Invest in something very conservative that is going to build wealth long term.
Do interest rates work the same on these loans?
I had been putting money into my 401k, but I don't have that anymore.
It depends on a few things. They're idiots if their mortgage is only affordable at the current interest rate. The main reason the housing market crashed was because nobody planned for rising interest rates, which is insane because interest rates were at record lows. Anyone who wasn't completely retarded could have predicted rising interest rates. When the interest rate increases by 1%, people with 30+ year loans see huge jumps in monthly payments because the first years are mostly interest. My mortgage is at 3.8% interest, but I could afford the mortgage up to 8% interest, and that's only if minimum payments are made. I've paid about 1/3 of the mortgage in 2 years, so the rates could probably go higher than 10% and I would still be ok. Interest rates are currently at record lows, so there's about 100% chance of the interest rate going up at some point in the future.Are my friends stupid for buying homes with little down and no savings? I have a lot more in savings than some (not all) of my friends, but they're all buying houses!
Detroit?Do you know anyone's rent that doesn't change for 10 years?
Most articles about real estate are painfully stupid. Does anyone buy a piece of land then do nothing with it? Of course not. People buy houses or apartments so they can be leased. If you don't feel like dealing with cunty tenants, you can get into the real estate market by purchasing REIT stock. I'm pretty sure I casually recommended an REIT in that stock market thread I started last week. The dividend yield was something like 14%. REITs often have very good dividend yields because the profit margins are so high. As Pizza pointed out, mortgage payments stay the same while the rent being charged is always increasing.This has got to be the stupidest article I have ever read. He assumes a couple things
1. The stock market, year in and year out, will always give you an 8% ROI. Every. single. year.
It depends on a few things. They're idiots if their mortgage is only affordable at the current interest rate. The main reason the housing market crashed was because nobody planned for rising interest rates, which is insane because interest rates were at record lows. Anyone who wasn't completely retarded could have predicted rising interest rates. When the interest rate increases by 1%, people with 30+ year loans see huge jumps in monthly payments because the first years are mostly interest. My mortgage is at 3.8% interest, but I could afford the mortgage up to 8% interest, and that's only if minimum payments are made. I've paid about 1/3 of the mortgage in 2 years, so the rates could probably go higher than 10% and I would still be ok. Interest rates are currently at record lows, so there's about 100% chance of the interest rate going up at some point in the future.
Where did he say his friends bought houses with a loan that's an ARM? Your understanding of a mortgage is...completely wrong if you think the rate can just bounce around, especially on a 15 or 30 year loan.
Ignore everything he said. If you can easily afford the house when the interest rate is X%, then you can afford the house as long as your lifestyle stays roughly the same or better. The rate can't increase and you'll never be obligated to pay more than your set monthly payment unless you get an ARM, which isn't always a bad idea. ARMs can be risky, but they also have a lot of potential upside if you understand the implications of having that kind of mortgage.
But how many people get a fixed mortgage? The interest rates are much higher because you're buying an insurance policy against rate changes. Banks have armies of mathematicians and statisticians that do nothing but crunch numbers. If you're buying an insurance policy, you're going to be on the losing end of the deal almost every time. Banks are not stupid.Where did he say his friends bought houses with a loan that's an ARM? Your understanding of a mortgage is...completely wrong if you think the rate can just bounce around, especially on a 15 or 30 year loan.
It is a good idea to buy if you are going to live there at least 3+ years. 5 years or more is even better.
Where are you living to have such cheap housing?
$565K is the average older 3 bedrooms house in my area. A new home would start around $650K for a new 3 bedrooms bottom of the barrel home in not so good neighborhoods .
Do you think the interest rates will jump 68% or more in the next 5 years? If yes, get the 30 year fixed. If no, get the 5 year ARM.
But how many people get a fixed mortgage? The interest rates are much higher because you're buying an insurance policy against rate changes. Banks have armies of mathematicians and statisticians that do nothing but crunch numbers. If you're buying an insurance policy, you're going to be on the losing end of the deal almost every time. Banks are not stupid.
bank of america
30 year fixed = 4.584%
5 year ARM = 3.218
Relative difference: interest on the 30 year fixed is 42% higher.
The amount you are paying in interest is mostly in the first years, and the amount of interest decreases every year.
