Posted on 11/20/2023 6:55:52 AM PST by Kaiser8408a
My Real Estate Advice:
Work hard & have a good Employment Record. Get pre-qualified for a 15-year loan at your income level. Buy LESS house than you can afford. Have a BIG cash down-payment. Work like H#ll to pay it off as soon as you can. Sell house. Plow the proceeds into a nicer house. Repeat until retirement.
“is why borrowers are refinanced into longer-term FRMs rather than less expensive ARMs, such as a 5/1 ARM“
Because they got sodomized in 2008 with those.
Everyone’s situation is different of course.
Personally I avoided adjustable rate mortgages , because you don’t know what the adjustment is going to be a number of years down the road.
Adjustables can make sense for some people. If you get a low initial interest rate that adjusts after 5 years, but you know you’re not going to be in that property for 5 years, then maybe then it would make sense to do the adjustable. Maybe it makes sense if an adjustable is the only mortgage that you can qualify for.
1. Buy less house than you can afford.
2. Buy it with a 30-year fixed rate mortgage.
3. If you want to prepay the mortgage, DON'T. Instead, put any excess payments you were considering aside in a mix of investments that is somewhat conservative but has some growth-oriented assets.
4. Refinance the mortgage if rates fall. Enjoy a rare opportunity to screw the bankers/investors if rates rise.
5. Item #3 is critical. Prepaying the mortgage ignores a very important element of personal finance: liquidity. It also works against another important element of personal finance: diversification. If you pre-pay a mortgage, you end up with a huge asset on your hands but you reduce your cash reserves and increase your odds of being in a position where you must sell your home to meet your need for cash in the event of unforeseen circumstances.
Speaking of the housing market, the US is overly dependent on the lopsided 30-year fixed-rate mortgage. Where under inflation and rising rate, the lender (investor) loses. If inflation cools and rates fall, the borrower refinances.
The author is really late to the game on this one. I've been saying it for years. Retail banking is one of the few sectors where the industry gets screwed at the expense of the customer. Under current banking laws in the U.S. there is no such thing as a fixed-rate mortgage. It's only "fixed" for as long as the borrower wants to keep it fixed. The borrower always has the option of refinancing it, but the lender does not.
“My Real Estate Advice:
Work hard & have a good Employment Record. Get pre-qualified for a 15-year loan at your income level. Buy LESS house than you can afford. Have a BIG cash down-payment. Work like H#ll to pay it off as soon as you can. Sell house. Plow the proceeds into a nicer house. Repeat until retirement.”
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^^What She said^^
Poor baby bankers. They gave a 3% fixed mortgage to some poor bastard who can just barely afford his mortgage because of rising food, gas, and electricity prices. Now the interest rates are 8% and they can't force that poor homeowner to pay more.
Darn those fixed mortgages!
Why would I pay my loan off as soon as I can?
It takes “X” dollars to pay my loan off.
I have “X” dollars in a 5% CD. My loan is a 3% loan.
There are exceptions to every rule. Being debt free was always the goal for me and allowed me to retire at age 56.
I’ve owned four homes through the years. Not all at the same time; kept fixing them up, paying them off quickly and investing in the next one. This is the toughest market to do that in now, of course. It was easier in the late 80’s when I bought my first house (800 square feet!) through about 2005.
I’ve always made $50K or more on the sale of the houses.
YMMV. It depends on how you want to live your life. :)
Also good advice. See my Post #10. I explained why I did what I did as far as real estate goes.
brian1703 axes a question: “Why would I pay my loan off as soon as I can?”
Answer #1: Because you live paycheck to paycheck and have too much credit card and HELOC debt.
Answer #2: Because you love co-owning your home with a bank.
Answer #3: see answers #1 and #2
Did you miss the part where my loan is a 3% loan and I have enough money to pay it off earning 5% in a CD?
Yes, that’s right, that money is earning MORE than my monthly interest payment on my loan.
Again, why would I pay it off, given that?
Answer #4: because you are smarter than the average bear.
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