Personal Finance Advice and Education! (4 Viewers)

[Desert_Power]

I have both a brokerage account and a roth ira. With the brokerage, its just to buy and hold (probably until retirement) a couple of stocks. If you needed 100k (after cap gains with the brokerage) to pay for college, which one would you take it from? I think the return on both is roughly the same over time.

What are the Roth IRA contributions you could withdraw tax/penalty free?

 

[NutterButter]

I have both a brokerage account and a roth ira. With the brokerage, its just to buy and hold (probably until retirement) a couple of stocks. If you needed 100k (after cap gains with the brokerage) to pay for college, which one would you take it from? I think the return on both is roughly the same over time.

What are the Roth IRA contributions you could withdraw tax/penalty free?

Would be all contributions.

 

[matttyl]

I have both a brokerage account and a roth ira. With the brokerage, its just to buy and hold (probably until retirement) a couple of stocks. If you needed 100k (after cap gains with the brokerage) to pay for college, which one would you take it from? I think the return on both is roughly the same over time.

What are the Roth IRA contributions you could withdraw tax/penalty free?

Would be all contributions.

All things being equal take from the brokerage account. Let the ROTH (including contributions) continue to grow tax free.

 

[SFBayDuck]

I have both a brokerage account and a roth ira. With the brokerage, its just to buy and hold (probably until retirement) a couple of stocks. If you needed 100k (after cap gains with the brokerage) to pay for college, which one would you take it from? I think the return on both is roughly the same over time.

What are the Roth IRA contributions you could withdraw tax/penalty free?

Would be all contributions.

All things being equal take from the brokerage account. Let the ROTH (including contributions) continue to grow tax free.

Look at all of the hoops people jump through to get money into a Roth. Yes, with the brokerage account you’d likely have to take out more than $100K with the taxes due (unless you happen to have some individual stocks in there with losses), which I’m sure is why you’re asking the question. But I’d still probably leave the Roth funds to continue to compound tax-free and use the brokerage account for this.

 

[pecorino]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

 

[Desert_Power]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

I don't think it would be a wash but am too busy watching soccer to mock it up. Basically, paying early on your mortgage isn't going to do anything to the payment unless you have an issuer who will restrike it. You'd want to pay it up front.

 

[Sand]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

 

[pecorino]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

 

[Mitchie]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Agree w/ the others that I think paying up front is better, this way the remaining mortgage is spread evenly throughout the length of the loan. But good to keep some liquid cash for emergencies, etc. so assuming you are doing that. If not you may want to pay like 30 or 35% down, something like that.

 

[pecorino]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

 

[ghostguy123]

Ok, someone talk me through setting up a will.
Me and the wife have two kids (20 and 8). We have money in 403b, own our home, and have one investment property.

I kinda want to set up a basic will or living will or whatever its called just to make sure the right people get our money/assets if one of us dies or both of us die. I am fairly sure both our names are on the titles to our house and our rental property (its been a while, and not sure why we WOULDNT have done it that way).

Basically, who do I go to? Just any ol estate lawyer? Some sort of specialist? And about how much should I expect to spend here?

TIA

 

[Chadstroma]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

20% down and then do a principal only payment vs 45% down differences are two:

1. LTV (loan to value) does impact rates/cost of a loan. You would want to price out the difference (if any) on both scenarios.

2. If you put less down and then do the principal only payment you will speed up the amortization schedule. Your payment stays the same. The following payments will have more go to principal as the interest would be less and the loan would be paid off much sooner than the 30 years.

The more likely better way of doing all of this is to get a lower term using the higher down payment to keep the payments manageable. The reason is that the lower term would help reduce your rate/cost on the loan.

The best thing to do is work with a mortgage broker who can run through the various options on the scenarios to help you pick the best. (You can DM me and I am happy to assist if licensed in your state or refer to someone who is if I am not)

Also, you may want to go to the mortgage rates thread and read through... there is a ton of posts in there that go well beyond just talking interest rates that might assist you.

 

[Desert_Power]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

If the goal is to minimize interest paid, try option #4 of a 15 year mortgage with the 45k down.

