Mortgage rates

Discussion in 'Business, Investing & Finance' started by Zambo, Jul 3, 2019.

  1. ExecutiveGator

    ExecutiveGator Paragraphs are great tools. Use them.
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    I have considered it greatly. In fact, if I keep the same payment amount as my previous mortgage, I’ll pay the loan off in 18 years and save $40000 in interest versus having kept my current loan and continuing to make the same payments another 20 or so years.

    So, to be honest, I’m torn on what to do with the money. I like saving roughly $65K of total interest over the new loan if I pay it off early, but I also like the idea of earning more than a fixed 3.5% on that money which can be tangible now and not in 18 years, if that makes sense. I know saving is the wise thing to do, but do I gamble the money in hopes of earning more than 3.5%, or take the safe conservative play? This is where I struggle.
     
  2. FireFoley

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    Well whichever you decide you do not have to stay on that path each month. There is absolutely nothing wrong with getting the home paid off asap especially b/c those are large numbers and especially if you are staying in the home for a long time. The part about the investing the money offers many choices. You are young enough to be a little more risky, however since this is money that was derived from a refi, I understand that you want to protect it at least and earn something if possible. There are online savings accts and CD's that yield 2+% but I know that is not what you had in mind. There are dividend stocks and funds that will yield you higher than 3.5% but then you run the risk of the stocks/funds going down in price. I don;t think there is a wrong answer as paying off any debt is never a bad thing but having your money make you money is good also. My only advice is to stick with what you know and what you brings you the most comfort. congrats again.
     
    • ExecutiveGator

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      Thanks for the free advice. My gut says take the guaranteed money and continue to invest with the other funds as I’ve previously been doing. But, to your point, I’ll continue to look at this strategy as it progresses.
       
      • Concrete Helmet

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        I agree. Even $100 a month of that $400 in the beginning of a 30 year is YUGE....Look at the amortization table at the beginning of a 30 and you're paying several dollars of equity in the first few years...also consider a bi monthly if on a 30...big buydown over several years. The other thing is looking at the traditional investment market(stocks & bonds) isn't super exciting at least in the short term IMO. You can always float more of the $400 if things get really good.
         
      • GatorInGeorgia

        GatorInGeorgia Senior Member
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        Here’s a thought. You could apply all the savings to pre-paying the mortgage and consider that the “bond fund” portion of your investment portfolio. For example, let’s say your investment profile says you should have 10% of your portfolio in fixed income/cash. Throw the extra money into your home and then allocate your investments so that you put more money into aggressive investments and the fixed income portion is reduced/eliminated. It could be the best of both worlds where you’re getting a pretty good return on your prepayment (relative to bonds) and you’re getting added security of paying the house off sooner. You know what they say...you can’t sleep comfortably under just a stock or bond certificate but you can sleep comfortably in a free & clear home.
         
        • FireFoley

          FireFoley Senior Member
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          Nice post but I had to chuckle at the last sentence as it reminds me of why I sold my home in late 2005, When people were buying 10 houses at a time with no money down, etc. and I decided it was not going to end well and knowing Florida is a judicial state and every foreclosure has to go in front of a judge unlike states like AZ and NV where a foreclosure can get done in a few months, when there are a lot of them it takes years in FL and people stay in these houses and never pay a cent. So I decided the order in which bills would get paid by people and determined that you can sleep in your car and drive it to work, but you can't drive your house to work.
           
          • Gator By Marriage

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            This is great advice, especially the bit at the end. Reminds of something I read once (from Warren Buffett maybe?); never invest in something you don't understand. Addressing the issue under discussion, I believe another factor may be where you are in life. For example, if twenty years ago I was given the amount it would currently take me to pay off my house, I would have invested it; today I'd prolly pay off my mortgage.
             
