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Posted: 1/31/2011 11:26:01 AM EDT
[Last Edit: 1/31/2011 11:26:18 AM EDT by Thirdparty]
I recently bought a house with a pre-approval from a lender. The purchase was not contingent on the sale of my current home.

Now that the purchase will be closing in 30 days, I of course want to sell my home and possibly want to pay down the mortage on the new home.

Questions:

1. I'll have proceeds from the current home after the close of the new home. Do I just send in a check for the amount to pay the new home mortgage down? Or, do I have to refinance the new home mortgage to get the real benefit?

2. Do I need some kind of bridge loan to do this?

My ideal situation would be to close on the new home, sell the old home and use the proceeds for some upgrades, then pay down the new mortgage with whatever's left.

I haven't been able to find a straight answer online and know there are some people in the business here.

Thanks.
Link Posted: 1/31/2011 11:45:51 AM EDT
Have you spoken with the lending institution/ persons involved at all? Seems like a decent place to begin.
Link Posted: 1/31/2011 11:50:12 AM EDT
If you simply make an additional principal payment with the funds on a fixed rate not there will be no change in your monthly payment, it will just be paid of sooner.

If you have an adjustable rate note you should see a decrease after making the payment at the next rate reset.

You would have to go through a refi to use the money to reduce the principal AND decrease the monthly payment.

Make sure there are no pre-payment penalties on the existing mortgage.

Link Posted: 1/31/2011 11:50:32 AM EDT
If you want to pay down the new loan, send them a check. If you want a lower payment, then you would have to refinance. If you want the new loan to reflect the balance after your existing home is sold, then you will need some kind of bridge loan. Just where you're going to get one, I have no idea.
Link Posted: 1/31/2011 11:53:17 AM EDT
OK, I think this what you said.

Home A will be sold and there will be a profit.

Home B, will be bought with a mortgage, and have nothing to do with Home A's sell.

You will have XX dollars left from home A.

You can just send in a check to the new mortgage company for XX dollars.

Just be sure to indicate that it is a PRINCIPAL only payment.

If you do not say principal only they sometimes credit to the coming months payments.

At years end, the mortgage company should adjust your payment amount due to less being owed.

Similiar to adjustments due to insurance and taxes going up/down.






Link Posted: 1/31/2011 12:02:27 PM EDT
this is generally what my lender is telling me.

Now, where do i go to read up on what interest rates are doing? I need a source with tracking and analysis.

Thanks
Link Posted: 1/31/2011 12:02:34 PM EDT
You can pay down your mortgage at anytime. It just wont decrease your payment as has already been said.

Now.. What if your new home decreases in value say 20%? And you put your extra cash into it?

I was a loan officer for 10 years. Recently changed my profession, anyways that aside. I had this acquaintance whom I was going to do a loan for. He has a PHD and is so smart he knows better than everyone else, you know the type. He insisted on putting down alot of cash on his new home purchase. I explained to him that housing is going to take a huge fucking dump. This was in 2008.

Anyways I didn't end up doing his loan. I don't think he felt comfortable with my advice and shopped elsewhere. He has lost maybe 50k or more in value in his home since he purchased it. He will lose more as this economic shit storm continues to unfold.

I told him he would be throwing his hard earned savings out the window. I was right. I have to laugh a little. Not that Im happy he lost his money but I kind of know what Im talking about when it comes to the housing industry and financing and when you're right you're right.
Link Posted: 1/31/2011 12:17:14 PM EDT
While it's unlikely, there are some mortgages with pre-payment penalties. You probably don't have such, but it would be good to check before dropping off a lump sum.
Link Posted: 1/31/2011 12:59:50 PM EDT
Unless you have an agreement with the mortgage company, you will not see a monthly decrease. You would have to re-finance again to lower the monthly, which might be worth it.

This also means, with the impending super-hyper-inflation which may hit us one day, you could put this money in the bank and make money to pay off your loan faster. During the Carter years, banks were paying 15-20%APR
Link Posted: 1/31/2011 1:02:03 PM EDT



I'm not a mortgage guy, but it might be a good idea to see if there's any sort of pre-payment penalty on your new mortgage.

Link Posted: 1/31/2011 1:02:34 PM EDT

Originally Posted By Storm_Tracker:
I told him he would be throwing his hard earned savings out the window. I was right. I have to laugh a little. Not that Im happy he lost his money but I kind of know what Im talking about when it comes to the housing industry and financing and when you're right you're right.

So I am going to disagree with you on this one. And here is my proof of why you are wrong about it being "thrown out the window".