If trying to put apples with apples you should consider the interest received in option 1. Option #2 also reduces the life of the loan so it's own value that you don't see within this framework.

 

[Chadstroma]

Maximizing Passive Income: Building Your Real Estate Portfolio with DSCR Loans​

Introduction​

Are you a real estate investor looking to generate passive income through rental properties? Traditional loans can often be a hurdle, requiring extensive proof of personal income. But fear not, there is a financing option tailored specifically for investors like you - DSCR loans. These debt service coverage ratio loans focus on the property's income potential rather than your personal finances. Imagine building a real estate investment portfolio without the restrictions of traditional loans. Let's delve into what DSCR loans are and how they can help you achieve your investment goals.

Understanding DSCR Loans​

Delving Into the World of DSCR Loans​

Have you heard of DSCR loans and wondered how they can benefit your real estate investment journey? DSCR, or debt service coverage ratio, loans are a specialized financing option designed to evaluate a property's financial health rather than solely relying on your personal income. By focusing on the property's ability to generate income to cover debt obligations, DSCR loans open up a world of possibilities for investors like you. Let's explore the intricacies of DSCR loans and how they can be a game-changer for your investment strategy.

Key Metrics and Ratios in DSCR Loans​

In the realm of DSCR loans, understanding key metrics and ratios is essential to grasp the full potential of this financing option. The Debt Service Coverage Ratio (DSCR) serves as a pivotal indicator, calculated by dividing the property's owed amount by its net operating income. Most lenders look for a minimum DSCR ratio of 1.2 but some options are available with lower ratios even going into negative ratios. A higher ratio signals that the property's income can cover the debt effectively. A higher DSCR ratio offers a more secure investment opportunity, mitigating the risk of default and enhancing your portfolio's stability.

Advantages of Opting for DSCR Loans​

DSCR loans come with a plethora of advantages that make them an attractive choice for real estate investors seeking passive income. Say goodbye to the hassle of extensive personal income verification typically required by traditional loans. DSCR loans prioritize the property's income-generating potential, making them an ideal option for self-employed individuals or those with unique income streams. With no limit on the number of properties you can finance and a streamlined qualification process, DSCR loans pave the way for efficient property acquisition and portfolio expansion.

Unveiling the Drawbacks of DSCR Loans​

While DSCR loans offer numerous benefits, it's crucial to consider the potential drawbacks before diving in. Higher down payments and interest rates may be required, along with a stringent DSCR ratio above 1.2 with some lenders but options available otherwise. Additionally, maintaining cash reserves for unexpected expenses and navigating loan limits can pose challenges for investors. Prepayment penalties may also restrict your flexibility in selling or refinancing properties. By weighing the pros and cons of DSCR loans, you can make an informed decision to propel your real estate investment journey forward.

Advantages of DSCR Loans​

When considering financing options for your real estate investment ventures, DSCR loans offer a range of advantages that can propel your portfolio to new heights. Firstly, these loans do not require extensive proof of personal income, making them ideal for self-employed individuals or those with unique income streams. This flexibility allows you to focus on the potential income of the property rather than getting bogged down in personal financial details. Additionally, DSCR loans do not limit the number of properties you can finance, providing the opportunity to diversify your portfolio and maximize your income potential.

Furthermore, the qualification criteria for DSCR loans are often less stringent compared to traditional loans, making the application process smoother and more efficient. With a focus on the property's income-generating potential, you can navigate the loan approval process with confidence. The diverse funding options available with DSCR loans offer flexibility in structuring your financing, allowing you to tailor the loan to meet your specific investment needs. This adaptability can help you seize opportunities and expand your real estate investment portfolio with ease.

In addition to the streamlined application process and flexible financing options, DSCR loans offer a quicker route to acquiring properties, enabling you to grow your portfolio at a faster pace. With the property's income potential as the primary consideration, you can expedite the loan approval process and take advantage of investment opportunities in a timely manner. This speed and efficiency can set you on the path to building a robust real estate portfolio that generates passive income and secures your financial future.

