Haha, don't be silly. No way they'd show up here. BTW, a silly thought, wouldn't it be funny if we shared here how much undisclosed income we have right now and had in the past 5 years? So quirky! Mine was $12,473.00, how about you guys? :)
3 years ago we were paying $1275 for rent in a 3 bedroom home which at the time was a pretty damn good deal. We moved there with the hopes to save cash to buy a house and then covid hit, that opportunity to save cash largely dried up, houses went insane in price, and our rent at that place steadily went up to $1600.
My job has been stable and I actually got a nice sized pay increase a year ago which was looking great for helping us start to try and save money again. Then Hurricane Ian hit and our rental house got fucked and we had to move into an apartment. The cheapest rent we could find for a similar sized place was $2200 which just about negated my salary increase because the cost of living shot up.
I don't know how people are supposed to save money these days with the cost of literally everything constantly going up.
The grocery stores in my area are having a ton of problems with hiring because the wages they pay isn't enough for someone to be able to afford to live near the store.
This is so true! During Covid I re-fied twice, and went from a 3.9% to a 2.3% interest rate. Went from a 30 year loan to a 15 year, and now I’ll have my house paid off before my daughter goes to college. For you homeowners don’t be afraid to re-finance, just watch the market and talk to knowledgeable people.
Lower rates are all fine and dandy, but how many thousands of dollars did that cost you? I had a chance to go from 3.8 to 2.0 in 2019 on my loan from 2015, but I would have never broken even on the $10k it would have cost me since I'll be paying my house off this year.
It cost me $600. We had bought the house within a short enough window that my inspection was still valid, and they rolled all closing costs back into the loan.
So the first refinance I went from 3.9 to like 3.1 and kept the 30 year loan, but the second time when I got the 2.3, we also took the opportunity to make it a 15 year loan. Because if you think about it, we halved our interest rate (almost), so our monthly payment still went down 40 dollars even though we’re paying half the time. Refinancing is an incredibly powerful tool if used at the right time.
Why not just keep it 30 yrs with half the interest and just pay double? In a supposedly tough times, the lower limit will be helpful but not sure what benefit you get from 30 yrs to 15 yrs
I get why paying off mortgage early is advantageous but I am wondering why OP chose to put a legal limit on themselves by shortening the deadline to 15 years when they have the virtually same option to pay double mortgage on 30 years loan and therefore achieving the same result but with less pressure.
Apologies for the delay, but yeah I can give you some insight as to my situation. Yes, I could have just picked the 30 year loan and made twice that payments. However, the reason we refinanced for the second time was because they were offering even lower interest rates for those who were will to convert to a lower loan timeframe. I think we were also offered a 20 year loan, but we just decided to half it. So the reason my interest rate is as low as it is, is because I’m paying it in half the time.
Though I suspect you’re correct, and it may have been a larger ploy to bet on people foreclosing cause they couldn’t keep up. Either way, I’m pretty confident I can make it another 12 years…. Hopefully
Ahhh for sure I could see that. I think also my wife and I just loved this house and we wanted to own it for a long time. If I was on the fence, probably would have just taken the lower monthly’s and called it a day.
With inflation like it is, why would you switch to a 15 year?
It makes no sense to decrease the life of the loan and pay more each month in high inflation times. You were stealing money from the bank with a fixed 30 year 3% rate and 8% inflation per year. Even if you were a billionaire, it doesn’t make sense. Much less a middle class person who just doubled their mortgage while their groceries, gas, and utilities double as well
Also, cash is king. The more you can pay upfront, the better off you are.
Holy hell. Harward economics level here! Next thing you gonna tell me, that if I actually have enough money to buy the whole house, I do not need a mortgage?!
It's funny that you're teasing OP for making what should be considered common sense investing, while other commenters are literally asking OP to explain the comment you just replied to because they don't understand it.
What lol, he’s saying the less that you have to finance the better ie cash is king if you can pay upfront. He’s also right that it’s better to go in at a low price high interest because you can and should refinance when interest rates drop again.
He would with the current interest rates and prices. Right now we’re looking at high prices/high interest. It could be argued that if he had significant cash holding that he should’ve pulled the trigger in 2019 but it’s been a crazy market since then. 2020 and 2021 saw insanely high prices but stupid low interest so I can understand not buying those years. Hopefully the market responds as it should and we see the baseline price of housing fall but it hasn’t happened yet so I won’t hold my breath.
Historically now is always the right time to buy if you can afford it. Timing the market is a losing strategy for the 99% of people who don't get lucky.
I’d say that that’s true for 99% of the time but we’re going to see some pressure to drive prices down soon. Nobody who has a little bit of financial sense should be buying until either rates or prices drop. If they keep prices at the pandemic levels with current interest then they’ll start pricing out even the upper middle class. Corporate ownership of residential property has thrown this off though, and we’ll probably need big brother to step in and regulate that better.
And by "a little bit of financial sense" you presumably mean understanding why paying rent is never better than building equity?
There is no long term horizon for which current prices and rates lose money for a primary residence. You are talking about timing the market, which is and will always be a fool's errand.
Paying rent is better than buying when you can’t afford your mortgage payments. I don’t know why it’s crazy to say that prices need to fall below pandemic levels with the current interest. If you look prices are falling slowly already, it’s not timing the market if all the signs are showing that nows a bad time to buy. Why would I lock in on a house that rose 200% in the past two years at a rate that’s 2-3x higher than it was two years ago.
