All,

I read this article on a new way of financing homes and found it rather interesting. Not sure if I would pursue this route, would definitely have to get more information. I figured I would post it here for everyone to read and to see if we have any home buying experts that could comment on it.

The article can be found at:

http://articles.moneycentral.msn.com/Banking/HomeFinancing/ANewWayToPayOffYourHouse.aspx (http://articles.moneycentral.msn.com/Banking/HomeFinancing/ANewWayToPayOffYourHouse.aspx)

Basically, the idea is you give your entire paycheck to a firm with who you have a line of credit. You pay all your bills through this line of credit. The firm uses your paychecks to pay the line of credit and then applies every unspent penny against your mortgage. I may be missing a few details here, but that is the general idea I got.

Anyways, has anyone participated in this type of financing or heard anything about it? :confused

what about money for food, clothes, and BEER? :cheers

This is geared toward "helping" undisciplined or lazy people reduce the cost of interest on their mortgages. They are essentially handing control of their finances to another party. For those who give a rat's ass what's happening with their money and who care enough to figure it out, there are FAR better ways to reduce interest costs on your home mortgage and save yourself even more money.

Over time, too, if the undisciplined do NOT start to become disciplined, this plan could easily backfire on them and next thing you know, they are in debt up to their eyeballs AND have insufficient equity in their homes to bail themselves out. Depends on how the equity line gets structured, though.

This scenario is pretty tricky to manage. I would not recommend it, generally speaking, though I feel the same about a lot of mortgage products being pushed these days.

Also, worth pointing out that if you're mortgage has less than, say, 15 years on it (doesn't apply to most people, probably), this is probably not a worthwhile plan.

--Wag--

i would get a credit line on the houseand pay everything through it. i deal with mtges everyday, this way everything you buy through the credit line you can write that interest off since it's interest paid on your home.

i would get a credit line on the houseand pay everything through it. i deal with mtges everyday, this way everything you buy through the credit line you can write that interest off since it's interest paid on your home.

I would actually pay for stuff that I buy. That way, there is no interest.

The way to pay off a mortgage is simple: big, hairy extra payments to principal. It makes no sense whatsoever to cede control of your money to a third party with the intent of having them accelerate your mortgage payoff by paying them interest. That's crazy. Tell ya what: I'll take your money and pay your mortgage off with it. Except I get to keep a bunch of it for myself. Any takers? Didn't think so. But dress it all up as a "mortgage product" that's "tax deductible!!" and people trip over each other to sign up.

The other big problem is it puts the mortgage payoff out of order with proper financial prioritizing. Pay off your house out of order with other priorities, and you arrive at retirement or kid leaving for college time with a paid-off house and no money. So you borrow against the house you just busted your ass to pay off. Dumb.

First, you need to get out of all debt except for your house. Then you need to save up 3-6 months worth of living expenses in an emergency fund. Now we have a foundation to build on. Then you need to start saving 15% (at least) of your gross annual income in 401k (up to the matching percentage) then in Roth IRAs for the balance. Then you need to start funding college for your kids in Educational Savings Accounts (ESAs or Education IRAs) or 529s. Then you can start making big honkin payments to principal on your home mortgage. Pay that sucker off in 7 or 8 years. You can, by the way. On your own, with no sophisticated program. Then you very quickly find yourself in your early forties with a paid-for house, a bunch of money in retirement, a bunch of money in your kid's college fund, and a bunch of money sitting around waiting for the HVAC system to quit. Life's pretty good on the planet, and you did it all yourself without some half-baked plan from England. No one else can take any credit for it. There's nothing like it.

I would actually pay for stuff that I buy. That way, there is no interest.

The way to pay off a mortgage is simple: big, hairy extra payments to principal. It makes no sense whatsoever to cede control of your money to a third party with the intent of having them accelerate your mortgage payoff by paying them interest. That's crazy. Tell ya what: I'll take your money and pay your mortgage off with it. Except I get to keep a bunch of it for myself. Any takers? Didn't think so. But dress it all up as a "mortgage product" that's "tax deductible!!" and people trip over each other to sign up.

The other big problem is it puts the mortgage payoff out of order with proper financial prioritizing. Pay off your house out of order with other priorities, and you arrive at retirement or kid leaving for college time with a paid-off house and no money. So you borrow against the house you just busted your ass to pay off. Dumb.