Drawbacks of DSCR Loans​

While DSCR loans offer numerous benefits for real estate investors, it's essential to consider the potential drawbacks before diving in. Here are some factors to keep in mind:

1. 
   Higher Down Payments: Compared to traditional loans, DSCR loans may require higher down payments, which could strain your cash reserves. It's crucial to ensure you have enough funds available to meet these requirements.
   
   
2. 
   Higher Interest Rates: Due to the increased risk associated with DSCR loans, lenders may charge higher interest rates. Be prepared to pay more in interest compared to traditional loan options.
   
   
3. 
   High DSCR Requirement: Lenders often set a minimum DSCR ratio of 1.2 or higher for the best rates to mitigate the risk of default. Meeting this requirement may be challenging for some investors, so it's important to assess your property's income potential carefully.
   
   
4. 
   Need for Cash Reserves: Lenders may require you to have cash reserves to cover unexpected expenses or periods of vacancy. Having a financial buffer in place can help you weather any financial challenges that may arise.
   

Despite these drawbacks, DSCR loans can still be a valuable tool for real estate investors looking to grow their portfolio. By carefully weighing the pros and cons, you can make an informed decision about whether a DSCR loan is the right financing option for your investment goals.

​

 

[Chadstroma]

Qualifying for a DSCR Loan​

Qualifying for a DSCR loan involves meeting specific requirements set by lenders to assess your eligibility for this unique financing option. Lenders typically look for a minimum FICO score of 660 or higher, indicating your creditworthiness and ability to manage debt responsibly but other options may be available. Additionally, there is often a range for the loan amount, with a minimum starting point around $50,000 and a maximum limit that can vary but is generally around $3,000,000. These parameters help lenders gauge the size and scope of the investment you are seeking to make.

In the qualification process for a DSCR loan, lenders will conduct a detailed analysis of the property in question to evaluate its financial viability. This analysis includes reviewing rent rolls, lease agreements, property management experience, and property condition reports to determine the property's potential to generate income and cover the debt obligations. Providing accurate and comprehensive information about the property will be crucial in demonstrating its financial health and investment potential to the lender. However, some loan options will take a Market Rent Appraisal.

As part of the documentation required for a DSCR loan, investors must be prepared to provide various financial records and proof of insurance to support their loan application. Documents such as bank statements, business financial statements, and evidence of rental property insurance will be necessary to validate your financial stability and ownership of the property. Ensuring that all necessary paperwork is in order and readily available can streamline the application process and increase your chances of qualifying for the loan. But no tax returns, paystubs or any other personal income information will be requested.

In summary, qualifying for a DSCR loan involves meeting the lender's criteria regarding factors such as credit score, loan amount, property analysis, and documentation. By understanding and fulfilling these requirements, you can position yourself as a strong candidate for a DSCR loan and access the financing needed to grow your real estate investment portfolio. Being proactive in gathering the necessary information and presenting it in a clear and organized manner will enhance your chances of securing a DSCR loan for your investment endeavors.

Minimum Requirements for DSCR Loans​

Meeting the FICO Score Standard​

One of the initial steps in qualifying for a DSCR loan is meeting the minimum FICO score requirement set by lenders. Typically, a FICO score of 660 or higher is necessary to demonstrate your creditworthiness and ability to manage debt responsibly. Maintaining a good credit score not only increases your chances of approval but also affects the interest rate you may receive on the loan.

Understanding the Loan Amount Criteria​

In addition to the FICO score, lenders often have specific criteria regarding the loan amount for DSCR loans. While the minimum loan amount requirement can vary, it usually starts around $150,000. On the other hand, there is also a maximum loan amount limit, typically around $3,000,000. Understanding these loan amount parameters is crucial in planning your investment strategy and determining the financing you require.

Property Financial Analysis​

Lenders will conduct a comprehensive analysis of the property's financial health as part of the DSCR loan application process. This analysis includes reviewing rent rolls, lease agreements, property management experience, and property condition reports. Providing accurate and up-to-date financial information about the property is essential for lenders to assess the income-generating potential and overall viability of the investment.

