very well capitalized, so I don't think there is a problem with cash reserves.
But the incentives to lend aren't great, because that means the bank has another mortgage backed security that they have to sell.. and with high unemployment, those are not worth as much, so it likely ends up in the Fed's repo market forever.
It's a game of musical chairs, and when the music stops, there are going to be a lot less chairs to go around.
Plenty of money being injected in MBS - however jumbo or anything not insured or ultimately funded by the Fed is in trouble. Cash is king its the equivalent of taking huge sums and burying it in your backyard. The small investor is not going to do anything, however the Real estate investment trusts still own huge numbers of properties acquired in 2009 to 2012 they may decide enough is enough especially since many of these rentals need some maintenance now
Banks are fine, The MBS are being bought by the Feds with a stated unlimited amount. The mortgages on the books are strong and not the same thing as 2008 by a long ways. Plus every homeowner that gave up their house last time remembers it cost them more to buy when they came back in the market. There will not be mass foreclosures and servicers are just waiting for guidance on deferrals. I personally do not think there will be a significant downturn in values especially in the short haul sellers will just wait. There will be a downturn in high end homes but they were way to high anyhow
It depends on where you're at too..
coasts? Bubble. Duh.
Rochester mn area where mayo is hiring 30000 people in the next decade or so into a town of 120k? Yeah that place won't budge.
coasts? Bubble. Duh.
Rochester mn area where mayo is hiring 30000 people in the next decade or so into a town of 120k? Yeah that place won't budge.
Yep... used to live in Woodinville.
To put it extremely mildly that area is real estate bubble. Probably worst one in the country.
You may be right - but to the immigrant from Russia who is making 150,000 in the tech industry who in Russia is used 18 percent rates and even higher amounts for less he thinks its a great deal. Take someone from India who is used to no space what so ever and give him a front yard of six feet and a 2500 square foot home and he thinks he is in heaven.
We will see if there is bubble pretty shortly if it does not burst in this time then its probably pretty safe - I live in Clearview by the way
We will see if there is bubble pretty shortly if it does not burst in this time then its probably pretty safe - I live in Clearview by the way
Do the math on that real estate at 10% interest. People buy for the payment not the total cash allotment.
Then think about what happens over the next 30 years.. long time right? Odds interest rates are significantly higher by that time at least for a while? Pretty damn good.
Napkin math : 10% interest rates cuts those property values by 75%.... give or take inflation.
Given 2008 and now this 10% interest rates seem like Mars - but lets say a guy buys a home for 1 million in 15 years the rate is 10% you are saying that home is $250,000. Given the pace of incomes most likely a tech worker today would be making that in one year ( starting wage) no idea how it shakes out
I will say in the next year we make likely see a rate of 2% on a 30 year and the conventional limit out here is $741,250 meaning 5% down on a $780,000 home gets you a conventional loan at 30 year attractive fixed rate
It doesnt take much to skyrocket interest rates. And they're on a path to doing it.
Where do you think rates would be if the fed wasn't artificially keeping them low?
That pretty much by definition says it is a bubble. It is artificially propped with printed cash by the fed to prevent a 1929 style collapse.
Same with stocks. Bonds are obvious as that's the mechanism used.
The powers that be just make more liquidity every time. Eventually (and it may take another 50 years but it WILL happen) investors will no longer allow this insanity for whatever reason.
My guess is it will be closer to 50 months than years.
A year ago I was coming back from a meeting and sat next to a guy who worked at Fed - cant remember what he did but was smart as a whip and he was fairly in the know with them. We were talking about MBS the feds bought in the great recession his take is that they will never sell them. Now with the amount they are buying it makes that look like chicken feed - There is no out at this point, the Fed is in the mortgage market for trillions. They cannot allow rates to go up now it would be a disaster of stone age proportions as long as we are the world currency its fine but if that changes look out.
Our mortgage industry is now state owned I do not see that changing
I will add in here to be fair since I kinda left that open ended.
In 2008 they publicly printed/spent about 5 trillion they didnt have. That made the long term problem bigger because of the actual nature of debt and government.
This time it will take upwards of 30 trillion. Maybe more. They know it. Our GDP is only about 21.4 trillion.
The rest of the world will NOT allow us to financially screw them like this for forever.
In 2008 they publicly printed/spent about 5 trillion they didnt have. That made the long term problem bigger because of the actual nature of debt and government.
This time it will take upwards of 30 trillion. Maybe more. They know it. Our GDP is only about 21.4 trillion.
The rest of the world will NOT allow us to financially screw them like this for forever.
its incredible the numbers isnt it - I remember when people had to explain a trillion how much it was
It's terrifying if you understand economics.
Remember in 2008 when this happened and the massive food inflation?
Now think of a hose. We are shoving money(water) through a hose that's pretty well defined in size. If you understand physics at all, that means an exponential increase in water pressure (monetary velocity).
Guess where the FIRST place that goes is? Here's a hint: you have to buy the commodity before it's processed and turned into a good.
People have no clue what's about to hit them in the face. No clue at all.
Just out of curiosity, where did you read the $30 trillion figure? If our total GDP each year is $21 trillion, assuming this thing goes for approximately one year, you would have to print that amount to replace the economic activity for the year. But we know not all economic activity is crashing, so just curious where the $30 trillion came from, as I'm seeing estimates more like $2 trillion (which is still a sh!t load of money, by the way!!)
I guess I look at it as life goes on - people find a way. I do think the world will look very different in 20 years better or worse no idea. There are as many good things that can happen as bad things
