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Everything you’re saying is correct and I’m not capturing the nuance required on my phone and in these quick replies.
Re: “violent rates” I mean that cost of property has gone up so bad that the interest sum is what’s violent not necessarily the rate but that’s on me for not clarifying.
there’s a very fine line between rent and owning being a better choice. How long will you stay? What’s your down payment? What’s rent? If rent<interest then it’s not actually better to enter a mortgage. Doing these predatory FHA loans with 5% down has people paying 200-500 dollars PER YEAR in principle at first. That’s insane. This cannot be the goal.
I understand everyone doesn’t have 50-100k down on their first house and everyone doesn’t have the privilege to “financially optimize” based on environment and not their personal position.
Last thing - of the three people I know that bought with the intention of “making extra principle payments” is, in fact, not doing it. Yes its the right way to go but it doesn’t often happen.
Easy trick to save years off your mortgage; Ask your wife's boyfriend to move in and pay part of the bills.
when I was growing up in San Diego, there was a very common bumper sticker and T-shirt, hat slogan that said "make getting welfare as hard as getting building permits"
To truly calculate the cost of a mortgage, its the interest sum - minus inflation (though I don't usually factor this in, even though is valid)- appreciation - principal reduction - tax savings (from the tax write off) to really see what the mortgage is actually costing you. Otherwise you are completely ignoring the net worth advantage of owning a home. Run those numbers and you see the cost of that mortgage reduced significantly (and its reduced more the longer you own the home).
For rent and owning...again...it's not as simple as monthly rent vs mortgage interest. You have to factor appreciation, principal reduction and tax benefits from owning a home into the equation. PLUS annual rent increases (which the tenant has no control over)...That usually means that a mortgage payment can be significantly higher than a monthly rent payment and still be cheaper, depending on how long you plan to keep the home.
Outside of a Non-QM interest only loan, there are zero scenarios in todays world where someone-ESPECIALLY with a "predatory" (they aren't) FHA loan-is paying $200-$500/YEAR on principal.
Principal and interest on a $400K loan over 30 years at even 8% (and with the exception of about 1 week in 2022, rates haven't been that high in like 40 years) is $2935. Interest due every month is $2666. So even at 8% they are paying $2666 to interest/month, and $268 to principal PER MONTH or $3220 per YEAR.
At 5.875% where rates are today, principal and interest payment on $400K is $2366. Interest due is $1958...so they'd pay $407/month or $4892 Per year to interest.
So you are way off base on your how much someone can expect to pay to principal.
Someone would need a 55-60 year loan to be paying anywhere close to only $200-$500 per YEAR in interest. (And those don't exist at the moment...and hopefully they never do. They will just drive up home prices further.)
Most people aren't disciplined enough to put extra principal on their loan...but it is very common to keep a loan for a few years and in a favorable rate market refinance to a 25 year loan or a 20 year loan, and eventually to a 15 and then 10 year loans...in a falling rate market again, that strategy will become viable. How long you pay interest is almost more important than the actual interest rate.
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If you have the right to appreciated gain you own the home for real world purposes. The bank owns the debt and has collateral securing repayment. Make your payments, unless you decide you want to walk away (which, morals aside, can be a rational decision in an underwater market)
For most people it takes sacrifice, and sometimes help, and smarts to buy the right way (understanding total costs across insurance and any property taxes) and smarts and luck to be in the right location at the right time. And then managing total debt - again that sacrifice thing.
You are correct that interest is front loaded, which is why this 50 year mortgage proposal is a gift to lenders, not homebuyers. All the better reason not to do a zero down or interest only balloon loan unless you're not planning to stay long and are confident home prices will increase - the combination that turned everything into shit in 2007-2010.
Great points and you’re changing my mind a little. I have been working towards putting down 50-70% on a new home and a week or two ago I had the random car thought that although I hate interest, a portion of that interest I should re-accrue/offset through appreciation, renovation, and write-offs. Maybe it’s not necessary to do as much as I’m doing then..
for us, my biggest deal is keeping affordability on a 15 year mortgage and paying that down quickly. I just want a small house payment is all.
Also, I was spitballing my numbers on principle recovery rate and even on a 200k loan it’s like 2-3k in the first couple years.
it’s not as bad as I thought
The 50 year mortgage is literally insane. Feels like an SNL sketch to be honest.
