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Thread: Money

  1. #11
    Tiny Dancer Drewbie's Avatar
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    I "actively manage" my 2 portfolios and it basically consists of having a stock listing on my google home screen for those stocks I own and am interested in.

    I do have a broker as well, but he's only actively engaged when I have cash not invested or if one of the things I do own has some horrible news in the pipeline.

  2. #12
    Darth Small Macheath's Avatar
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    Time to convert this temporarily into a Mortgage Advice thread!

    I'm going to try and refinance. All of the following applies only if my appraisal comes in and I've lost no more than 20% of my home's value in the past three years since buying it. At the 20% loss mark, paying down to 80% loan-to-value (LTV) prior to the refinance would more or less wipe out my savings. I could refinance at 95% LTV or something, of course, but that would not be my preference. I'd like to get out from under PMI if at all possible, and 80% is the mark to hit.

    I have multiple options for a mortgage, obviously. There's a 30-year fixed at 3.875%, a 15-year fixed at 3.125%, and a 5/5 ARM (amortizing over 30 years) at 3.125%. There are other options, but those are the three leaders.

    30-year fixed: closing costs $5100, monthly payments $535 lower than I'm paying now.
    15-year fixed: closing costs $2700, monthly payments $100 lower than I'm paying now.
    5/5 ARM: closing costs $2100, monthly payments $610 lower than I'm paying now.

    As you can see, the 5/5 ARM is the cheapest of the loans, saving me $3000 on closing costs and $75/month versus the 30-year fixed. If you're not familiar with Adjustable Rate Mortgages, the "5/5" means it's fixed at the 3.125% rate for the first five years, and then its rate adjusts every five years after that. As most ARMs are, this one is "capped" -- in this case, a maximum of 2% for each adjustment, and a maximum of 5% over the lifetime of the loan. So assuming a steadily improving economy over the next 10-15 years, I'll be at 3.125% for five years, then 5.125% for five years, then 7.125% for five years.

    If I intended to live in this place for 30 years, I'd go with the 30 year fixed, no question. But it's a condo, and I'm going to get tired of paying $300+ in HOA fees every month (on top of my mortgage!) in relatively short order. Therefore, in my view, the 5/5 ARM makes the most sense -- I've been here for three years already, and in another five I may well be looking to buy a house instead. I think it's important to think ahead and match the fixed portion of your loan with the duration of your intended stay.

    I don't necessarily intend to, but if I end up living here for 10-20 years, my interest rate will be a bit higher; but I should be able to offset that with extra payments against the principle. And between the $3000 on closing costs and $75/month, that's roughly $7500 I'll save in the first 5 years with the ARM, and starting in years 6-10 I'd need to exhaust that fund before I started "losing money."

    Now, the 15-year fixed is somewhat tempting too, because I can make those payments (cheaper than I'm paying now, thanks to PMI being gone). But a wise man once told me to go with a 30-year mortgage and make extra payments; that way, you get all the benefits of a 15 year loan, but without suddenly falling delinquent if you have a bad month.

    Would anyone care to correct or contest my logic?

  3. #13
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    1. I've always heard ARM = bad, but if you really move in <5 years, who cares? (and historically, 7.125% isn't bad)
    2. PMI is a scam, avoid at all costs (you know this)
    3. 30-year, paid like 15-year sounds great, IF you do it. (I have confidence you will do it.)
    4. If you don't like the HOA fees already, have you considered just buying a house now? Saving another $3600/yr

  4. #14
    Darth Small Macheath's Avatar
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    Quote Originally Posted by nynnja View Post
    I've always heard ARM = bad, but if you really move in <5 years, who cares? (and historically, 7.125% isn't bad)
    Well, so have I, but I feel like that's brainwashing due to the huge number of people who took on ridiculous mortgages they couldn't afford during the bubble. "I can't afford these interest-only payments now, so surely in three years when my interest rate spikes another 10% I'll be fine!"

    Quote Originally Posted by nynnja View Post
    PMI is a scam, avoid at all costs (you know this)
    Preach on, brother.

    Quote Originally Posted by nynnja View Post
    30-year, paid like 15-year sounds great, IF you do it. (I have confidence you will do it.)
    I'm sure gonna try.

    Quote Originally Posted by nynnja View Post
    If you don't like the HOA fees already, have you considered just buying a house now? Saving another $3600/yr
    I've considered it, but for the time being I love my condo, and it's worth $3600/year to avoid doing lawn work, painting, roofing, etc.

  5. #15
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    Quote Originally Posted by Macheath View Post
    There are other options, but those are the three leaders.

    30-year fixed: closing costs $5100, monthly payments $535 lower than I'm paying now.
    15-year fixed: closing costs $2700, monthly payments $100 lower than I'm paying now.
    5/5 ARM: closing costs $2100, monthly payments $610 lower than I'm paying now.
    Have you run the various options through a mortgage calculator? Be sure to look at it in terms of the actual dollars you will pay after a given amount of time. It's all a numbers game and that's a good way to assess the numbers.

    My gut reaction is that if you're pretty sure you're going to get out of there within five years, yeah, go for the 5 year ARM. If you think there's a reasonable chance you'll stay there, say, 10 years, then I'd go with the 15 year mortgage since you can generally get a better rate. If the difference between the 30 year and the 15 year rate isn't that big, then go for the 30 year for the reasons you mention.
    - Definitely

  6. #16
    Darth Small Macheath's Avatar
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    A sign that I am fully adult now, with no trace of childlike magic left in my soul: my loan has been approved, and I'm excited by this.



    Next up, the appraisal!


  7. #17
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    so which option are you going with?

  8. #18
    Darth Small Macheath's Avatar
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    Quote Originally Posted by nynnja View Post
    so which option are you going with?
    I went with the 5/5 ARM. Speaking of which...

    I just read something which suggested that when you make extra payments against the principal on an ARM loan, then every time the ARM adjusts its interest rate (every five years, in my case) it takes the new principal balance into consideration. So while "normally" (e.g. with a 30-year fixed), paying down my principal wouldn't result in lower monthly payments (just a shortened term), it sounds as though this is not the case with an ARM? Can anybody confirm or deny?

    If that's true, it's just another reason to make double payments. When my interest rate rises in year 6, assuming I haven't moved away by that point, then if I've been making extra payments, my new monthly amount wouldn't rise as much as you'd expect.

    Then again, if that's true, it also means the loan term doesn't get shortened by making extra payments. Unless you continue to make extra payments and actually pay it off yourself. I really wonder whether this is true or not.

  9. #19
    Darth Small Macheath's Avatar
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    This is a pretty cool mortgage calculator. Though they used a shitty spelling for "maven." The jerks.

    It looks to me as though, without making any extra payments, the interest portion of each monthly payment rises dramatically from year 5 to year 6 in my scenario, then falls dramatically from year 10 to year 11. So who knows if this calculator is correct, but it at least appears to assume that the new payments are recalculated based on current balance. Furthermore, in a handy side-by-side comparison, it shows me that if I do make extra payments, my monthly bills will (obviously) be higher than without, but that they'll shrink at every 5-year increment -- even with rising interest rates.

    If I continued to make extra payments after 15 years, the loan would be paid off at the 17 year mark. If I didn't, I'd be paying something ludicrous like $85 per month for the remainder of the 30 year term. So that explains that.

  10. #20
    Darth Small Macheath's Avatar
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    Phew... patio done, wasp nest removed, smog check passed, and now my appraisal has been scheduled for Tuesday morning. I need to tidy up around here, and buy cream so I can offer my appraiser a cup of coffee.

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