First, you need to get out of all debt except for your house. Then you need to save up 3-6 months worth of living expenses in an emergency fund. Now we have a foundation to build on. Then you need to start saving 15% (at least) of your gross annual income in 401k (up to the matching percentage) then in Roth IRAs for the balance. Then you need to start funding college for your kids in Educational Savings Accounts (ESAs or Education IRAs) or 529s. Then you can start making big honkin payments to principal on your home mortgage. Pay that sucker off in 7 or 8 years. You can, by the way. On your own, with no sophisticated program. Then you very quickly find yourself in your early forties with a paid-for house, a bunch of money in retirement, a bunch of money in your kid's college fund, and a bunch of money sitting around waiting for the HVAC system to quit. Life's pretty good on the planet, and you did it all yourself without some half-baked plan from England. No one else can take any credit for it. There's nothing like it.

+1 million gajillion bazillion.

You and I think a lot alike.

BTW, I'm 41 and that's about where I'm at.

--Wag--

+1 million gajillion bazillion.

You and I think a lot alike.

BTW, I'm 41 and that's about where I'm at.

--Wag--

Yah I've always liked DorkFish's view on things, I totally agree. I'm 28, and building myself towards that. I may not have that all accomplished yet, but my goals are geared towards that.

Everyone keeps telling me to buy a house now, but I am sacrificing now, to put more down, and to buy all the Furnishings cash, rather than on Credit, because I don't want to pay interest. Once that is done, I will continue to drop as much as possible into retirement savings and building an 'Emergency fund'

I would actually pay for stuff that I buy. That way, there is no interest.

The way to pay off a mortgage is simple: big, hairy extra payments to principal. It makes no sense whatsoever to cede control of your money to a third party with the intent of having them accelerate your mortgage payoff by paying them interest. That's crazy. Tell ya what: I'll take your money and pay your mortgage off with it. Except I get to keep a bunch of it for myself. Any takers? Didn't think so. But dress it all up as a "mortgage product" that's "tax deductible!!" and people trip over each other to sign up.

The other big problem is it puts the mortgage payoff out of order with proper financial prioritizing. Pay off your house out of order with other priorities, and you arrive at retirement or kid leaving for college time with a paid-off house and no money. So you borrow against the house you just busted your ass to pay off. Dumb.

First, you need to get out of all debt except for your house. Then you need to save up 3-6 months worth of living expenses in an emergency fund. Now we have a foundation to build on. Then you need to start saving 15% (at least) of your gross annual income in 401k (up to the matching percentage) then in Roth IRAs for the balance. Then you need to start funding college for your kids in Educational Savings Accounts (ESAs or Education IRAs) or 529s. Then you can start making big honkin payments to principal on your home mortgage. Pay that sucker off in 7 or 8 years. You can, by the way. On your own, with no sophisticated program. Then you very quickly find yourself in your early forties with a paid-for house, a bunch of money in retirement, a bunch of money in your kid's college fund, and a bunch of money sitting around waiting for the HVAC system to quit. Life's pretty good on the planet, and you did it all yourself without some half-baked plan from England. No one else can take any credit for it. There's nothing like it.
why dump a hunk of your money to pay the principal down???? The benifits of owning a home (property in general) is the ability to leverage debt and appreciation on the property. Do you have any idea how much money someone has to lay down to pay off a morgage in 7-15 years??

:scratch well i just did some quick numbers but u'd have to pay anywhere close to 2 - 4 times your 30 fix morgage payment, depending how fast you want it paid down. Who's got that kinda extra cash laying around?

I mean it can be done but i dont see the point.... you said it yourself... people work hard to pay a house off and if they need money they have to take a loan out against the equity???.... well if you dont plan on selling anytime soon, whats the point of paying your loan off???? yeah you have a home with no debt but its all tied up....

plus the return on your money is diminished if you pay the house down fast.

$300,000 mortgage 30 years, 7% fixed = $1,833 mo. payment (rough estimate)

if the house appreciates to 400,000 10 years after you baught it.
-you've invested (1,833*120) $219,960 and have a 100k appeciation.
- thats a 45% return on investment not counting accumilated equity.(technically its not a 45% return cuz u haven't sold and most of your payments have gone to interest) basically u've paid 219,960 and have earned 100,000.