I’m sure many felt that way when 30 year mortgages came out though.
If you've got enough capitol for a large down payment...you need to be factoring the rate of return you are getting on that money...if you've got $100K-$150K in capital, and its earning 10% interest (i have no idea...just an example on both numbers)...and you can get a mortgage at 6%...its more beneficial to leave some/most/all (depending on the payment you want) in the market earning 10% because you still come out ahead 4% on it (no reason to stop earning 10% APY, to save 6% APR). That's where you can start seeing the value of leveraging debt to make money. If you've got it sitting in your bank earning.75% APY...then just put it all down on the house...
If that makes sense? Getting the shortest loan term you can (15 year/10 year loans) is the way to go if you can swing the payment and you will keep the home long enough to pay the loan off.
For the readers I don’t care if we’re off topic at this point it’s the offseason.
Right now I’ve got it sitting in a fluid CD account that has no penalties whatsoever for withdraw doing about 4.8%. I’m not sure what else I could do with it to consistently outpace a mortgage debt so that’s what I did.
My biggest mistake was not foreseeing I’d sit on a sum of cash I built a few years ago. In hindsight I should have gotten with a financial advisor/wealth manager and done better but I’ve been “about to buy a house!!” For two years now and just watching the market in confusion. I feel like the ship has sailed and I just need to buy something and move on honestly.
At that ROI on the CD, its about a wash...Leave it in the CD earning 5%...or pull it out and put down on a house so aren't paying 5%+ on it. It would probably come down to payment if I'm you (put down as much as you need to to get the payment you are looking for).
Keep in mind, rates are projected to keep falling over the next 24 months...so it could put you in a position to refinance in the near future.
Generally home loans are thought of differently than other loans like auto loans because historically real estate is an appreciating asset. Keeping real estate appreciating is arguably one of the main reasons the dollar is a fiat currency but that's a different topic. At this point it's hard to say where the market will go and how much appreciation there will be in the next 10 years given where prices are at now. I understand wanting to carry a low debt load but it's also a good idea to keep some cash on hand and not put all your life savings into a down payment if you can swing a mortgage with a little bit higher payment on a house you like, especially if it's an older house, being surprised with needing a new roof HVAC or sewer line is not fun if you don't have reserves.
Stoked for you 💪🏼
We're in a pretty cheap area thankfully. My number one goal is to enter my 40's with zero debt and begin building some real wealth for my children, church, and whoever God puts in my life that 'needs some shade from my tree in the summer heat'.
Nothing here is glamorous and I bet I end up in something mediocre but my goal was never to be lavish honestly. I have seen so many friends and colleagues that have so much of their energy and capacity get sucked dry by money-related issues I would rather live lean and not fret over stuff. So I'm with you, I want to keep plenty of cash stored away in case my air goes out in july with a baby or something. paying interest on parts of your house that you're also paying interest on seems pretty crummy.
Quit worrying about other people. Every conscientious 35 yr old worries about finances, I did. Stay your course. Watch what you pay that financial advisor though. If you stay married, stay employed, keep your kids a priority, and invest you'll be fine. Don't be other people's fool either.
Again, interesting reading. I'm at the end of the spectrum compared to many here. 62 YO, working since I was 15, and planning on retiring in 18 months. I've even picked the date - July 30th, 2027 will be my last day employed. I'm about to move to a life of drawing down the cushion I've built (mostly over the last 25 years) instead of relying on income, and it's scary as hell. Healthcare costs, inflation, taxes, how long will I live all make me worry that what I've saved/invested won't be enough. I have a considerable sum, but the future is full of unknowns. I don't even know where I'm going to live. It won't be Oregon. Weather sucks, cost of living is stupid.
My son and I went pretty hard on motocross from his age of 5 until he turned 18. I'm not sure how much I spent on this sport over those years, but RMATV loves me, I think we had 12-15 bikes between us, the toy hauler, a truck to tow it, and endless gate/race fees. His last 2 years of racing he did over 100 gate drops each year, and we were mostly doing local stuff! Had to have been $100-150K, maybe more. And I don't regret a dime of it. Man, we have some memories both good and bad, and met some really good people along the way. Now he is a solid, outgoing young man with an understanding of risk versus reward that many his age don't have. And I have some really cool $6 trophies from the slow old man classes I raced. We are done racing together (I am done entirely) and damn it I miss it. The feeling of pride when he rode well, and when I rode well and he noticed, I just can't get from anything else.