Documentation Requirements​

To support your DSCR loan application, you will need to gather and submit various documentation. This may include bank statements, business financial statements, proof of rental property insurance, and any other relevant financial records. Ensuring that you have all the necessary documentation in order and readily available can streamline the application process and increase your chances of approval.

Evaluating the DSCR Ratio and Loan-to-Value Ratio​

Two critical factors that lenders consider when evaluating DSCR loan applications are the Debt Service Coverage Ratio (DSCR) and the Loan-to-Value (LTV) ratio. The DSCR ratio measures the property's ability to cover debt obligations, with lenders typically aiming for a minimum ratio of 1.2 or higher. The LTV ratio, on the other hand, represents the loan amount divided by the property's appraised value and may also have specific requirements set by the lender. Understanding and meeting these ratio criteria is essential for qualifying for a DSCR loan.

Loan Amount Considerations​

When considering DSCR loans for your real estate investment portfolio, it's crucial to understand the loan amount requirements. These loans typically have a minimum loan amount, often starting at $50,000, which allows for financing properties that may not meet traditional loan criteria. This minimum amount provides investors with flexibility in acquiring diverse properties to grow their portfolio effectively.

Moreover, DSCR loans also come with a maximum loan amount, which can vary but is usually around $3,000,000. This upper limit ensures that investors can access substantial funding to acquire higher-value properties while still benefiting from the advantages of DSCR financing. By understanding these limits, investors can plan their acquisitions strategically to maximize the potential returns on their investment.

It's important to note that the loan amount considerations in DSCR loans play a significant role in shaping an investor's real estate portfolio. The minimum and maximum loan amounts provide a framework for investors to work within, guiding their property selection process and ensuring that their financing aligns with their investment goals. By leveraging these loan amount considerations effectively, investors can build a robust and diverse real estate portfolio that generates passive income over the long term.

When exploring DSCR loans for real estate investments, understanding the loan amount considerations is essential for making informed decisions. The minimum and maximum loan amounts provide investors with flexibility and constraints that can shape the composition of their investment portfolio. By carefully considering these loan amount requirements, investors can strategically leverage DSCR financing to build a successful real estate investment portfolio for passive income.

Conclusion​

In conclusion, DSCR loans can be a game-changer for real estate investors looking to build a passive income stream through rental properties. By focusing on the property's income potential rather than personal finances, these loans provide a flexible and accessible financing option. While there are advantages such as easier qualification and higher loan amounts, it's essential to consider potential drawbacks and ensure you meet the minimum requirements. By understanding how DSCR loans work, analyzing properties effectively, and gathering the necessary documentation, you can leverage this financing option to help grow your real estate investment portfolio. So, if you're ready to take your passive income to the next level, consider exploring DSCR loans and see how they can benefit your real estate investment journey. Happy investing!

 

[Chadstroma]

Sorry.... the above is an article I put together for DSCR loans. Love to hear any feedback on it!

 

[IvanKaramazov]

Anybody ditch their financial planner/fiduciary that has a pricier AUM model to completely self directed or an Advisor for a much lower fee. Strongly considering doing that now. Either Boglehead type 3 bucket approach by myself or use Vanguard Advisor which is I think .30% AUM? I'm thinking the latter since I will have questions nearing and in retirement. Recommend?

I handle our long-term finances DIY. They have never been complicated, in part because I think the efficient market hypothesis is more or less correct, which makes me a big believer in index funds and passive investing. It's great to see the numbers get bigger, but there hasn't ever been much to actually manage. Up until now anyway, now that I need to start pulling some money out of the market. I do strangely feel like I'm learning a lot now that I'm entering a de-accumulation phase.

Down the road, I will be inheriting some farmland, and I will need professional help with that. Sure, I could learn about commodity marketing as a retirement hobby, but come on.

 

[Peggy]

Anybody ditch their financial planner/fiduciary that has a pricier AUM model to completely self directed or an Advisor for a much lower fee. Strongly considering doing that now. Either Boglehead type 3 bucket approach by myself or use Vanguard Advisor which is I think .30% AUM? I'm thinking the latter since I will have questions nearing and in retirement. Recommend?

