How do you afford your f $%ing Sprinter?

reboot wrote: Math doesn't lie: 7% > 2.875%. There's really nothing to calculate. But feel free to produce your numbers & I'll show you where the number is wrong. Did you do this for the entire 15 years or just the first year? The interest earned on investment increases over time (as it compounds) while the interest you are paying on the mortgage decreases over time (more of your mortgage payment goes toward principle than interest over time). Anyway, here are the numbers: 1) your monthly payment is around $684.59 (+tax & insurance) over 15 years for a 100K loan @ 2.875% 2) To pay it off in 5 years, you'll need to put in $1791.32/month (not quite your once a year overpayment, but same idea) 3) either way, the house is yours in 15 years worth exactly the same a) if you do 1), the difference is $1106.73/month you have for investment, over 15 years @ 7% return, you'll have ~$357K b) if you invest $1791.32/month for 10 years (which you won't start until 5 years in, so we are still talking about at the end of 15 years) @ 7% return, you'll have ~$318K c) if your return is 2.875%, then you'll have $252K either way you may have actually put in more money into investment with option b), but the earlier investment option a) generates more interest & more money in the end feel free to use any of the mortgage & investment calculators online to disprove my numbers. Edited to add: mortgage deduction lowers your effective rate & makes option a) even more attractive. Tax liability of option a) is possibly slightly higher (since you put in less money), but unless long term capital gain tax becomes 75% or higher, you'll still be comfortably ahead.

If that is all true, then why not take out a 2nd or 3rd mortgage on your house to invest it?

Stagg54 wrote: The number one advantage to owning a house ~ fixed housing cost. Rent goes up every year. Once you get a mortgage, the monthly payment amount stays the same for the term of the mortgage and once you pay it off, goes to 0.

This. As Seattle's been relentlessly Amazon'd over the past half-dozen years, 10% annual rent increases are the norm and 20% increases are not uncommon. I see more $60k+ German luxury cars than vans at at the Index parking lot these days. The two are probably related.

BillS wrote:7%? I wish. We'd all retire at 40 or 50, there'd be nobody left working.

7% is still a widely held expected return on a diversified portfolio. The reason people don't get this rate is that they (1) invest in mutual funds with high fees, and (2) let their emotions run the show. There are pages upon pages written on this subject, and the fact of the matter is that people can't sit still long enough to reap the benefits of compounding interest over the long term, and generally end up netting returns that barely exceed inflation. People tend to hop on various bandwagons when things are good, and freak out (and sell) when things are bad. Buying a low-fee index fund and sitting on it for 20-30 years, statistically speaking, will net you about 7% -- many studies to support this. Most just don't do it. If you think you have the chops to pick individual stocks, you probably don't.

reboot: you're missing one side of the equation: how much did you spend on on interest on the loan.

Scenario a:
Total interest paid: $23,225.43
Total Investment balance (principal plus interest): $357,093.79
Net: $333,868.36

Scenario b:
Total interest paid: $7,457.40
Total Investment balance (principal plus interest): $317,785.90
Net: $310,328.5

Sorry, yes you are correct, you save more. I was mis-remembering my analysis. But it's only a 23k difference (small for a 15 year investment timeline).

This is also assuming idealized 7% annual return, which as has been pointed out isn't exactly realistic. And the market right now is pretty volatile.

The benefit of my method is a large portion of your income isn't tied up for 15 years. Which means you can ONLY use it for the house, and not other things you may want.

I guess it's important to note I'm also investing for retirement at the same time. I'm maxing my 401k contribution, and I now have an IRA this year. So I'm less concerned about long term investment.

So I understand your point, but I guess I'm evaluating it from a different perspective. I feel that my method is more practical in real life. To me, the extra freedom of having the house paid off is more important than the extra 23k savings.

BillS wrote: The 1% is much smarter than all of you, we'll all be living in vans soon.

Brilliant!

BillS wrote:30 yr fixed is a chump loan, good luck outrunning the interest. Google "average investor return" and maybe apply some of the math skillz on display above to your own portfolio - compare that to your 30yr fixed rate. Welcome to adulthood. Maybe Blue Collar Bill can advise. The 1% is much smarter than all of you, we'll all be living in vans soon.

I can't advise what I don't understand! Are we arguing that living in a van and investing the money that would've been used to pay a mortgage? That's going to create better ROI?

I bought a house in December 1997 for $115,000. My wife and I paid on that house for 9 years and owed about 58K when we sold. We sold for $237,500. I'm still high off shorting bank stocks and buying gold futures last Thursday so I got mad love for the stock market right now. That said.. Buy a house first.

I think the one point you are missing is the risk. If you have the house paid off in 5 years and than at 6 years something happened and you lost your job it would be much easier to not have a house payment due and live off savings vs an investment that in the short term may not be that much.

This is a personal choice though and people are different. Being a diabetic (real one not a type 2) I am screwed either way with what medicine would cost me without a job and insurance, really the only reason I haven quit my job sold everything to live out of a car / hammock already.

Do people really come here for investment advice?

Brian L. wrote:reboot: you're missing one side of the equation: how much did you spend on on interest on the loan.

That part doesn't really matter in the computation (other than if you can deduct mortgage interest, then scenario a) becomes more attractive).