If you paid the house down in 10 years you would have paid
-3,500/mo for 10 years.... total cash outta your pocket $420,000 (3500*120)

now you've paid a total of 420,000 but live in a home thats worth 400,000.

you;d be better off using the extra cashed used to pay this house down on another house and have gained 200k....

Again... this all makes sense on paper but there is alot more involved. This is just an simple example to show that rushing to pay down your mortgage isn't always the best option....

:cheers

why dump a hunk of your money to pay the principal down???? The benifits of owning a home (property in general) is the ability to leverage debt and appreciation on the property. Do you have any idea how much money someone has to lay down to pay off a morgage in 7-15 years??

:scratch well i just did some quick numbers but u'd have to pay anywhere close to 2 - 4 times your 30 fix morgage payment, depending how fast you want it paid down. Who's got that kinda extra cash laying around?

I mean it can be done but i dont see the point.... you said it yourself... people work hard to pay a house off and if they need money they have to take a loan out against the equity???.... well if you dont plan on selling anytime soon, whats the point of paying your loan off???? yeah you have a home with no debt but its all tied up....

plus the return on your money is diminished if you pay the house down fast.

$300,000 mortgage 30 years, 7% fixed = $1,833 mo. payment (rough estimate)

if the house appreciates to 400,000 10 years after you baught it.
-you've invested (1,833*120) $219,960 and have a 100k appeciation.
- thats a 45% return on investment not counting accumilated equity.(technically its not a 45% return cuz u haven't sold and most of your payments have gone to interest) basically u've paid 219,960 and have earned 100,000.

If you paid the house down in 10 years you would have paid
-3,500/mo for 10 years.... total cash outta your pocket $420,000 (3500*120)

now you've paid a total of 420,000 but live in a home thats worth 400,000.

you;d be better off using the extra cashed used to pay this house down on another house and have gained 200k....

Again... this all makes sense on paper but there is alot more involved. This is just an simple example to show that rushing to pay down your mortgage isn't always the best option....

:cheers

Your points are very valid but as you said, "rushing to pay down your mortgage isn't always the best option...."

Every individual needs to run the numbers on his own situation and figure out what works best in that circumstance. The nice thing is, most of us now have access to spreadsheets which can give you the answer you need in a few moments.

One of the most important things to stay aware of is the anticipation of appreciation. Real estate does not appreciate EVERY year!

Also, if you pay down a lot on your principal, it's going to make you more able to liquidate if you wish. Very important to keep that thought in mind as you decide whether or not to pay down on your house early.

Nice post, man.

--Wag--

Keep in mind that, even if you owe money on your house, you're still gaining the benefit of appreciation....at the same rate you would if it was paid off.

I'm actually considering refinancing my house and taking money out for a big downpayment on some rental property. I will get a better interest rate, and my payment only goes up $45 a month, after pulling about $30k out in equity. Then, the rental that I have my eye on will pay for itself and my house payment. :)

...and I then will gain from the appreciation from both properties. Of course this will be a huge boost to income and credit.

Keep in mind that, even if you owe money on your house, you're still gaining the benefit of appreciation....at the same rate you would if it was paid off.

I'm actually considering refinancing my house and taking money out for a big downpayment on some rental property. I will get a better interest rate, and my payment only goes up $45 a month, after pulling about $30k out in equity. Then, the rental that I have my eye on will pay for itself and my house payment. :)

...and I then will gain from the appreciation from both properties. Of course this will be a huge boost to income and credit.

If the numbers work, go for it. It's almost a no-lose situation.

--Wag--

why dump a hunk of your money to pay the principal down???? The benifits of owning a home (property in general) is the ability to leverage debt and appreciation on the property. Do you have any idea how much money someone has to lay down to pay off a morgage in 7-15 years??



:scratch well i just did some quick numbers but u'd have to pay anywhere close to 2 - 4 times your 30 fix morgage payment, depending how fast you want it paid down. Who's got that kinda extra cash laying around?

I mean it can be done but i dont see the point.... you said it yourself... people work hard to pay a house off and if they need money they have to take a loan out against the equity???.... well if you dont plan on selling anytime soon, whats the point of paying your loan off???? yeah you have a home with no debt but its all tied up....

plus the return on your money is diminished if you pay the house down fast.