Basic accounting principle is Assets = Liabilities + Owners Equity. Below lets presume that you have a house purchase (A) of $500,000 and a loan of $400,000, with the remainder being cash down; where the house later depreciates (B) and becomes worth $300,000. With the asset representing the house the equation is as follows:

Assets (house value) = Liabilities (loan) + Owners Equity
(A) $500,000 = $400,000 + $100,000
(B) $300,000 = $400,000 + ($100,000)

Now here is the financial result of "paying down" money on your loan. So (C) $50,000 of hard earned savings pays down the loan and the equation changes as follows:

(C) $300,000 = $350,000 + ($50,000)

The equation clearly demonstrates that the value of the asset did not change, but the amount of owners equity went UP equal to the money paid against the liability/loan! Here, as always, the decreased negative still represents a gain. So every penny used to pay down the loan creates equity regardless of the value of the home.

For your claim, that paying down the liability is equivalent to throwing it out the window, to hold water a default on a loan would have to happen. i.e. foreclosure. However, joining in contract with another party while not expecting to meet your side of the obligation is a fundamentally dishonest behavior.

The fact is that the moment of throwing money out the window is not a coefficient of payment on the loan. Money blades at a 45 out the window from step (A) to (B). Not from step (B) to (C).




Back to the original post.

OP - Consideration is better applied to analysis of correlation between what value paying down your home loan can be for you as a result of (1) inflation vs (2) reasonable obtainable interest on that money you would pay down your loan with vs (3) an A=L+OE financial model on your books and the resulting risk/risk aversion you can tolerate.
Link Posted: 1/31/2011 1:10:18 PM EDT
[Last Edit: 1/31/2011 1:11:31 PM EDT by Storm_Tracker]

Originally Posted By Bflamante:

Originally Posted By Storm_Tracker:
I told him he would be throwing his hard earned savings out the window. I was right. I have to laugh a little. Not that Im happy he lost his money but I kind of know what Im talking about when it comes to the housing industry and financing and when you're right you're right.

So I am going to disagree with you on this one. And here is my proof of why you are wrong about it being "thrown out the window".

Basic accounting principle is Assets = Liabilities + Owners Equity. Below lets presume that you have a house purchase (A) of $500,000 and a loan of $400,000, with the remainder being cash down; where the house later depreciates (B) and becomes worth $300,000. With the asset representing the house the equation is as follows:

Assets (house value) = Liabilities (loan) + Owners Equity
(A) $500,000 = $400,000 + $100,000
(B) $300,000 = $400,000 + ($100,000)

Now here is the financial result of "paying down" money on your loan. So (C) $50,000 of hard earned savings pays down the loan and the equation changes as follows:

(C) $300,000 = $350,000 + ($50,000)

The equation clearly demonstrates that the value of the asset did not change, but the amount of owners equity went UP equal to the money paid against the liability/loan! Here, as always, the decreased negative still represents a gain. So every penny used to pay down the loan creates equity regardless of the value of the home.

For your claim, that paying down the liability is equivalent to throwing it out the window, to hold water a default on a loan would have to happen. i.e. foreclosure. However, joining in contract with another party while not expecting to meet your side of the obligation is a fundamentally dishonest behavior.

The fact is that the moment of throwing money out the window is not a coefficient of payment on the loan. Money blades at a 45 out the window from step (A) to (B). Not from step (B) to (C).




Back to the original post.

OP - Consideration is better applied to analysis of correlation between what value paying down your home loan can be for you as a result of (1) inflation vs (2) reasonable obtainable interest on that money you would pay down your loan with vs (3) an A=L+OE financial model on your books and the resulting risk/risk aversion you can tolerate.
Ok then,

Buy a 250k home and put down 50k.

Watch the value of your home go to 180 - 190k. Now you're 10 - 20k underwater with the storng possibility that values will continue to drop.

Sounds like a sound investment to me. Of course you could of had 50k laying around but what the hell, it disappeared.

Now show us some fancy math there how that is a good idea.

Im sure you will come up with something.

Link Posted: 1/31/2011 1:22:36 PM EDT
What about those of us that just paid $250K cash and bought the home outright?

I'm sitting on a 50 acre farm in VT with a 4600 ft/2 house and barns, pasture and 2200 ft of river frontage,,, would you advise me to take a mortgage with 10% down and pay on it for 30 years?



Link Posted: 1/31/2011 1:23:08 PM EDT
Originally Posted By Storm_Tracker:

Originally Posted By Bflamante:

Originally Posted By Storm_Tracker:
I told him he would be throwing his hard earned savings out the window. I was right. I have to laugh a little. Not that Im happy he lost his money but I kind of know what Im talking about when it comes to the housing industry and financing and when you're right you're right.