One other thing if your finances worry you, or concern you, fuck the dirt bikes. The addittional peace of mind is worth it for now, you can alwaus return to them when you feel more secure. Focus on your career and family for now, nothing matters more.
Mental and physical health are important. Instead of a gym membership you can have a dirt bike. You'll need to ride it 3 times a week to make it worth it 😁.
This is a whole lot of nonsense. 😂😂 My goodness… A lot of people get into a career that will never pay well. And wait too long to do something about it. I notice you didn’t mention getting into a trade. In a lot of states trade jobs and union trades pay very well. You act like it’s impossible to have a good paying career. 🤦♂️
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You bought a house when the housing market was out of control and the price of homes was the highest we’ve ever seen. Did you have to buy a house at this time? Could you have rented a small apartment for the time being until the housing market settled down a little? Sounds like you made a mistake and bought a house at the worst possible time… And of course the value of the house went down since 2023.. Were you expecting the value to keep going up after record high home prices during the time you bought the house?
My .02 would be put down 20% to avoid PMI and keep the rest invested.
I closed on my house in June and was able to have the seller cover all closing costs which was great. That saved us about $12k right there. Interest rates may still be high but sellers are having to come to the table willing to negotiate now in many areas.
I was 32 and felt like it was time. I’ve always been a renter and we wanted to put our own touch on a home as well as not move every couple years, wife works remote and needs an office plus space to roam, I work from home a couple days a week, two large dogs that need a yard…something like an apartment wasn’t really appealing. We would still be in one waiting for things to hit rock bottom. No thanks.
Our current mortgage is about 15% of our monthly income after tax, we bought way under what we could afford knowing the bubble had to burst at some point.
We will be alright, just thought I’d point out that buying a home isn’t the end all be all that some make it out to be. I rented for a lot of years so I could easily bail to chase career opportunities without being tied up to a home. I made a lot more money chasing those opportunities than I ever would have gained equity in a home.
I appreciate the advice.
I gave up moto through most of my 20’s to get myself in a better spot.
I’m in a great spot to ride and race these days with phenomenal health insurance and our investors also being moto guys or high-risk sport participants. They love that I race. Fully support it and know the risks that come with it.
Despite that I still take months off to focus on specific projects or milestones that require my full attention.
I’ll be alright, thought I’d be transparent on my experiences a bit. I feel I’m in a great spot in a lot of ways but still stress a bit due to my own spending habits and the current cost of living.
So many people were patting me on the back for having a solid down payment and “investing” in a house. I feel some people are brain washed into the belief that it’s the only way to grow your wealth.
Sounds like you did the right thing for your situation and family. People that bought/owned stocks or real estate in 2020 have done exceptionally well in the last few years. If you bought at the peak, short term now is pretty bad.
I think if you look at the stock market and real estate values at the peak in 2007, anyone that held those assets until 2025 outgained inflation by a large margin. Historically, it's always good to have those assets long term vs not.
For sure. I’ll need to hold onto this house for a long while or I’ll end up taking a big L. Can’t win them all, but was hoping I wouldn’t see the pendulum swing quite this soon haha.
I’m glad we purchased a home we could easily afford, but doesn’t make it hurt any less knowing that 20% down payment likely will get lit on fire.
But I would light that 20% on fire twice before I stuck us in an apartment waiting for all hell to break loose with the market.
You’ll be fine if you’re patient. My friends who bought in 07 are up twice what they paid.
Like you, my wife and I made sure to buy well within our means and chose a house that would work for our family for at least the next ten years. After the last move I have no desire to do that again anytime soon anyway.
Yeah starting with a trade would be great, but if you already have 5-10 years into a career you'd be starting at the bottom in a new occupation, right?
I’m old but ride with a bunch of late 20s early 30 year olds(kids of riding buddies and their friends). They all have bikes, vehicles that are probably around 10 years old and within the last 3 years 4 of them have purchased houses and got married. Most are in trades, two are college education, they all work hard and are doing ok in this economy
Everything else. Food, medical, don't get me started on daycare. We have paid almost $2000 month for the past 4 years for my son.
I can certainly recommend trades. The only reason when college makes sense is if you're going into law, medical, or engineering
Good point. My wife and I were able to buy a cheap townhome in one of those cities but only on dual incomes. Housing is insane.
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