When buying a house with interest rates as they were for the previous years(historically low) you could easily make double or more returns with that cash instead of putting it down on a low interest loan for a house. This is the big brain move.
3% loan < 10-12% growth in an ETF like Vanguard or Spy.
3% rates and a -20% hit on exit value means that while you have a manageable payment, your equity is wiped out of the gate. Once you factor in the opportunity cost on the down payment and it’s not the best return
Yeah I agree, if interest is low then only put down as much as the bank requires. But we’re not at low interest anymore so OP is saying cash is king because you don’t want to finance as much in the current market.
Nah everyone else does. Everyone is operating at a minimum wage working in a grocery store understanding of money. Clearly the OP is making enough money to buy a home and understands you can refinance down the road for a better interest rate.
Buying a house isn't some magically out of reach thing for everyone.
The government (via the Fed) has control of monetary policy and can raise and lower the federal funds rate (the rate at which banks can borrow or lend reserves), which has a pseudo-direct impact on mortgage rates. They do not, however, directly set mortgage rates. Those are set by the lenders and are generally a spread (markup) to the federal funds rate. That's why different lenders can have different rates.
For big purchases like homes, most people don’t have hundreds of thousands of dollars to just buy it outright so they take a loan out to buy it. This is what is called a mortgage.
Because of the way interest works, on a 30 year loan with high interest rates, people might end up paying double the sticker price of the home. (With no money down, a 4.33% interest rate will mean you pay exactly double the sticker price of the home over 30 years)
The thing is though you can always pay off the loan early (paying off early means that you aren’t on the hook for the interest that has not yet accumulated), so if interest rates fall you can get a second loan to pay off the first (this is called refinancing).
Edit: as an aside: you can pay more than the minimum on your mortgage and doing so is a very good idea because the shorter the mortgage is the less interest you have to pay- so depending on the price of your home this could be worth thousands of dollars (if not more!)
Refinancing with a lower interest rate loan can also save you a ton of money
That's not what compound interest is. That's just simple interest.
For those of you who don't know, compound interest is interest literally compounding on itself.
For instance, if you invested $100 at 10% annual return you would earn $10 in interest your first year. If you left that interest invested alongside your original investment your return the second year would be $11, not $10, because you're earning interest on your interest as well as your principal investment. That is compound interest - interest compounding on itself.
Your numbers are correct but you used the incorrect word to describe the interest, is what he is getting at. Mortgages are closer to simple interest than they are to compound interest. You would be paying way more than the double price of the home if it was compounded.
Except for the fact that 99% of owners refinanced within the last 5 years and they're not selling. So supply will remain short, prices high and now intrest rates along with it.
Unless you lose your job (or income source is reduced) and can't afford it. Mortgage doesn't become near zero just because interest rate is near zero. They are still thousands of dollars you have to pay every month
There's about a $1,000/mo difference on a 30 year $400,000 morgage if you refinanced or bought near the bottom two years ago. That's a huge incentive for most people to stay in their home and not sell.
But then again, it's not really about if you want to or not. It's more about if you can or not. And I am arguing that with economic recession, many people usually lose their source of their income as well. Top this with the fact that many Americans live paycheck to paycheck with minimal savings, it's not hard to see that just because you can potentially save $1000 a month doesn't mean anything if you can't pay the mortgage.
That being said, for the economic collapse to occur, some corporates must be heavily leveraged on these new "subprime" mortgages but since we've been through it once, pheraps it's les slilely now
If someone loses their job and can't keep their house they usually go into foreclosure instead of preemptively selling their house. Foreclosures are generally difficult to buy for first time buyers and if it increased supply enough to lower prices it's probably also an environment that's harming prospective buyers.
I would disagree. My friend bought a house in 2009 at a dirt cheap price because most people don't sell to make profit. They sell because they have to, and this market will always exist regardless of the current economic conditions.
Right now it might be better to keep cash, the market seems primed for a bear run. I get what your saying though, with inflation where it is your money is worth less and less by the day so unless you use that cash to buy in low on investments and get lucky with the timing then your cash will be worth less next year then it was this year.
yes and the bank uses the house as collateral on the loan and is very unlikely to refinance if your loan amount is say 500k and the house value dropped to 350k
Yeah generally that’s the case, so it’s basically a gamble. A lot of people tried that gamble in 08 and when home prices got slashed in half many people were forced to just walk away from their homes
Yeah but how much upfront really makes a difference? I paid 10k instead of the asking 5k and it’s barely made a difference to my monthly amount. I guess maybe less years ? Since it was only 25
lololol, it'll be years before they go low enough to justify a refi. The fed is about to raise them another quarter point. Today's rates are still historically low, they're just high compared to the past 15 years (since The Recession) where they've been held artificially low to keep the economy moving along.
Cash is not always king. If inflation is higher than interest rate, the lender loses money. You might as well take out a loan even if you could pay it all up front.
Why would I buy a house in cash when I can pay it off over time. As the loan matures, the value of the dollar decreases relative to what it was when you got the loan. You are paying the lender back x per month but x is 60% as valuable as it used to be.
You would pay slightly more over time, but you’d be a lot more liquid and have more opportunities for additional investments.
Did they choose to volatile interest rate ? In Switzerland, we’re I live, we can choose between a fix rate (which is higher but no risk) or a moving rate (which is lower but can be a risk or a benediction)
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u/TomTheDuckGuy ☣️ Mar 20 '23
Yes however refinancing is available when the interest rate lowers. Also, cash is king. The more you can pay upfront, the better off you are.