So I am going to disagree with you on this one. And here is my proof of why you are wrong about it being "thrown out the window".

Basic accounting principle is Assets = Liabilities + Owners Equity. Below lets presume that you have a house purchase (A) of $500,000 and a loan of $400,000, with the remainder being cash down; where the house later depreciates (B) and becomes worth $300,000. With the asset representing the house the equation is as follows:

Assets (house value) = Liabilities (loan) + Owners Equity
(A) $500,000 = $400,000 + $100,000
(B) $300,000 = $400,000 + ($100,000)

Now here is the financial result of "paying down" money on your loan. So (C) $50,000 of hard earned savings pays down the loan and the equation changes as follows:

(C) $300,000 = $350,000 + ($50,000)

The equation clearly demonstrates that the value of the asset did not change, but the amount of owners equity went UP equal to the money paid against the liability/loan! Here, as always, the decreased negative still represents a gain. So every penny used to pay down the loan creates equity regardless of the value of the home.

For your claim, that paying down the liability is equivalent to throwing it out the window, to hold water a default on a loan would have to happen. i.e. foreclosure. However, joining in contract with another party while not expecting to meet your side of the obligation is a fundamentally dishonest behavior.

The fact is that the moment of throwing money out the window is not a coefficient of payment on the loan. Money blades at a 45 out the window from step (A) to (B). Not from step (B) to (C).




Back to the original post.

OP - Consideration is better applied to analysis of correlation between what value paying down your home loan can be for you as a result of (1) inflation vs (2) reasonable obtainable interest on that money you would pay down your loan with vs (3) an A=L+OE financial model on your books and the resulting risk/risk aversion you can tolerate.
Ok then,

Buy a 250k home and put down 50k.

Watch the value of your home go to 180 - 190k. Now you're 10 - 20k underwater with the storng possibility that values will continue to drop.

Sounds like a sound investment to me. Of course you could of had 50k laying around but what the hell, it disappeared.

Now show us some fancy math there how that is a good idea.

Im sure you will come up with something.



umm, if you don't put down the $50k you will be $60 - 70k underwater.

They money doesn't go out the window, it is equity in the home.
Link Posted: 1/31/2011 1:24:48 PM EDT
[Last Edit: 1/31/2011 1:27:52 PM EDT by Storm_Tracker]

Originally Posted By JoshL:
Originally Posted By Storm_Tracker:

Originally Posted By Bflamante:

Originally Posted By Storm_Tracker:
I told him he would be throwing his hard earned savings out the window. I was right. I have to laugh a little. Not that Im happy he lost his money but I kind of know what Im talking about when it comes to the housing industry and financing and when you're right you're right.

So I am going to disagree with you on this one. And here is my proof of why you are wrong about it being "thrown out the window".

Basic accounting principle is Assets = Liabilities + Owners Equity. Below lets presume that you have a house purchase (A) of $500,000 and a loan of $400,000, with the remainder being cash down; where the house later depreciates (B) and becomes worth $300,000. With the asset representing the house the equation is as follows:

Assets (house value) = Liabilities (loan) + Owners Equity
(A) $500,000 = $400,000 + $100,000
(B) $300,000 = $400,000 + ($100,000)

Now here is the financial result of "paying down" money on your loan. So (C) $50,000 of hard earned savings pays down the loan and the equation changes as follows:

(C) $300,000 = $350,000 + ($50,000)

The equation clearly demonstrates that the value of the asset did not change, but the amount of owners equity went UP equal to the money paid against the liability/loan! Here, as always, the decreased negative still represents a gain. So every penny used to pay down the loan creates equity regardless of the value of the home.

For your claim, that paying down the liability is equivalent to throwing it out the window, to hold water a default on a loan would have to happen. i.e. foreclosure. However, joining in contract with another party while not expecting to meet your side of the obligation is a fundamentally dishonest behavior.

The fact is that the moment of throwing money out the window is not a coefficient of payment on the loan. Money blades at a 45 out the window from step (A) to (B). Not from step (B) to (C).




Back to the original post.

OP - Consideration is better applied to analysis of correlation between what value paying down your home loan can be for you as a result of (1) inflation vs (2) reasonable obtainable interest on that money you would pay down your loan with vs (3) an A=L+OE financial model on your books and the resulting risk/risk aversion you can tolerate.
Ok then,

Buy a 250k home and put down 50k.

Watch the value of your home go to 180 - 190k. Now you're 10 - 20k underwater with the storng possibility that values will continue to drop.

Sounds like a sound investment to me. Of course you could of had 50k laying around but what the hell, it disappeared.

Now show us some fancy math there how that is a good idea.

Im sure you will come up with something.



umm, if you don't put down the $50k you will be $60 - 70k underwater.

