Ask Anything About Mortgages - Page 16

Bicycles_Biatch · #**151** 02-05-2007, 12:57 PM

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I'm not saying that you have to pay down principal, but there are a few compelling reasons to do so (assuming you have adequate cash flow and are simply looking for the best bottom line...if cash flow is an issue, then having the interest only option is viable)

There is also a much larger thread about paying down principal from a few weeks ago in this forum...a quick search should be able to find good info.

The gist of it is this:

It's a gauranteed return on investment equal to your interest rate with zero risk. The tax consequenses of paying down principal vs. any other taxable investment (mutual fund, etc..) negate each other.

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This is absolutely un-true. First of all, do to the tax deductability, the rate of return is actually reduced.

Furthermore, there IS risk in the realestate market. Even though we've been spoiled over the last 10 years, there is zero guarentee that with 100% finaning you will make a return on your investment, especially in such a short time frame (2 years).

Just ask the tens of thousands of Americans that bought in the mid - late 80's and lost their shirts in the realestate market.

Strickly Bidness · #**152** 02-05-2007, 01:06 PM

dude im trying to call u but u aint around.

scotchnrocks · #**153** 02-05-2007, 01:58 PM

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First of all, do to the tax deductability, the rate of return is actually reduced.

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true the rate of return is reduced, but that fat tax refund check should also be included in whatever model you're creating

i'm paying 6.125% and you can reduce it to 4.125% or whatever since i'm writing the interest off...but you can't look at it like my ROR is 4.125% because i'm also receiving a check for $3500/year that i would not have received otherwise....right?

Strickly Bidness · #**154** 02-05-2007, 02:01 PM

for what its worth, i've spoken with both bicycles and sossmann this week and they are both very bright and seem like they know their stuff.

Thanks 2 u both,

SB

Bicycles_Biatch · #**155** 02-05-2007, 03:01 PM

[ QUOTE ]
for what its worth, i've spoken with both bicycles and sossmann this week and they are both very bright and seem like they know their stuff.

Thanks 2 u both,

SB

[/ QUOTE ]

Thanks for the compliment... PS... I'm way smarter than my typos would indicate [img]/images/graemlins/confused.gif[/img]

Strickly Bidness · #**156** 02-05-2007, 03:19 PM

Yo bicycle,

i spoke with the relo broker and he claims that even though there is an orig point, my rate will still be the same as the rate that you offer. mortgage science is confusing.
He says that even though he is taking a point, I will get the same rate because WAMU won't be paying him that rebate point so it doesnt matter if I work with you or him....confusing???

Bicycles_Biatch · #**157** 02-05-2007, 07:01 PM

[ QUOTE ]
Yo bicycle,

i spoke with the relo broker and he claims that even though there is an orig point, my rate will still be the same as the rate that you offer. mortgage science is confusing.
He says that even though he is taking a point, I will get the same rate because WAMU won't be paying him that rebate point so it doesnt matter if I work with you or him....confusing???

[/ QUOTE ]

Pretty standard broker "double talk". On the day you want to apply, lets talk and see where rates are at.

I'll put it in writing and guarentee the rate, be sure anyone else you get quotes from is willing to do the same.

Bicycles_Biatch · #**158** 02-05-2007, 07:03 PM

I also forgot to mention that if you are paying the points and getting the EXACT same rate, a direct lender is going to have lower processing / review/ underwriting fees than a broker.

SossMan · #**159** 02-05-2007, 10:43 PM

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I also forgot to mention that if you are paying the points and getting the EXACT same rate, a direct lender is going to have lower processing / review/ underwriting fees than a broker.

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depends on the broker. but in general, you are correct.

SossMan · #**160** 02-05-2007, 10:55 PM

[ QUOTE ]
[ QUOTE ]
I'm not saying that you have to pay down principal, but there are a few compelling reasons to do so (assuming you have adequate cash flow and are simply looking for the best bottom line...if cash flow is an issue, then having the interest only option is viable)

There is also a much larger thread about paying down principal from a few weeks ago in this forum...a quick search should be able to find good info.

The gist of it is this:

It's a gauranteed return on investment equal to your interest rate with zero risk. The tax consequenses of paying down principal vs. any other taxable investment (mutual fund, etc..) negate each other.

[/ QUOTE ]

This is absolutely un-true. First of all, do to the tax deductability, the rate of return is actually reduced.

Furthermore, there IS risk in the realestate market. Even though we've been spoiled over the last 10 years, there is zero guarentee that with 100% finaning you will make a return on your investment, especially in such a short time frame (2 years).

Just ask the tens of thousands of Americans that bought in the mid - late 80's and lost their shirts in the realestate market.

[/ QUOTE ]

Every dollar I pay down on my principal is a dollar I don't incur interest on in the future. So, if I pay down $100 towards principal in the beginning of the year, and my mortgage rate is 6%, I will pay $6 less in interest over the year. I will also have $6 less to write off on my taxes. Let's say that I'm at a 33% tax bracket, I have a net savings of $4.

Now, as an alternative, let's pay interest only and not reduce principal and I invest the $100 in a high yield savings account at 5%.
At the end of the year I have $105 in the savings account, but have paid an extra $6 in interest.
I am worse off by $1.
The net effect of the taxes are:
$5 1099-interest income and $6 of write off, so $1 of net write off, or $.33.
I'm still worse by $.66.

This is why I said the tax effects net out (in most cases, there are obviously some tax-free investments out there), and you should simply look at principal reduction as a RoR calculation.

That return IS gauranteed. It is completely independant of the appreciation/depreciation of the house. You save the same amount no matter what the housing market does so long as you keep your mortgage (your investment).

I don't see how this is hard to understand. It's real estate 101.

[ QUOTE ]
there is zero guarentee that with 100% finaning you will make a return on your investment, especially in such a short time frame (2 years).

[/ QUOTE ]

I didn't realize we were talking about a specific case, but the 100% example makes a stronger case for paying down principal. How would making interest only payments be 'less risky' than paying down principal? lol