$300,000 mortgage 30 years, 7% fixed = $1,833 mo. payment (rough estimate)

if the house appreciates to 400,000 10 years after you baught it.
-you've invested (1,833*120) $219,960 and have a 100k appeciation.
- thats a 45% return on investment not counting accumilated equity.(technically its not a 45% return cuz u haven't sold and most of your payments have gone to interest) basically u've paid 219,960 and have earned 100,000.

If you paid the house down in 10 years you would have paid
-3,500/mo for 10 years.... total cash outta your pocket $420,000 (3500*120)

now you've paid a total of 420,000 but live in a home thats worth 400,000.

you;d be better off using the extra cashed used to pay this house down on another house and have gained 200k....

Again... this all makes sense on paper but there is alot more involved. This is just an simple example to show that rushing to pay down your mortgage isn't always the best option....

:cheers

That's pretty funny now that I've re-read it a couple of times. You're saying that paying off a house with a 10-yr mortgage is a bad idea because you've paid 120months x $3500 = $420,000 and the house has only appreciated to $400,000.
Of course you're forgetting this inconvenient math:
Same house on a 30yr note: 360months x $1996 = $718,527. The house is worth $711,400 using your appreciation rate from above. So you're saying it's a good idea to pay the bank (718,527-300,000) or $418,527 in interest.

Let's examine another scenario:
Guy with the 10year mortgage above. Payment @ 5.5% (short term=better rate) is $3,255. Ten years later, with his house paid off, he begins to invest his old house payment. $3,255/month goes into a decent mutual fund returning 10% on average for the next 20 years - when he would have had his house paid off if he had done what everyone else does. How much money does he have?: $2,471,175.
I know, I know the difference in his house payment of 3,255 and the other guy's payment of 1,996 invested over 30 years comes out to be more money. Problem is, no one does that. Plus, from the moment you own your own house - instead of owning a mortgage - you are far, far more free than you are now. Free to change jobs, free to give generously to charity, free to have Wifey stay home with the kids.

When I suggest paying off a mortgage early, I often hear that you can a better return on that money elsewhere. For example "why would I take money out of a mutual fund that makes 10% in order to pay off a mortgage that's only 6%? I'm losing 4%" The answer is that you haven't considered all the variables. 6% that you don't have to pay any more is almost as good as a 6% return on an investment. It's "almost" as good because it doesn't compound, but it's still pretty good. But the important thing is it's guaranteed! A 6% mortgage paid off is 6% that you don't have to pay - EVERY TIME. That's a ZERO risk, ZERO fail 6%. There is a convoluted formula for correcting for risk called a "Beta". You don't compare an emerging markets mutual fund to a Certificate of Deposit without correcting for risk. A "Beta" calculation does this. Having a mortgage is riskier than not having one. That fact narrows the spread. Then there's taxes. You don't cash out retirement savings to pay a mortgage (too many taxes and penalties), so we're talking about money in a taxable account. If you get that 10% we mentioned earlier, you've got to pay taxes on the gains. Long story, but after it's all said and done; risk corrected and taxes subtracted there IS NO spread between your mortgage and your mutual fund.

That's pretty funny now that I've re-read it a couple of times. You're saying that paying off a house with a 10-yr mortgage is a bad idea because you've paid 120months x $3500 = $420,000 and the house has only appreciated to $400,000.
Of course you're forgetting this inconvenient math:
Same house on a 30yr note: 360months x $1996 = $718,527. The house is worth $711,400 using your appreciation rate from above. So you're saying it's a good idea to pay the bank (718,527-300,000) or $418,527 in interest.

Let's examine another scenario:
Guy with the 10year mortgage above. Payment @ 5.5% (short term=better rate) is $3,255. Ten years later, with his house paid off, he begins to invest his old house payment. $3,255/month goes into a decent mutual fund returning 10% on average for the next 20 years - when he would have had his house paid off if he had done what everyone else does. How much money does he have?: $2,471,175.
I know, I know the difference in his house payment of 3,255 and the other guy's payment of 1,996 invested over 30 years comes out to be more money. Problem is, no one does that. Plus, from the moment you own your own house - instead of owning a mortgage - you are far, far more free than you are now. Free to change jobs, free to give generously to charity, free to have Wifey stay home with the kids.

well i knew someone would bring this up.... my scenario was for a 10 year block.... just to show how not paying off could be more benificial... no matter how you slice it your basically going to pay almost 3 times the princple of a loan over 30 years if the home is owner occupied.... i mean its an investment but its not a great one.... this is where rental properties come into play...