They money doesn't go out the window, it is equity in the home.

try being 60 - 70k underwater without 50k in the bank my little googley eyed friend.

ETA: Accordingly it is no loner equity in the home either.. It went poof into thin air. You no longer have home equity and your home is a liability that continues to depreciate.
Link Posted: 1/31/2011 1:25:31 PM EDT
The term is "recasting" your loan. Most mortgage lenders will allow you to 'recast" your loan for a small fee...$200-300. Let's say your mortgage is $200,000.00 and you want to pay it down $75,000.00 leaving a balance of $125.000.00. By ''recasting" your NEW monthly P&I will be based on the $125,000.00 instead of the $200,000.00. Same mortgage, just a new monthly payment. They will usually allow to do this only once. I am getting ready to do this with my lender and it is a common practice.
Link Posted: 1/31/2011 1:30:02 PM EDT
Originally Posted By Storm_Tracker:

Originally Posted By JoshL:
Originally Posted By Storm_Tracker:

Originally Posted By Bflamante:

Originally Posted By Storm_Tracker:
I told him he would be throwing his hard earned savings out the window. I was right. I have to laugh a little. Not that Im happy he lost his money but I kind of know what Im talking about when it comes to the housing industry and financing and when you're right you're right.

So I am going to disagree with you on this one. And here is my proof of why you are wrong about it being "thrown out the window".

Basic accounting principle is Assets = Liabilities + Owners Equity. Below lets presume that you have a house purchase (A) of $500,000 and a loan of $400,000, with the remainder being cash down; where the house later depreciates (B) and becomes worth $300,000. With the asset representing the house the equation is as follows:

Assets (house value) = Liabilities (loan) + Owners Equity
(A) $500,000 = $400,000 + $100,000
(B) $300,000 = $400,000 + ($100,000)

Now here is the financial result of "paying down" money on your loan. So (C) $50,000 of hard earned savings pays down the loan and the equation changes as follows:

(C) $300,000 = $350,000 + ($50,000)

The equation clearly demonstrates that the value of the asset did not change, but the amount of owners equity went UP equal to the money paid against the liability/loan! Here, as always, the decreased negative still represents a gain. So every penny used to pay down the loan creates equity regardless of the value of the home.

For your claim, that paying down the liability is equivalent to throwing it out the window, to hold water a default on a loan would have to happen. i.e. foreclosure. However, joining in contract with another party while not expecting to meet your side of the obligation is a fundamentally dishonest behavior.

The fact is that the moment of throwing money out the window is not a coefficient of payment on the loan. Money blades at a 45 out the window from step (A) to (B). Not from step (B) to (C).




Back to the original post.

OP - Consideration is better applied to analysis of correlation between what value paying down your home loan can be for you as a result of (1) inflation vs (2) reasonable obtainable interest on that money you would pay down your loan with vs (3) an A=L+OE financial model on your books and the resulting risk/risk aversion you can tolerate.
Ok then,

Buy a 250k home and put down 50k.

Watch the value of your home go to 180 - 190k. Now you're 10 - 20k underwater with the storng possibility that values will continue to drop.

Sounds like a sound investment to me. Of course you could of had 50k laying around but what the hell, it disappeared.

Now show us some fancy math there how that is a good idea.

Im sure you will come up with something.



umm, if you don't put down the $50k you will be $60 - 70k underwater.

They money doesn't go out the window, it is equity in the home.

try being 60 - 70k underwater without 50k in the bank my little googley eyed friend.


What? If you had not put the $50k into the house, you would have it in the bank. Either way, you would be in the same position right now. If you put the $50k into house up front, and had to sell it now, you would have to come up with $20k. If you didn't put the $50k in up front, you would have it in the bank, but you would be $70k underwater. You have the $50k, which means you would have to come up with another $20k.

I have also been in banking for 10 years, and understand the whole "equity" thing.
Link Posted: 1/31/2011 1:30:49 PM EDT

Originally Posted By Storm_Tracker:

Originally Posted By Bflamante:

Originally Posted By Storm_Tracker:
I told him he would be throwing his hard earned savings out the window. I was right. I have to laugh a little. Not that Im happy he lost his money but I kind of know what Im talking about when it comes to the housing industry and financing and when you're right you're right.

So I am going to disagree with you on this one. And here is my proof of why you are wrong about it being "thrown out the window".