Here's a simple demonstration of how this works. Suppose you borrow 100k and the mortgage length is 30 years. For the first 5 years, a rate of 4.584% will cost $509 per month and costs this much in interest each year:
1 - $4,507.76
2 - $4,433.50
3 - $4,355.81
4 - $4,274.51
5 - $4,189.44
total = $21,761
To keep things fair, let's use the same monthly payment of $509 for a 5 year ARM at 3.218%. With this payment schedule, the mortgage length is only 23 years instead of 30 years, and interest paid in those first 5 years are:
1 - $3,153.06
2 - $3,055.96
3 - $2,955.74
4 - $2,852.23
5 - $2,745.40
total = $14,762
So what happens after 5 years? The 30 year mortgage still has $91,214.42 principle remaining for 25 years while the 5 year ARM has a principle of $84,033.39 remaining for 18 years. Let's say the interest rates are going up, it's no longer possible to finish the ARM in 18 years, and we're going to extend that to 25 years so it takes a total of 30 years. With that same limit of $509/month, what is the maximum interest rate the ARM can have before it becomes unaffordable? The answer is 5.4%, which would be a relative increase of 68%. This leaves us with a question. Do you think the interest rates will jump 68% or more in the next 5 years? If yes, get the 30 year fixed. If no, get the 5 year ARM.
Care to show where my numbers are wrong? Here's a calculator you can use:Wow. I mean. Just WOW.
Do you even do you even math bro?
Wow. I mean....WOW! I need to switch careers because people are really this stupid.
-edit-
WOW! WOW! I don't mean to sound condescending but do you have any idea how compounding interest works?
Care to show where my numbers are wrong? Here's a calculator you can use:
https://www.usbank.com/calculators/jsp/MortgageLoan.jsp
Late 20s. I want to own my home before I jump head first into investing. As I said in my first post, the numbers show that I could keep afloat on minimum wage once my mortgage is completely done. That's a really great position to be in. How many people put up with bullshit at work because they absolutely need that job? I would probably be more successful at work just by having that aura of confidence, not caring if I get fired or let go for other reasons. I was always more liked at the jobs that I didn't care about - retail stores, mcdonalds, etc. The other great thing about having a low debt load is that it reduces the chances of being forced into a position to sell. Nobody forces you to sell things when the market is booming. People are forced to sell when it crashes. In 2008, lots of people lost their jobs and were only able to find part time or minimum wage work. If there was a mortgage to pay, people lost their homes. They had to walk away at a huge loss, abandoning the house when the market is at the absolute bottom. The middle class people who didn't have debt, such as my parents and most other baby boomers, did fine. The upper class people who had surplus cash made an absolute killing because every stock and piece of property was on sale. Intel was half price, microsoft was half price, condo buildings half price.You are totally neglecting the gains from the market and focusing short term.
Your numbers arent wrong. Your 10-30 year wealth building are.
May I ask how old you are? I didn't get my wake up call on wealth building till my late 20s. Damn I was foolish and stupid.
Don't do this. You'll literally go crazy after not working for 30 years. I would bet the only reason Warren Buffet is still sharp is because he's still working at age 83. He might work fewer hours, but he's still working.What is my net worth? How can I make my money make more money for me. I plan to retire by age 50 based on my money. Just 8 years to go.
I'm contemplating at moving, but the city I live in is the nicest city in Canada to live. Other cities may in crease my income by 50-100% however winter is 6-8 months of the year with an average of 28-35 days per year that the temperature drop below -20C.Move. Increase your net worth.
Move.
But how many people get a fixed mortgage? The interest rates are much higher because you're buying an insurance policy against rate changes. Banks have armies of mathematicians and statisticians that do nothing but crunch numbers. If you're buying an insurance policy, you're going to be on the losing end of the deal almost every time. Banks are not stupid.
bank of america
30 year fixed = 4.584%
5 year ARM = 3.218
Relative difference: interest on the 30 year fixed is 42% higher.
The amount you are paying in interest is mostly in the first years, and the amount of interest decreases every year.
Here's a simple demonstration of how this works. Suppose you borrow 100k and the mortgage length is 30 years. For the first 5 years, a rate of 4.584% will cost $509 per month and costs this much in interest each year:
1 - $4,507.76
2 - $4,433.50
3 - $4,355.81
4 - $4,274.51
5 - $4,189.44
total = $21,761
To keep things fair, let's use the same monthly payment of $509 for a 5 year ARM at 3.218%. With this payment schedule, the mortgage length is only 23 years instead of 30 years, and interest paid in those first 5 years are:
1 - $3,153.06
2 - $3,055.96
3 - $2,955.74
4 - $2,852.23
5 - $2,745.40
total = $14,762
So what happens after 5 years? The 30 year mortgage still has $91,214.42 principle remaining for 25 years while the 5 year ARM has a principle of $84,033.39 remaining for 18 years. Let's say the interest rates are going up, it's no longer possible to finish the ARM in 18 years, and we're going to extend that to 25 years so it takes a total of 30 years. With that same limit of $509/month, what is the maximum interest rate the ARM can have before it becomes unaffordable? The answer is 5.4%, which would be a relative increase of 68%. This leaves us with a question. Do you think the interest rates will jump 68% or more in the next 5 years? If yes, get the 30 year fixed. If no, get the 5 year ARM.
At your age you should really follow my advice.
I wish i had known what I know now back then.
Do the math. Build wealth. Make your money make more money.