In either scenario, you are contributing the same total amount each month for 15 years (so it's a fixed "cost" if you will). At the end, the house is paid off (so it's an asset that's worth exactly the same), so you just need to look at the difference in investment balance. Yes, you paid more interest on the house, but you didn't contribute any extra money; that part is fixed.

Stagg54 wrote: If that is all true, then why not take out a 2nd or 3rd mortgage on your house to invest it?

You don't get the same interest rate on the 2nd or 3rd mortgage, and there is closing cost to a mortgage. But if you took out a 1st mortgage, the fees become sunken cost, and doesn't factor into the cost of paying it off earlier or later.

ViperScale wrote:I think the one point you are missing is the risk. If you have the house paid off in 5 years and than at 6 years something happened and you lost your job it would be much easier to not have a house payment due and live off savings vs an investment that in the short term may not be that much.

If you are getting a higher return, then you should be able to pay it off at the end of 5 years if you want to. But you don't have to, because you can liquify investment & weather the unemployment period for longer. But say you lose your job earlier in the mortgage, then you can liquify investment and make more payments than if you'd put in extra money (just because you've been paying extra doesn't mean you can miss the next payment). And if things become really dire and you have to lose the house, well, then, you'll still have your investment.

That said, chance of job loss is inversely correlated with the economy (and your investment return), so the assumptions may not hold. But short-term/long-term disability isn't. I'm not saying you should do one or the other: nobody can look into the future and tell you which will end up being better.

Brian L wrote: The benefit of my method is a large portion of your income isn't tied up for 15 years. Which means you can ONLY use it for the house, and not other things you may want.

Bit confused here - it is the same monthly input in both calculations, right? ~1700/mo? Just different in how you allocate it b/w investments and mortgage payments?

Or are you saying you pay off the house in 5 years and then turn the 1700 into disposable income?

Tim Lutz wrote: it is a lot better than the relationship advice question for those in the know: if we refi, can my wife add her student loans to the house loan? her loans are from the 80s and she is paying 6ish%

Cash out refi, if rates are now somewhat lower than your original mortgage.

Gordon88 wrote:Do people really come here for investment advice?

Only the ones that got nothing to loose...

Buy Natural Gas

Tim Lutz wrote: it is a lot better than the relationship advice question for those in the know: if we refi, can my wife add her student loans to the house loan? her loans are from the 80s and she is paying 6ish%

Pros and Cons... of doing it...

studentloanhero.com/feature…

Morgan Patterson wrote: Pros and Cons... of doing it... studentloanhero.com/feature…

I wonder about the neutrality of that website...

If you have < 80% LTV on your home now, you can certainly try to refin for more than what you currently owe on the house & use the extra money to pay down the student loan, as someone else has said.

Jon H wrote: This is the biggest fallacy in personal finance. Shelter is an unavoidable cost unless you're prepared to go fully homeless. Rent is not "throwing money away" any more than eating is. Buying a house is almost never worth it unless you plan on staying 4-6 years minimum AND believe that the real estate market will be strong when you are ready to sell. The hidden costs of home ownership wipe out all the equity and throw you into a deep hole that takes years and years to climb out of, even if you don't feel it when looking at your monthly budget. A homeowner is responsible for: closing costs($5,000-$10,000), unexpected repairs ($thousands), property tax ($1500-$10,000 per year), homeowner's insurance ($1000/year), PMI on your mortgage ($2000/year), possibly HOA fees, and lots and lots and lots more. Owning a house is seriously expensive. None of those things are the responsibility of the renter except for insurance, but it's $150/year instead of $1500/year. Buying a house is no longer the sound investment that it was for the Baby Boomers. More often then not, from a pure financials perspective, renting is the far better choice.

Do you think landlords are charitable. Your rent covers all these costs and then some. Hello.

And once again, the answer is: It depends.

Greg D wrote: Do you think landlords are charitable. Your rent covers all these costs and then some. Hello.

Maybe maybe not. Charitable isn't necessarily the question. Sensible is.
Some landlords are counting on appreciation, not rent, to make the $, and the landlord amortizes the aforementioned costs over the long term of holding the place - if she was only staying a few years, she'd fall short of making it work too.
Some landlords are also scumbags, just like some tenants/renters and buyers are. Seen it all over time. None of it makes any one clear answer right for all people.

Jeremy Kasmann wrote: Bit confused here - it is the same monthly input in both calculations, right? ~1700/mo? Just different in how you allocate it b/w investments and mortgage payments? Or are you saying you pay off the house in 5 years and then turn the 1700 into disposable income?

If you're paying the house off through full loan term you HAVE to spend that money each month on your house. (your minimum payment)

If your house is paid off early you can do whatever you want with that money, based on your own personal choice. Invest it, spend it, etc. It becomes disposable income, instead of allocated income.

So I gain ~$685 a month more disposable income. The additional money I'm using to pay off the house is bonus, plus income I already allocated to savings for various things, so it also free's up that money for other purposes.

If you're investing all your money, then you're not able to enjoy it. Like I said, I have retirement covered already, so for me the priority is freeing up income.

yet another variable is whether your retirement investment is made with pre-tax dollars vs a mortgage that is not. obviously everyone's situation is different and some people are better off paying off their mortgage early while others may be better investing the over payments.