Basic accounting principle is Assets = Liabilities + Owners Equity. Below lets presume that you have a house purchase (A) of $500,000 and a loan of $400,000, with the remainder being cash down; where the house later depreciates (B) and becomes worth $300,000. With the asset representing the house the equation is as follows:

Assets (house value) = Liabilities (loan) + Owners Equity
(A) $500,000 = $400,000 + $100,000
(B) $300,000 = $400,000 + ($100,000)

Now here is the financial result of "paying down" money on your loan. So (C) $50,000 of hard earned savings pays down the loan and the equation changes as follows:

(C) $300,000 = $350,000 + ($50,000)

The equation clearly demonstrates that the value of the asset did not change, but the amount of owners equity went UP equal to the money paid against the liability/loan! Here, as always, the decreased negative still represents a gain. So every penny used to pay down the loan creates equity regardless of the value of the home.

For your claim, that paying down the liability is equivalent to throwing it out the window, to hold water a default on a loan would have to happen. i.e. foreclosure. However, joining in contract with another party while not expecting to meet your side of the obligation is a fundamentally dishonest behavior.

The fact is that the moment of throwing money out the window is not a coefficient of payment on the loan. Money blades at a 45 out the window from step (A) to (B). Not from step (B) to (C).




Back to the original post.

OP - Consideration is better applied to analysis of correlation between what value paying down your home loan can be for you as a result of (1) inflation vs (2) reasonable obtainable interest on that money you would pay down your loan with vs (3) an A=L+OE financial model on your books and the resulting risk/risk aversion you can tolerate.
Ok then,

Buy a 250k home and put down 50k.

Watch the value of your home go to 180 - 190k. Now you're 10 - 20k underwater with the storng possibility that values will continue to drop.

Sounds like a sound investment to me. Of course you could of had 50k laying around but what the hell, it disappeared.

Now show us some fancy math there how that is a good idea.

Im sure you will come up with something.


I can explain it to you, but I cant understand it for you.


Link Posted: 1/31/2011 1:44:56 PM EDT

Originally Posted By Bflamante:

Originally Posted By Storm_Tracker:

Originally Posted By Bflamante:

Originally Posted By Storm_Tracker:
I told him he would be throwing his hard earned savings out the window. I was right. I have to laugh a little. Not that Im happy he lost his money but I kind of know what Im talking about when it comes to the housing industry and financing and when you're right you're right.

So I am going to disagree with you on this one. And here is my proof of why you are wrong about it being "thrown out the window".

Basic accounting principle is Assets = Liabilities + Owners Equity. Below lets presume that you have a house purchase (A) of $500,000 and a loan of $400,000, with the remainder being cash down; where the house later depreciates (B) and becomes worth $300,000. With the asset representing the house the equation is as follows:

Assets (house value) = Liabilities (loan) + Owners Equity
(A) $500,000 = $400,000 + $100,000
(B) $300,000 = $400,000 + ($100,000)

Now here is the financial result of "paying down" money on your loan. So (C) $50,000 of hard earned savings pays down the loan and the equation changes as follows:

(C) $300,000 = $350,000 + ($50,000)

The equation clearly demonstrates that the value of the asset did not change, but the amount of owners equity went UP equal to the money paid against the liability/loan! Here, as always, the decreased negative still represents a gain. So every penny used to pay down the loan creates equity regardless of the value of the home.

For your claim, that paying down the liability is equivalent to throwing it out the window, to hold water a default on a loan would have to happen. i.e. foreclosure. However, joining in contract with another party while not expecting to meet your side of the obligation is a fundamentally dishonest behavior.

The fact is that the moment of throwing money out the window is not a coefficient of payment on the loan. Money blades at a 45 out the window from step (A) to (B). Not from step (B) to (C).




Back to the original post.

OP - Consideration is better applied to analysis of correlation between what value paying down your home loan can be for you as a result of (1) inflation vs (2) reasonable obtainable interest on that money you would pay down your loan with vs (3) an A=L+OE financial model on your books and the resulting risk/risk aversion you can tolerate.
Ok then,

Buy a 250k home and put down 50k.

Watch the value of your home go to 180 - 190k. Now you're 10 - 20k underwater with the storng possibility that values will continue to drop.

Sounds like a sound investment to me. Of course you could of had 50k laying around but what the hell, it disappeared.

Now show us some fancy math there how that is a good idea.

Im sure you will come up with something.


I can explain it to you, but I cant understand it for you.


I dont need your explanation. In 10 years I have personally sold about 500 loans and personally closed maybe 100. Additionally I have prepared and fully understand settlement statements and have an excellent grasp on the real estate industry as a whole, which means I have a complete grasp of the situation and the economics of it.

Now Im sure you can explain to me and others here how magnets work and somehow relate that to economics. The same debt based economics that has bankrupted our country I presume.

