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Hrumph, you had me kind of excited, until I ran some numbers. :frown2:
Really want to get away from paying a grand a month on shop rent and utilities plus Slip & Fall insurance.
To put up a decent minimum shop is about $40K.
Seems that at the posted interest rate I ought to be able to do a ten year at around half of what I'm paying in rent each month. :smile2:
But apparently the "3.5%" rate is actually not.
I'm not willing to pay what is actually closer to 20% in the real world! :noway:
10-year loan for $40k at 3.5% payment would be $395.54/mo

In 10 years of renting, that's $120,000 spent with nothing to show for it.
In 10 years of paying off a loan, it's $47,464.80 spent, and you own a shop.

If you're currently paying $1000/mo for rent you could keep paying the same amount and have a $40k loan paid off in 3-1/2 years. The interest you would pay over the life of the loan would be less than 3-months rent with your current arrangement.
 

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10-year loan for $40k at 3.5% payment would be $395.54/mo

In 10 years of renting, that's $120,000 spent with nothing to show for it.
In 10 years of paying off a loan, it's $47,464.80 spent, and you own a shop.

If you're currently paying $1000/mo for rent you could keep paying the same amount and have a $40k loan paid off in 3-1/2 years. The interest you would pay over the life of the loan would be less than 3-months rent with your current arrangement.
Awesome post.
 

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The only thing worse than debt is rent. ;)

Interest is just rent applied to money.


Sounds like many of you weren't around (or maybe just weren't buying houses) when interest on home loans were 10.375. I paid that when I bought my first house. It was a real incentive to pay it off early. I paid off a 15 year loan in only 7 1/2 years with no refinancing and no PMI.
 
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Interest is just rent applied to money.





Sounds like many of you weren't around (or maybe just weren't buying houses) when interest on home loans were 10.375. I paid that when I bought my first house. It was a real incentive to pay it off early. I paid off a 15 year loan in only 7 1/2 years with no refinancing and no PMI.


I’d disagree with the thought interest is just rent applied to money. My equity in my home has always outpaced the interest on my home. I’ve cashed out twice on that investment for a better home. Will it always be that way? Likely not, but it’s worked well so far. When it comes time to retire, I will cash out again and move to a different state where I can pay cash for a much cheaper house.


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This site (which I found with a random search) will better explain the amortization schedule of a loan.

https://financialmentor.com/calculator/mortgage-payment-calculator-amortization-schedule

It shows:
The interest paid each month
The principle paid each month
The total payment for the month
The remaining balance of the loan each month for the life of the loan
You can even enter your taxes and insurance to get a complete cost of ownership.

I find that this type of resolution goes a long way to helping someone more clearly understand what they are signing up for. It also shows them what their payoff would be at any point in the life of the loan.
 

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This site (which I found with a random search) will better explain the amortization schedule of a loan.

https://financialmentor.com/calculator/mortgage-payment-calculator-amortization-schedule

It shows:
The interest paid each month
The principle paid each month
The total payment for the month
The remaining balance of the loan each month for the life of the loan
You can even enter your taxes and insurance to get a complete cost of ownership.

I find that this type of resolution goes a long way to helping someone more clearly understand what they are signing up for. It also shows them what their payoff would be at any point in the life of the loan.
At one point i found a mortgage calculator that would figure out how much faster you would pay off your mortgage by adding "X" amount of dollars each month. I was at a point in my life where i wasnt super happy with how things were going at work, and sat down and took a hard look at things if i didnt have this job. I figured without this job some of my luxury items may have to go away, and at that point it was my weekend place that might have to give. so i put on my happy face at work, figured out how much i needed to put in the bank to keep my accounts running flat (not saving anything) and i tossed all the extra money that would have just gone into the bank to pay off that mortgage. I did it remarkably quick.

i have refinanced every home i had, thinking i would stay at that house longer than i did. I just bought this house in April. Who knows if im staying here for how long. I think i might just toss some extra at the principal on this one, rather than paying closing costs on a loan again.
Truth be told, i'm almost 50, had like 13 years left on my old house, but went back into a 30 year mortgage - basically i was going for "i wanna pay the least amount per month." Who knows how long i will be here.....nobody. When rates maybe hit rock bottom, i might look at a 15 year, but i'm good with were im at. I think the first loan i ever got was somewhere around 7%. Growing up, my parents put an addition on our house because it was waaay cheaper than moving....i think interest rates were at like 15%. Lets face it. 4.5% is really low too.
 

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why not just buy down a point on a home loan? For example:

$400,000 w/ $100,000 down = $300,000 loan @ 4% on 30 yr fixed: $1,432/mo w/ $215,608 total interest

buy down point = $3,000, now $300,000 loan @ 3% on 30 yr fixed: $1,264/mo w/ $155,332 total interest


Assuming you never refi or pay extra on the loan, that's a savings of over $60,000 for a $3,000 upfront payment and $168 less each month on your mortgage. Say you needed that $3,000 for a 6 month emergency fund for the future, you could pay that $168 back each month into your fund and it would only take 18 months. Depending on your income, this would be smart I would think, but I'm no math wiz, that's for sure! lol
 

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why not just buy down a point on a home loan?