            #67 Gator By Marriage, Oct 10, 2019
            Last edited: Oct 10, 2019
          • GatorInGeorgia

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            :lol: Well, you’re correct about some people staying in a home long after foreclosure proceedings had begun. However, I would say a lot of that was more because of fraud, technicalities & failure to “dot the i’s and cross the t’s” more so than Florida being non-lender friendly in foreclosure proceedings. If I recall correctly, a few lenders were using the same “person” to “robo-stamp” certain documents required to be individually signed for Florida foreclosure purposes and when a few borrowers’ attorneys figured it out they slowed the process down dramatically. Foreclosures that had the correct paperwork in Florida seemed to move forward normally.
             
          • NVGator

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            C26007F5-877B-4ED3-A946-DE55B2A81370.jpeg
             
            • BMF

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              I can't believe prices keep going up. The wife has been monitoring south Tampa, as that's where we hope to move after leaving DC in a year and a half (or longer). It seems in certain areas prices are strong and on-the-market times are short. However, we have seen in some areas price drops and homes sitting longer. Still, I figured moving to Florida I'd be able to find something much less than what homes are worth here in the DC area - but if you want in a nice neighborhood the prices are similar (in Tampa) - but the homes are much bigger and nicer than what you can get for the same price in the DC area.
               
            • FireFoley

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              You are not wrong but this is what I am finding and what I believe has been happening, and it is basically all due (or 99%) to lowish mortgage rates. I recently sold a home in G;ville and I can't believe what that piece of crap went for. The reason I believe it is that the price was in the zone where almost anyone could afford it, thus I had a large pool interested. But I saw higher priced properties were sitting. Fast forward to where I am now in southeast Florida where homes are much pricier than Gainesville and I am finding the same thing: Prices are compressing. Lower prices are going up still and higher priced homes are sitting and their prices are dropping. I look at the inventory every day as I can't decide to purchase again or just live out my days renting. But you seem like the type who wants to purchase what you "want" to afford, and not necessarily what you "can" afford. And that is where the continuous low rate cycle bites many people. Especially younger buyers or people with a family fall into a trap of "spending their max". They give no consideration to anything beyond "What is my monthly payment, usually PITI" (Principal, interest, mortgage, taxes). they give no regard to upkeep, etc. etc etc. and have no idea that home ownership is a money pit. And they give no consideration to any future events such as interest rate adjustments and/or other economic events. Now if you are going to stay 20 plus years then I understand, but most people don't. So even tho I do not think there is good value in home ownership in these areas of Florida right now, if you are wanting to purchase, the value is at the end of the spectrum where there are fewer would be buyers. Those homes are sitting and those prices are dropping.
               
            • BMF

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              FF, good comments. I agree w/ you on the higher priced homes sitting longer and dropping in price. The home we own in Arlington, VA is in the range of "most people can afford" (it's around $600K, which is very affordable for most dual income couples in this area due to high salaries). I'm looking to put a fat down payment on the next home purchase and a 15 year mortgage (I'm turning 50 next year and really don't want to get into a 30 year in my primary home). We hope to buy a vacation/airbnb home in St. Pete Beach or somewhere in that area also. I hope these rates stay below 4.5% over the next 18-24 months. The DC area is somewhat insulated from a big price drop if there's any sort of recession. Also, Amazon is building "HQ2" here and it's a big deal w/ all the realtors. I think we'll do really well when we sell. It would be nice to see a little drop off down south before we make our move though!
               
            • FireFoley

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              @BMF you might not like what my opinion is here, but if I am in your shoes, I would hope for a moderate interest rate rise. Enough to put people on their heels. B/C you are in the DC area, which I know is somewhat insulated due to gov't employment etc. Florida has also become a bit insulated due to so many coming south b/c of SALT and other high taxes and costs. But mainly that is on the very high end. As you well know, 600K is on the high end in most parts of Florida, but you are a smart guy and I know you are not looking for a high monthly payment. A mortgage rate increase will work in your favor. I just read a report yesterday that for the first time in a long while the amount of cash out refinances went up by a lot. This is where the it can get dicey if rates rise. Most of the refi's were for the outstanding balance (which is the way to do it usually), but when the cash out refi's grow, trouble will usually lurk. Often times people fall into the thought that my house will never go down in value and we know how they idea worked starting in about 2006. I am of the opinion that most people are at their peak in what they are paying for houses b/c every time their is a tick down in mortgage rates, many step up a smidge in price. Those rate rises bring prices down and cause people to stay longer than they want (one reason inventory is so low) and takes potential buyers out of that potential price range.
               