Why pay down an owner occupied mortgage when u can use that money to have your home and 2 rental homes and appreciation on 3 properties...

but your right its all opportunity cost....To each their own.... we all ahve to live by what we know and make sence of..... For example instead of me paying down my house i'd use that extra cash to invest in my business. the return on investment is much greater there....

there is no right or wrong answer here.... it really depends on a person's individual goals... which is why i stressed paying down a mortgage fast isnt always the right move. ( depending on what u want of course)

But hell im always willing to learn from other peoples experiences and listen to their imput

:cheers

Here's a strange idea I don't see bandied about much. As with most accelerated principal payment plans, It's a concept which works better with higher mortgage interest rates so, if you plug in your own loan figures, you may find it works well for you. Or not. The nice thing about this is it spreads out the additional principal payments a little more AND it gives you a way to keep track of exactly where you're at at any given point in time rather than just shooting into the dark.

Assumptions:

You're at the beginning of a $300,000 loan, 30 yr mortgage at 6%. Payment calculates to $1,798.65. It's time to make the very first payment.

Amortization schedule for the first four months is

Prin Int
298.65 1,500.00
300.14 1,498.51
301.65 1,497.01
303.15 1,495.50 Principal bal after 4 months: 298,796.40

Stay with me, it get's better!

Let's say you get a bonus and you are deciding how to invest it. Looking at the the first part of the amortization schedule for your loan, you know you MUST pay that first payment. The next three PRINCIPAL amounts add up to $904.94. Using part of your bonus you ADD that amount to your first payment for a total of $2,703.60 and send it off.

The effect of that extra payment is this: You totally ELIMINATE the interest amount just to the right of each of those three principal amounts. The total eliminated interest is $4,491.02.

You can look at it this way: that extra payment gave you an instantaneous and astonishing 496.27% return on your money. It's true. your extra $900 ensured that you no longer have to pay $5,000 in interest. Is it possible to make that kind of return on your money anywhere else? I just can't think of any.

Also, of course, your mortgage term just got shortened by three months, yada yada yada. (Stating the obvious, you still have to make the payment next month so don't think by making the extra payment this month that you eliminate the next three months of payments. Excess principal payments eliminate payments from the END of the mortgage, not the beginning.)

What if your mortgage interest rate is higher than 6%?

For 7%, the return is 702.25%
For 8%, the return is 979.12%

If your mortgage rate is higher than 8%, please consider refinancing at a lower rate.

Again, stating the obvious here, even though the above seems to suggest it, getting a high rate mortgage is NOT good. The returns suggested above are only paper "returns" and it does not put any money into your pocket right away. Indeed, it'll be 15 or so years before your cash will be freed up for investing.

Also, these results are only effective for about the first few years of payments (20 years or so) as listed on your amortization schedule. Those rates of return listed above begin to fall off as your mortgage balance (and therefore your interest payments) begin to be reduced. If you keep an eye on your amortization schedule, over time you'll see that you're just as well off only making the required monthly payment. After 10 or so years, you'd be in the last 5 years of your mortgage having eliminated about 15 years of it.

The above plan works pretty well if you can stick to it. You just have to have the cash flow for it.

Okay, so it's a little bit complicated. All you have to remember, though, is use your amortization schedule to keep track of where you're at on your mortgage and it's pretty easy to do. If you request it, your mortgage company is required to give you your current amortization schedule.

FWIW, of course.

--Wag--

Good one, Wag. I had to fiddle with my calculator for a while to figure out how to show this fact, but I prevailed.

One of the things I've noticed with a financial calculator is that it's the best $28 BS Detector ever. Idle away a few hours running scenarios on amortization schedules, time value of money, net present value.... It sounds as boring as a Honda, but the power of the mathematics is sort of addicting. Scenarios like the one you've laid out above are graphic depictions of why banks can afford to build luxury skyrises furnished in burled walnut and fine Corinthian leather.

I think I'll busy myself compiling a list of financial/mathmatical factoids that every high school senior should know but doesn't.

I have an HP12C which I love but what I REALLY am in lust with are my spreadsheets. I have 'em on my Palm Pilot, laptop, PC and if I could, I have 'em on my phone!