I handle our long-term finances DIY. They have never been complicated, in part because I think the efficient market hypothesis is more or less correct, which makes me a big believer in index funds and passive investing.

100%

 

[Snotbubbles]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

 

[Snotbubbles]

Anybody ditch their financial planner/fiduciary that has a pricier AUM model to completely self directed or an Advisor for a much lower fee. Strongly considering doing that now. Either Boglehead type 3 bucket approach by myself or use Vanguard Advisor which is I think .30% AUM? I'm thinking the latter since I will have questions nearing and in retirement. Recommend?

I handle our long-term finances DIY. They have never been complicated, in part because I think the efficient market hypothesis is more or less correct, which makes me a big believer in index funds and passive investing.

100%

@IvanKaramazov

As Warren Buffet would say, no one wants to get rich slow.

 

[pecorino]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

So you’d rather pass on the option which pays off the loan in half the time and saves over $80000 in interest just to have $25K in your pocket which you’d like to invest and hope to do better? To each his own.

 

[gianmarco]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

So you’d rather pass on the option which pays off the loan in half the time and saves over $80000 in interest just to have $25K in your pocket which you’d like to invest and hope to do better? To each his own.

If you take that $25K and invest it, even at a modest 6% return compounded over 30 years will net $125,000. Plus the interest is deductible. Which is more than the $90,000 saved in interest.

With the potential to refinance to lower rate in the future and that mortgages are inflation proof, then yes, it's a reasonable option.

 

[stbugs]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

So you’d rather pass on the option which pays off the loan in half the time and saves over $80000 in interest just to have $25K in your pocket which you’d like to invest and hope to do better? To each his own.

30 years is a long time. I could put it in a 5% 30 year CD (just an example) and quadruple it in 28 years so I’d have over $100k at the end with no effort.

Historically, I don’t think there’s ever been a 30 year period where you have a negative return and the real return is something higher that would have you sitting on $200k+ in 30 years with index funds.

30 years is a **** ton of time for investing.

 

[stbugs]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

So you’d rather pass on the option which pays off the loan in half the time and saves over $80000 in interest just to have $25K in your pocket which you’d like to invest and hope to do better? To each his own.

If you take that $25K and invest it, even at a modest 6% return compounded over 30 years will net $125,000. Plus the interest is deductible.

With the potential to refinance to lower rate in the future and that mortgages are inflation proof, then yes, it's a reasonable option.

Damn you jumping in while I typed! That said, I agree 100%.

 

[-OZ-]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

So you’d rather pass on the option which pays off the loan in half the time and saves over $80000 in interest just to have $25K in your pocket which you’d like to invest and hope to do better? To each his own.

Yeah, I’m definitely taking the 30 year mortgage and continuing to invest unless I’m very close to retirement. Possibly even then.

 

[matttyl]

Yeah, gotta agree on keeping the cash for two reasons. First you can invest and should that investment reach the loan balance - write a check and own it outright.

Or the more likely (in my option) outcome - refinance should rates drop in the next few years and ask all these same questions over again then - as each option then would likely improve the situation.

 

[guru_007]

Ok, someone talk me through setting up a will.
Me and the wife have two kids (20 and 8). We have money in 403b, own our home, and have one investment property.

I kinda want to set up a basic will or living will or whatever its called just to make sure the right people get our money/assets if one of us dies or both of us die. I am fairly sure both our names are on the titles to our house and our rental property (its been a while, and not sure why we WOULDNT have done it that way).

Basically, who do I go to? Just any ol estate lawyer? Some sort of specialist? And about how much should I expect to spend here?

TIA

If it's something simple (and what you've described is fairly simple) you can probably use an online service like legalzoom.com

 

[Snotbubbles]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

So you’d rather pass on the option which pays off the loan in half the time and saves over $80000 in interest just to have $25K in your pocket which you’d like to invest and hope to do better? To each his own.