While you are at it, why not ask your prospective lender what the difference in monthly payment would be on a 15 year mortgage verses a 30 year? Difference is normally very minimal, but total cash outlay is extreme.
 

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While you are at it, why not ask your prospective lender what the difference in monthly payment would be on a 15 year mortgage verses a 30 year? Difference is normally very minimal, but total cash outlay is extreme.
Minimal? Using my example its about $700/month more. That's minimal?
 

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In my case the payment would have only dropped by around 20%, so I went with the bigger payment for a shorter time.
 

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why not just buy down a point on a home loan? For example:

$400,000 w/ $100,000 down = $300,000 loan @ 4% on 30 yr fixed: $1,432/mo w/ $215,608 total interest

buy down point = $3,000, now $300,000 loan @ 3% on 30 yr fixed: $1,264/mo w/ $155,332 total interest


Assuming you never refi or pay extra on the loan, that's a savings of over $60,000 for a $3,000 upfront payment and $168 less each month on your mortgage. Say you needed that $3,000 for a 6 month emergency fund for the future, you could pay that $168 back each month into your fund and it would only take 18 months. Depending on your income, this would be smart I would think, but I'm no math wiz, that's for sure! lol
I’ve heard of buying down points, but 1 point for $3k seems absurdly cheap. Who wouldn’t do that?
 
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Ah...got it...
So, lenders will typically drop your interest rate .25% fir each point that you buy, up to a limit. So if you wanted to drop your interest rate from say 4 to 3, you would need to buy 4 points.
Still worth it to me if your getting a 30 year loan and plan to keep the property AND the loan long term
No since buying points down if your going to refi it.
 
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Ah...got it...
So, lenders will typically drop your interest rate .25% fir each point that you buy, up to a limit. So if you wanted to drop your interest rate from say 4 to 3, you would need to buy 4 points.
Still worth it to me if your getting a 30 year loan and plan to keep the property AND the loan long term
No since buying points down if your going to refi it.
Been about 6 years since I refi'd, but IIRC, a "point" is 1%. Now you can usually buy down in less than 1 point increments.


The problem with "planning" on a refi, is you don't know what the rates will be when you are ready to refi...


428L88 said:
...low interest rates do contribute to lack of discipline.
That all depends on the individual, and their discipline...


We bought our home back in 2007. Interest rate was about 6.5% (toptier credit scores and $240k down from home we sold). Got a 30-year fixed, with a payment of about $2695 (including taxes and insurance), so I literally rounded up and paid an even $2700 every month... About 1+ years later, we refi'd when rates dropped to around 4.75%. Paid all fee's out of pocket (figured the monthly savings would clear that after a few months (something like 8-10 months). No cash out, just a lower rate with the same balance (and starting another 30-year loan).

I ended up making the exact same $2700 payment...

Refi'd again in 2012, and thought of a 3.25% (or maybe 3.5%?) 30-year, but decided to go with a 2.75% 15-year... Total payments went up, but still less than the $2700, which I continue to pay... I estimated the "15-year" loan will be paid off in about 12 years ( not set, because my "minimum payment" changes due to taxes and insurance premiums)…

So that's going to put us around 17 years to pay off our $300k loan... But we are so used to the payment and saving, that I hardly think about it anymore... Of course, cashing-outon a refi to buy that mid-year Corvette is always right there...

We thought about increasing our payment with wage increases, but ended up increasing our 401k and IRA contributions (for the past 10+ years, I think EVERY wage increase went into some form of retirement or "savings"...), and started putting more money away to "help" the kids with college expenses (we told them we'd try to help with 3 years of college, but "commuting" from home- two universities nearby or local community college- won't count toward those years)…

Just hope I can keep my Chevelle...
 

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I have owned a lot of real estate over the years. Still own three properties.
The one thing a never did was take cash out in a refi. I decided never to when in my early 20’s a buddy refi’d a house to buy a boat. So in essence he was paying on the boat for 30 years. He sold the boat about 5 years later and did get some money for it but he still owed the mortgage.
 
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I have owned a lot of real estate over the years. Still own three properties.
The one thing a never did was take cash out in a refi. I decided never to when in my early 20’s a buddy refi’d a house to buy a boat. So in essence he was paying on the boat for 30 years. He sold the boat about 5 years later and did get some money for it but he still owed the mortgage.
I’d agree, never take money out when you refinance. I knew someone that refinanced a couple of times, each time he took out the equity to build his 56 Chevy and buy other toys. He lost his job before he finished the car and had to sell it at a huge. He ultimately lost the house. He might have been able to keep the house if he took in a renter or two even with a lower paying job, but he put himself in a position that the numbers didn’t work without something close to his original income.

Steve R
 
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