Take your inter-anal magnets and use them appropriately.
Link Posted: 1/31/2011 1:49:06 PM EDT
Originally Posted By Storm_Tracker:

Originally Posted By Bflamante:

Originally Posted By Storm_Tracker:
I told him he would be throwing his hard earned savings out the window. I was right. I have to laugh a little. Not that Im happy he lost his money but I kind of know what Im talking about when it comes to the housing industry and financing and when you're right you're right.

So I am going to disagree with you on this one. And here is my proof of why you are wrong about it being "thrown out the window".

Basic accounting principle is Assets = Liabilities + Owners Equity. Below lets presume that you have a house purchase (A) of $500,000 and a loan of $400,000, with the remainder being cash down; where the house later depreciates (B) and becomes worth $300,000. With the asset representing the house the equation is as follows:

Assets (house value) = Liabilities (loan) + Owners Equity
(A) $500,000 = $400,000 + $100,000
(B) $300,000 = $400,000 + ($100,000)

Now here is the financial result of "paying down" money on your loan. So (C) $50,000 of hard earned savings pays down the loan and the equation changes as follows:

(C) $300,000 = $350,000 + ($50,000)

The equation clearly demonstrates that the value of the asset did not change, but the amount of owners equity went UP equal to the money paid against the liability/loan! Here, as always, the decreased negative still represents a gain. So every penny used to pay down the loan creates equity regardless of the value of the home.

For your claim, that paying down the liability is equivalent to throwing it out the window, to hold water a default on a loan would have to happen. i.e. foreclosure. However, joining in contract with another party while not expecting to meet your side of the obligation is a fundamentally dishonest behavior.

The fact is that the moment of throwing money out the window is not a coefficient of payment on the loan. Money blades at a 45 out the window from step (A) to (B). Not from step (B) to (C).




Back to the original post.

OP - Consideration is better applied to analysis of correlation between what value paying down your home loan can be for you as a result of (1) inflation vs (2) reasonable obtainable interest on that money you would pay down your loan with vs (3) an A=L+OE financial model on your books and the resulting risk/risk aversion you can tolerate.
Ok then,

Buy a 250k home and put down 50k.

Watch the value of your home go to 180 - 190k. Now you're 10 - 20k underwater with the storng possibility that values will continue to drop.

Sounds like a sound investment to me. Of course you could of had 50k laying around but what the hell, it disappeared.

Now show us some fancy math there how that is a good idea.

Im sure you will come up with something.




Borrowing money to buy something is never a sound investment.

Paying 50k of the loan off is 50k less debt you are paying interest on.

What the value of your home does after you buy it has nothing to do with paying or not paying money toward your debt. You still owe the debt no matter what. If you want to sell the home you still have to cover the difference between the value and amount owed.
Link Posted: 1/31/2011 1:53:11 PM EDT
Originally Posted By Storm_Tracker:

Originally Posted By Bflamante:

Originally Posted By Storm_Tracker:

Originally Posted By Bflamante:

Originally Posted By Storm_Tracker:
I told him he would be throwing his hard earned savings out the window. I was right. I have to laugh a little. Not that Im happy he lost his money but I kind of know what Im talking about when it comes to the housing industry and financing and when you're right you're right.

So I am going to disagree with you on this one. And here is my proof of why you are wrong about it being "thrown out the window".

Basic accounting principle is Assets = Liabilities + Owners Equity. Below lets presume that you have a house purchase (A) of $500,000 and a loan of $400,000, with the remainder being cash down; where the house later depreciates (B) and becomes worth $300,000. With the asset representing the house the equation is as follows:

Assets (house value) = Liabilities (loan) + Owners Equity
(A) $500,000 = $400,000 + $100,000
(B) $300,000 = $400,000 + ($100,000)

Now here is the financial result of "paying down" money on your loan. So (C) $50,000 of hard earned savings pays down the loan and the equation changes as follows:

(C) $300,000 = $350,000 + ($50,000)

The equation clearly demonstrates that the value of the asset did not change, but the amount of owners equity went UP equal to the money paid against the liability/loan! Here, as always, the decreased negative still represents a gain. So every penny used to pay down the loan creates equity regardless of the value of the home.

For your claim, that paying down the liability is equivalent to throwing it out the window, to hold water a default on a loan would have to happen. i.e. foreclosure. However, joining in contract with another party while not expecting to meet your side of the obligation is a fundamentally dishonest behavior.

The fact is that the moment of throwing money out the window is not a coefficient of payment on the loan. Money blades at a 45 out the window from step (A) to (B). Not from step (B) to (C).




Back to the original post.

OP - Consideration is better applied to analysis of correlation between what value paying down your home loan can be for you as a result of (1) inflation vs (2) reasonable obtainable interest on that money you would pay down your loan with vs (3) an A=L+OE financial model on your books and the resulting risk/risk aversion you can tolerate.
Ok then,

Buy a 250k home and put down 50k.