Absolutely. I was buying Amazon stock around year ago at $88-90 a share. It's at $200 now. That $25000 would be $56000. Bitcoin was around $25000 a year ago, it's at $60000 now. Nvidia was at $42 a year ago, now it's at $134. That $25000 would now be worth $80000. Paying down a tax deductible loan (even at 6 or 7%) isn't on the top of my list of things I want to do with my free cash flow. Heck, even a safe index fund like VOO would have returned you 26.8% in the last 12 months. I don't see why you would pay down a mortgage.

ETA: Just looked, if you would have put your $25000 into an index fund (I did VOO which is an S&P 500 tracker) in 2010, your $25000 would be worth over $125,000 today. A decent quote I like, "The Poor are Poor because they spend most of their money. The Middle Class are Middle Class because they Save most of their money. The Rich are Rich because they Invest most of their money."

 

[Nugget]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

So you’d rather pass on the option which pays off the loan in half the time and saves over $80000 in interest just to have $25K in your pocket which you’d like to invest and hope to do better? To each his own.

Option 2 would make more sense if you just set it up as $45K down and half the term.

 

[Nugget]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

So you’d rather pass on the option which pays off the loan in half the time and saves over $80000 in interest just to have $25K in your pocket which you’d like to invest and hope to do better? To each his own.

Absolutely. I was buying Amazon stock around year ago at $88-90 a share. It's at $200 now. That $25000 would be $56000. Bitcoin was around $25000 a year ago, it's at $60000 now. Nvidia was at $42 a year ago, now it's at $134. That $25000 would now be worth $80000. Paying down a tax deductible loan (even at 6 or 7%) isn't on the top of my list of things I want to do with my free cash flow. Heck, even a safe index fund like VOO would have returned you 26.8% in the last 12 months. I don't see why you would pay down a mortgage.

ETA: Just looked, if you would have put your $25000 into an index fund (I did VOO which is an S&P 500 tracker) in 2010, your $25000 would be worth over $125,000 today. A decent quote I like, "The Poor are Poor because they spend most of their money. The Middle Class are Middle Class because they Save most of their money. The Rich are Rich because they Invest most of their money."

Would you leverage your house to invest in the market today? I’d prefer to pay cash for my townhouse rather than borrow at 6%+.

 

[matttyl]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

So you’d rather pass on the option which pays off the loan in half the time and saves over $80000 in interest just to have $25K in your pocket which you’d like to invest and hope to do better? To each his own.

Absolutely. I was buying Amazon stock around year ago at $88-90 a share. It's at $200 now. That $25000 would be $56000. Bitcoin was around $25000 a year ago, it's at $60000 now. Nvidia was at $42 a year ago, now it's at $134. That $25000 would now be worth $80000. Paying down a tax deductible loan (even at 6 or 7%) isn't on the top of my list of things I want to do with my free cash flow. Heck, even a safe index fund like VOO would have returned you 26.8% in the last 12 months. I don't see why you would pay down a mortgage.

ETA: Just looked, if you would have put your $25000 into an index fund (I did VOO which is an S&P 500 tracker) in 2010, your $25000 would be worth over $125,000 today. A decent quote I like, "The Poor are Poor because they spend most of their money. The Middle Class are Middle Class because they Save most of their money. The Rich are Rich because they Invest most of their money."

Just to play devil’s advocate here - Going into 2022 one of the examples you would have given would have been Tesla. It went down about 44% from the start of 2022 through Q2 2024.

 

[Sand]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

So you’d rather pass on the option which pays off the loan in half the time and saves over $80000 in interest just to have $25K in your pocket which you’d like to invest and hope to do better? To each his own.

Yeah, I'd still do option 1. Take extra money, put it in conservative investments - 50% CD ladder, 50% IVV. Compound this and regular savings over time until you get to the payoff amount (this also keeps you largely liquid in case of bad things - you can't eat siding, after all). Cash it in and pay the house off. Send the bank John Goodman's FU speech when you do it. After that you're bulletproof - for the cost of taxes each year you have a place. There is huge peace of mind there.

Everyone wants you to rent and borrow. FU to the Big Debt hamster wheel. Plot out your freedom.