            • BMF

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              Good points FF. Even if rates go up to the 4.5% (30yr) range I think it'll cause a panic. I had a 7.125% rate in 1997 on the first house I bought and refi'd it to 6.875 about 6 months later and told friends, "Man, I can't believe I got a rate under 7%!" These young people today have no clue - BUT prices are over inflated because of it. Anyhow, I hope to take advantage. We're not in a hurry and we'd rent something - or build. But the south Tampa area is pretty competitive and pricey.
               
            • FireFoley

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              @BMF you hit the nail on the head and I have been saying it for years, but the loud mouths on the blower scream every day about how historically low mortgage rates are and you should buy any house and pay any price. Factually it is correct that mortgage rates are historically low, but here is the rub that you mentioned. 99% of the first time home buyers think any mortgage rate above 4% is high and 5% is insane. Over the last 10 years the 30 yr. mortgage rate has gone above 5% only a few days. So all these 20, 30 and 40 year olds say "SHYT" I could have had a 3% mortgage and now it is 4.5%. That is a 50% increase (yes I know it is only 150 basis points). I was a kid when mortgage rates were 14%. My first home, rates were 7.5%. But the majority of people have only known 15 and 30 year mortgages between 2.5% and 4%. Telling them them that 5%-6% mortgage rates is a steal is false. To them that is a very high rate and to them it IS a high rate. The blowhards need to stop with the historically all time low BS.

              You know what you are doing. You don;t need any help. Best of luck with finding something you want and like. Remember this. The home you live in is a "lifestyle" investment. The rental (2nd) home is a "financial" investment.
               
              • Detroitgator

                Detroitgator Well-Known Member
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                I love your last two sentences and I’m in the camp that treats primary residence as a liability because even if paid off, it creates expense, not income.
                 
                • FireFoley

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                  Home Ownership = Money Pit

                  Just like I consider my car a liability and not a depreciating asset.
                   
                  • GatorInGeorgia

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                    So in 2011/2012, mortgage rates were extremely low. I recall I refi’ed in April 2012 at 3.875%. Rates dropped further and fell to about 3.32% (30 year fixed) in November of that year. The yield on the 10 year Treasury was approximately 1.65% during late 2012.

                    Here we sit 8 years later with the 10 year at 0.98% and the rate on the 30 year, from what I see, is...3.62%. So, with 10 year rates about 70bps lower than in late 2012 mortgage rates are 30bps higher than 2012 lows.

                    My math shows that to be about a 100bps swing which would mean the 30 year fixed should currently be approximately 2.62% to 2.64%. Somebody...or some lender is making out pretty well while consumers aren’t getting nearly as good a deal as they did 8 years ago. Anybody care to venture a guess as to why and if they think rates will drop precipitously from this level if the 10 year stays around 1%? Discuss.
                     
                  • BMF

                    BMF Bad Mother....
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                    Mortgage rates hit all-time low amid coronavirus concerns: Freddie Mac

                    Mortgage rates hit all-time low amid coronavirus concerns: Freddie Mac

                    Mortgage rates fell to an all-time low following the Federal Reserve's decision to cut interest rates this week, which prompted the 10-year Treasury to drop below 1% for the first time ever.

                    The 30-year fixed-rate mortgage averaged 3.29% for the week ending March 5, down from 3.45% the previous week, Freddie Mac reported. The 15-year fixed-rate mortgage, meanwhile, fell to an average of 2.79%, while the 5-year Treasury-indexed adjustable-rate mortgage averaged 3.18%.
                     
                  • GatorInGeorgia

                    GatorInGeorgia Senior Member
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                    That’s nice but there still seems to be a lot of fat in there compared to 2012.
                     

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