Watch the value of your home go to 180 - 190k. Now you're 10 - 20k underwater with the storng possibility that values will continue to drop.

Sounds like a sound investment to me. Of course you could of had 50k laying around but what the hell, it disappeared.

Now show us some fancy math there how that is a good idea.

Im sure you will come up with something.


I can explain it to you, but I cant understand it for you.


I dont need your explanation. In 10 years I have personally sold about 500 loans and personally closed maybe 100. Additionally I have prepared and fully understand settlement statements and have an excellent grasp on the real estate industry as a whole, which means I have a complete grasp of the situation and the economics of it.

Now Im sure you can explain to me and others here how magnets work and somehow relate that to economics. The same debt based economics that has bankrupted our country I presume.

Take your inter-anal magnets and use them appropriately.



Ok then, explain to me how your acquaintance would have been better off if he had not put $50k down on the home?
Link Posted: 1/31/2011 1:57:38 PM EDT

Originally Posted By Thirdparty:
this is generally what my lender is telling me.

Now, where do i go to read up on what interest rates are doing? I need a source with tracking and analysis.

Thanks

Interest rates are essentially as low as they can go.

The FED has been holding at almost-zero in an attempt to prevent monetary deflation....

Hence interest rates in the 4s, for now...
Link Posted: 1/31/2011 2:13:29 PM EDT
Originally Posted By Bflamante:

Originally Posted By Storm_Tracker:
I told him he would be throwing his hard earned savings out the window. I was right. I have to laugh a little. Not that Im happy he lost his money but I kind of know what Im talking about when it comes to the housing industry and financing and when you're right you're right.

So I am going to disagree with you on this one. And here is my proof of why you are wrong about it being "thrown out the window".

Basic accounting principle is Assets = Liabilities + Owners Equity. Below lets presume that you have a house purchase (A) of $500,000 and a loan of $400,000, with the remainder being cash down; where the house later depreciates (B) and becomes worth $300,000. With the asset representing the house the equation is as follows:

Assets (house value) = Liabilities (loan) + Owners Equity
(A) $500,000 = $400,000 + $100,000
(B) $300,000 = $400,000 + ($100,000)

Now here is the financial result of "paying down" money on your loan. So (C) $50,000 of hard earned savings pays down the loan and the equation changes as follows:

(C) $300,000 = $350,000 + ($50,000)

The equation clearly demonstrates that the value of the asset did not change, but the amount of owners equity went UP equal to the money paid against the liability/loan! Here, as always, the decreased negative still represents a gain. So every penny used to pay down the loan creates equity regardless of the value of the home.

For your claim, that paying down the liability is equivalent to throwing it out the window, to hold water a default on a loan would have to happen. i.e. foreclosure. However, joining in contract with another party while not expecting to meet your side of the obligation is a fundamentally dishonest behavior.

The fact is that the moment of throwing money out the window is not a coefficient of payment on the loan. Money blades at a 45 out the window from step (A) to (B). Not from step (B) to (C).




Back to the original post.

OP - Consideration is better applied to analysis of correlation between what value paying down your home loan can be for you as a result of (1) inflation vs (2) reasonable obtainable interest on that money you would pay down your loan with vs (3) an A=L+OE financial model on your books and the resulting risk/risk aversion you can tolerate.


You fucking rule.
Link Posted: 1/31/2011 2:15:22 PM EDT
Sooo..I can be underwater $70k or $20k...and I want the $70k???

Link Posted: 1/31/2011 2:23:22 PM EDT

Originally Posted By Dave_A:

Originally Posted By Thirdparty:
this is generally what my lender is telling me.

Now, where do i go to read up on what interest rates are doing? I need a source with tracking and analysis.

Thanks

Interest rates are essentially as low as they can go.

The FED has been holding at almost-zero in an attempt to prevent monetary deflation....

Hence interest rates in the 4s, for now...

Perfect analysis. Rates really can only go up from where they are now. Not much to analyse.

So consideration could be if you paid say $20k down of your 4% rate loan and then interest rates went to 8% was it good to pay down your low rate obligation?

Yes is a possible valid answer if you are driven to be debt free, thus lower risk.

However, NO can also be a valid answer if you intend on leveraging that $20k, or whatever money we are talking, and making more than 4%, thus increasing your assets, and subsequently equity. However this is a higher risk.

Now don't forget the fundamental relationship of inflation and borrowing. Borrow $100 today @ 4%. If inflation goes above 4%, say to 5%, then you are having to pay back 1% less value than you borrow. Essentially paying back $99 in value on a $100 loan. Bonus. So as demonstrated paying down a 4 percent loan is perhaps not the best option, especially if/when inflation kicks in.