 

[pecorino]

I think option 1 is by far the suboptimal choice. The $25K invested over time would only accrue for 13 years not 30 since prepaying the mortgage shortens the payment period to 13 years. The amount of savings in interest (over $80 grand) is more than would be expected to earn from a $25K investment. You'd need to get 12% annually just to break even with the savings in interest. Also, it has not been noted that the homeowner would also have equity in the house right off the bat so the notion of refinancing is fine and easy.

What's being missed, I think, is that in a traditional mortgage it is the lending institution that is getting the benefit of compounding over time. Mortgages are front loaded so that the borrower (the hamster if you will) stays in debt because they're paying down interest like a fiend and getting very little put towards principal. In what was described in option 2, the borrower is taking away that early portion of the mortgage when the lender is fleecing the borrower by making them payback mostly interest. It gets the borrower to the meat of the amortization schedule so that more principal is being paid than interest. In effect, it's making the lender more of the hamster and the borrower more in the driver's seat, paying down their debt instead of paying off interest. I'm in the minority, fine. As I said, to each his own.

 

[shuke]

Looking for some simple general 529 withdrawal advice. My son is starting his sophomore year this fall. I didn't make any withdrawals for last year, as I didn't think the account balance was going to cover all 4 years completely. I did however wait until Jan 1 to pay his spring semester dues so I could withdraw that this year.

Here is my basic plan:
- Keep contributing monthly to the plan so I get state tax credit.
- Wait until December to make withdrawals to keep money in the market for as long as possible.

How do I determine what I can withdraw for room and board if he is not living on campus? My financial advisor said I could take out the equivalent of what the school would charge, but that is dependent on what dorm someone lives in and what meal plan they choose, so not sure if there are published guidelines on this.

 

[matttyl]

Looking for some simple general 529 withdrawal advice. My son is starting his sophomore year this fall. I didn't make any withdrawals for last year, as I didn't think the account balance was going to cover all 4 years completely. I did however wait until Jan 1 to pay his spring semester dues so I could withdraw that this year.

Here is my basic plan:
- Keep contributing monthly to the plan so I get state tax credit.
- Wait until December to make withdrawals to keep money in the market for as long as possible.

How do I determine what I can withdraw for room and board if he is not living on campus? My financial advisor said I could take out the equivalent of what the school would charge, but that is dependent on what dorm someone lives in and what meal plan they choose, so not sure if there are published guidelines on this.

If there isn’t enough to cover all 4 years, can’t you just withdrawal what’s paid directly to the school and call it good? I mean will you have enough there to do that for the final 3 years without having to worry about the other?

As for room and board - off campus housing costs can be considered an eligible expense as long as they were incurred while the student was enrolled in a degree program - “up to the maximum of the school’s cost of attendance.”

 

[Snotbubbles]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

So you’d rather pass on the option which pays off the loan in half the time and saves over $80000 in interest just to have $25K in your pocket which you’d like to invest and hope to do better? To each his own.

Absolutely. I was buying Amazon stock around year ago at $88-90 a share. It's at $200 now. That $25000 would be $56000. Bitcoin was around $25000 a year ago, it's at $60000 now. Nvidia was at $42 a year ago, now it's at $134. That $25000 would now be worth $80000. Paying down a tax deductible loan (even at 6 or 7%) isn't on the top of my list of things I want to do with my free cash flow. Heck, even a safe index fund like VOO would have returned you 26.8% in the last 12 months. I don't see why you would pay down a mortgage.

ETA: Just looked, if you would have put your $25000 into an index fund (I did VOO which is an S&P 500 tracker) in 2010, your $25000 would be worth over $125,000 today. A decent quote I like, "The Poor are Poor because they spend most of their money. The Middle Class are Middle Class because they Save most of their money. The Rich are Rich because they Invest most of their money."

Just to play devil’s advocate here - Going into 2022 one of the examples you would have given would have been Tesla. It went down about 44% from the start of 2022 through Q2 2024.

That's why I would put it in an index fund and over the long-term you'll make 10% AAR.

 

[Snotbubbles]

Looking for some simple general 529 withdrawal advice. My son is starting his sophomore year this fall. I didn't make any withdrawals for last year, as I didn't think the account balance was going to cover all 4 years completely. I did however wait until Jan 1 to pay his spring semester dues so I could withdraw that this year.