The above came from an amortization model I've done a gazillion times. Nice thing is, you can do it on someone else's PC and leave it for them to play with but with VERY clear instructions.

It's a thinking tool.

What's the old saying? "Those who understand interest collect it and those who do not understand interest pay it."

Evidence of that fact all around us.

--Wag--

Your points are very valid but as you said, "rushing to pay down your mortgage isn't always the best option...."

Every individual needs to run the numbers on his own situation and figure out what works best in that circumstance. The nice thing is, most of us now have access to spreadsheets which can give you the answer you need in a few moments.

One of the most important things to stay aware of is the anticipation of appreciation. Real estate does not appreciate EVERY year!

Also, if you pay down a lot on your principal, it's going to make you more able to liquidate if you wish. Very important to keep that thought in mind as you decide whether or not to pay down on your house early.

Nice post, man.

--Wag--
Excellent point on appreciation, the housing bubble is done, and many places across the country, houses are actually depreciating dramatically. Besides, once you figure inflation in, your home doesn't earn anything over time. Your lucky if it keeps up with the rise in inflation. :thumbup

Excellent point on appreciation, the housing bubble is done, and many places across the country, houses are actually depreciating dramatically. Besides, once you figure inflation in, your home doesn't earn anything over time. Your lucky if it keeps up with the rise in inflation. :thumbup

Another thing to consider is your own earning power. Mighty big "IF" here, IF you keep your mortgage for 30 years, by the end of it, you'll be making double or triple what you are today and your house payment will be EASILY manageable. Remember all the old-timers who now have $300 house payments? I think I could handle that!!

--Wag--

Another thing to consider is your own earning power. Mighty big "IF" here, IF you keep your mortgage for 30 years, by the end of it, you'll be making double or triple what you are today and your house payment will be EASILY manageable. Remember all the old-timers who now have $300 house payments? I think I could handle that!!

--Wag--
That was once true, but with our horrible economy it's nothing like that now. Inflation far outgrows wages, and that seems to bother no one, or atleast everyone ignores it. Everyone pretends everything is ok.
You do make an excellent point though, at one time you could really benefit from this.

Another thing to consider is your own earning power. Mighty big "IF" here, IF you keep your mortgage for 30 years, by the end of it, you'll be making double or triple what you are today and your house payment will be EASILY manageable. Remember all the old-timers who now have $300 house payments? I think I could handle that!!

--Wag--

If you get a 30-year mortgage any time after age 35 means you're going to have to work past 65 to pay it off. Any thoughts of early retirement evaporate unless you have a plan to pay off your mortgage before you retire. Which puts you back to what Dorkfish told you to do in the first place - put in place a methodical plan for paying it off.

Anyone know people who trade up in house as their income increases? Yep, everyone. Anyone know people who consider how they're going to make payments on a 30 year mortgage when they're 72 years old? Nope, no one. You can rationalize all you want about how you're going to be paying that mortgage over those last few years with money that's nearly worthless. But you still have to make the payment. Which means you have to work. Plus, there's the uncomfortable fact that the banks have already calculated the Net Present Value of the loan taking into account inflation among about a zillion other things. You don't win this game - they're waaay ahead of you, throwing out tidbits of cultural money mythology for you to quote to your equally benighted friends.

That's why I put that mighty big fuckin' "IF" in there! :D I only mentioned it as a hypothetical. The fact that money loses its purchasing power is EXACTLY the reason keeping a mortgage for 30 years is a potential benefit but it really only benefits a cash flow situation many years out. Your payment keeps the same printed value BUT, the cash flow impact of it in 20 years will be less than it's cash flow impact now. Another way to look at it is this: If you're mortgage is 60% of your income today, in 20 years, assuming you are getting paid more, it may only be 30% of your income. That's why a retiree could conceivably make the last 5 or 10 years of payments on a Soc Sec income (not that I believe that, still speaking hypothetically now) because the SS income amounts are adjusted upward for inflation while the mortgage payments remain steady.

Of course, hardly anyone keeps a mortgage for 30 years these days. In any case, paying a mortgage off early is ALWAYS a good use of current cash no matter what. You'll save far more in interest than you'll ever lose to inflation even considering NPV factors.

That, of course, precludes the possibility that you're in the 20th year of your payment stream but harping on the same theme people just don't keep 'em that long any more.