OR

Follow the ARFCOM model and buy GOLD
Link Posted: 1/31/2011 2:27:21 PM EDT
[Last Edit: 1/31/2011 2:27:52 PM EDT by H46Driver]
Originally Posted By Storm_Tracker:

I dont need your explanation. In 10 years I have personally sold about 500 loans and personally closed maybe 100. Additionally I have prepared and fully understand settlement statements and have an excellent grasp on the real estate industry as a whole, which means I have a complete grasp of the situation and the economics of it.

Now Im sure you can explain to me and others here how magnets work and somehow relate that to economics. The same debt based economics that has bankrupted our country I presume.

Take your inter-anal magnets and use them appropriately.


The only thing worse than owning a depreciating asset is paying interest on one...

Your company made a profit on loan origination right? The larger the loan, the larger the origination fee.
Link Posted: 1/31/2011 2:34:28 PM EDT
Originally Posted By brickeyee:
If you simply make an additional principal payment with the funds on a fixed rate not there will be no change in your monthly payment, it will just be paid of sooner.

If you have an adjustable rate note you should see a decrease after making the payment at the next rate reset.

You would have to go through a refi to use the money to reduce the principal AND decrease the monthly payment.

Make sure there are no pre-payment penalties on the existing mortgage.



This.

Sending in additional principle without a refi will not change your payments; it'll just get paid off a lot sooner.
Link Posted: 1/31/2011 2:37:53 PM EDT
Originally Posted By Storm_Tracker:

Originally Posted By Bflamante:

Originally Posted By Storm_Tracker:
I told him he would be throwing his hard earned savings out the window. I was right. I have to laugh a little. Not that Im happy he lost his money but I kind of know what Im talking about when it comes to the housing industry and financing and when you're right you're right.

So I am going to disagree with you on this one. And here is my proof of why you are wrong about it being "thrown out the window".

Basic accounting principle is Assets = Liabilities + Owners Equity. Below lets presume that you have a house purchase (A) of $500,000 and a loan of $400,000, with the remainder being cash down; where the house later depreciates (B) and becomes worth $300,000. With the asset representing the house the equation is as follows:

Assets (house value) = Liabilities (loan) + Owners Equity
(A) $500,000 = $400,000 + $100,000
(B) $300,000 = $400,000 + ($100,000)

Now here is the financial result of "paying down" money on your loan. So (C) $50,000 of hard earned savings pays down the loan and the equation changes as follows:

(C) $300,000 = $350,000 + ($50,000)

The equation clearly demonstrates that the value of the asset did not change, but the amount of owners equity went UP equal to the money paid against the liability/loan! Here, as always, the decreased negative still represents a gain. So every penny used to pay down the loan creates equity regardless of the value of the home.

For your claim, that paying down the liability is equivalent to throwing it out the window, to hold water a default on a loan would have to happen. i.e. foreclosure. However, joining in contract with another party while not expecting to meet your side of the obligation is a fundamentally dishonest behavior.

The fact is that the moment of throwing money out the window is not a coefficient of payment on the loan. Money blades at a 45 out the window from step (A) to (B). Not from step (B) to (C).




Back to the original post.

OP - Consideration is better applied to analysis of correlation between what value paying down your home loan can be for you as a result of (1) inflation vs (2) reasonable obtainable interest on that money you would pay down your loan with vs (3) an A=L+OE financial model on your books and the resulting risk/risk aversion you can tolerate.
Ok then,

Buy a 250k home and put down 50k.

Watch the value of your home go to 180 - 190k. Now you're 10 - 20k underwater with the storng possibility that values will continue to drop.

Sounds like a sound investment to me. Of course you could of had 50k laying around but what the hell, it disappeared.

Now show us some fancy math there how that is a good idea.

Im sure you will come up with something.



Only matters if you're not planning on staying there until you die.

I am planning on living the rest of my years in my house, so this whole rigmarole doesn't bother me to much.
Link Posted: 1/31/2011 4:15:22 PM EDT
Originally Posted By EDDIECRUM:
The term is "recasting" your loan. Most mortgage lenders will allow you to 'recast" your loan for a small fee...$200-300. Let's say your mortgage is $200,000.00 and you want to pay it down $75,000.00 leaving a balance of $125.000.00. By ''recasting" your NEW monthly P&I will be based on the $125,000.00 instead of the $200,000.00. Same mortgage, just a new monthly payment. They will usually allow to do this only once. I am getting ready to do this with my lender and it is a common practice.


Thanks, that helps a bunch.

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