Debt is such a curious thing . . . .

--Wag--

Wag, didn't mean to sound harsh. I meant a generic "you" as in "Americans" versus a specific "you" as in "you, Wag". Sorry.

The most curious thing about debt to me is how vehemently people will defend using it. They desperately cling to the idea that they're handling money in a sophisticated manner, even as they sit in the squalor of tens of thousands of dollars in credit card debt, upside down car loans, interest only mortgages, home equity lines of credit, the list goes on. A guy who brings in $4,000 a month with $3,800 going back out in payments will argue with you till the end of time about how he's using "Other People's Money" or "leverage" to get what he wants - the Hummer, the Gixxer, the pool - when in reality he's a slave.

Best to you.

I sorta thought that, so I stuck the :D in there to reduce the impact of my reply! Generally speaking, I like your ideas and rarely disagree with your comments in a major way.

Like you, I think most people not only do not understand debt but they don't understand personal finance, either. I know I didn't for a very long time. This shit should be taught in High School, end of discussion. I guess people are afraid to teach kids word problems any more.

As for debt specifically, I do believe there is a such thing as good debt but it is NOT as most people look at it. All the ones you listed are NOT good debt in any way shape or form. Why people defend it is beyond me. "Slave" is a good word to use for it but worse, they are WILLING slaves.

I do like the RD,PD idea that if, for example, you buy a house and rent it for more than the expenses, it's good debt. Of course, the moment the tenant moves out and there is no income any more, it's bad debt, pure and simple. Not only that, but if you're too close to the edge on something like that, losing a single month's rent can take years to recover from.

Much money has been made out there with good debt. My last house made me FAR more than I put into it, including interest. But that was a circumstance of good fortune wherein capital appreciation made it work for me in a windfall. It isn't normal and you sure can't rely on capital appreciation to turn your upside down debts into good fortunes for you. Even in real estate. But with other items like cars and stereos and computers, there is NO way you can recover the money you put into it. (RARE, one in a bazillion exceptions do apply.)

I have no mortgage right now and as a result, I haven't worked for over seven months. Free. Pure and simple.

Carry on, my good man!

--Wag--

I've been reading over this thread getting some great ideas

I'm 25 and am saving for a house currently

I'm making approx 3.5-4k/month (take home)

I know what house I want to buy and am expecting it to cost between $410-430k

There is a 3 car garage with an apartment above it I can charge 600/month rent for. I also plan to have a roomate until I'm married which I will charge another 600 rent. I plan on putting $40-60k down on it.

You guys think I can afford it? I'm sure I can make the payments, but I really don't want to be at the point where I don't have enough money to do the things I enjoy. I also would like to be able to save money so I can buy other properties to rent...

What percentage of your income are you guys using for your mortgage?

Sounds like a good plan. I don't remember the standard for % of income when lenders are giving out money. Half, maybe?

Sounds like a good plan, technically. Just be sure you can afford to make the mortgage payment if one of your tenants stiffs ya.

--Wag--

Sounds like a good plan. I don't remember the standard for % of income when lenders are giving out money. Half, maybe?

Sounds like a good plan, technically. Just be sure you can afford to make the mortgage payment if one of your tenants stiffs ya.

--Wag--

sorry guys, I don't have many people to talk to about mortgages.....

Another quick question....I don't even know where to begin to look for a loan

I have two years to look around...what do you guys recommend when searching for one? Do I just go around bank to bank and see who gives me the best rate?

Where do you live?

Rates are indeed the first thing to look at but the next most important thing is to know what OTHER fees and costs are going to be included. I had a lender try to stiff me for nearly $1,000 in courier fees. THAT, of course, didn't happen! Made her take tha crap off of there along with SEVERAL other things. They all do it, though, so just pay attention to the cost estimates as early on as possible. MAKE them give that cost sheet to you before you sign anything.

I've been curious about this Di-Tech thingy I keep seeing. Flat $399 fee or something like that? Makes me worry about the interest rate is all but if if they are competitive on the rate, it might be a good deal.

--Wag--

Where do you live?


its a nice area in south jersey

philadelphia suburbs, taxes are quite high

Eh. I was hoping it was a place where I could refer you to a lender who wouldn't bend you over.

Regardless, best of luck and if you have any more questions, let us all know.

--Wag--