Here is my basic plan:
- Keep contributing monthly to the plan so I get state tax credit.
- Wait until December to make withdrawals to keep money in the market for as long as possible.

How do I determine what I can withdraw for room and board if he is not living on campus? My financial advisor said I could take out the equivalent of what the school would charge, but that is dependent on what dorm someone lives in and what meal plan they choose, so not sure if there are published guidelines on this.

When I make 529 withdrawals all I have to do is check a box that says this is for a qualified educational expense.

 

[matttyl]

Looking for some simple general 529 withdrawal advice. My son is starting his sophomore year this fall. I didn't make any withdrawals for last year, as I didn't think the account balance was going to cover all 4 years completely. I did however wait until Jan 1 to pay his spring semester dues so I could withdraw that this year.

Here is my basic plan:
- Keep contributing monthly to the plan so I get state tax credit.
- Wait until December to make withdrawals to keep money in the market for as long as possible.

How do I determine what I can withdraw for room and board if he is not living on campus? My financial advisor said I could take out the equivalent of what the school would charge, but that is dependent on what dorm someone lives in and what meal plan they choose, so not sure if there are published guidelines on this.

When I make 529 withdrawals all I have to do is check a box that says this is for a qualified educational expense.

Which is all well and good till you’re audited. The same would be true for HSA withdrawals. Keep receipts.

 

[Sand]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

So you’d rather pass on the option which pays off the loan in half the time and saves over $80000 in interest just to have $25K in your pocket which you’d like to invest and hope to do better? To each his own.

Absolutely. I was buying Amazon stock around year ago at $88-90 a share. It's at $200 now. That $25000 would be $56000. Bitcoin was around $25000 a year ago, it's at $60000 now. Nvidia was at $42 a year ago, now it's at $134. That $25000 would now be worth $80000. Paying down a tax deductible loan (even at 6 or 7%) isn't on the top of my list of things I want to do with my free cash flow. Heck, even a safe index fund like VOO would have returned you 26.8% in the last 12 months. I don't see why you would pay down a mortgage.

ETA: Just looked, if you would have put your $25000 into an index fund (I did VOO which is an S&P 500 tracker) in 2010, your $25000 would be worth over $125,000 today. A decent quote I like, "The Poor are Poor because they spend most of their money. The Middle Class are Middle Class because they Save most of their money. The Rich are Rich because they Invest most of their money."

Just to play devil’s advocate here - Going into 2022 one of the examples you would have given would have been Tesla. It went down about 44% from the start of 2022 through Q2 2024.

That's why I would put it in an index fund and over the long-term you'll make 10% AAR.

Sequence of return risk. We could have the 20 years up until 1981 again where the markets go nowhere. I figure 50/50 is reasonable conservative and will at least not bite you in the ***. Particularly if one works on it and tries to pay it off at year 10 or 15.

 

[Snotbubbles]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

So you’d rather pass on the option which pays off the loan in half the time and saves over $80000 in interest just to have $25K in your pocket which you’d like to invest and hope to do better? To each his own.

Absolutely. I was buying Amazon stock around year ago at $88-90 a share. It's at $200 now. That $25000 would be $56000. Bitcoin was around $25000 a year ago, it's at $60000 now. Nvidia was at $42 a year ago, now it's at $134. That $25000 would now be worth $80000. Paying down a tax deductible loan (even at 6 or 7%) isn't on the top of my list of things I want to do with my free cash flow. Heck, even a safe index fund like VOO would have returned you 26.8% in the last 12 months. I don't see why you would pay down a mortgage.

ETA: Just looked, if you would have put your $25000 into an index fund (I did VOO which is an S&P 500 tracker) in 2010, your $25000 would be worth over $125,000 today. A decent quote I like, "The Poor are Poor because they spend most of their money. The Middle Class are Middle Class because they Save most of their money. The Rich are Rich because they Invest most of their money."

Would you leverage your house to invest in the market today? I’d prefer to pay cash for my townhouse rather than borrow at 6%+.

Grant Cardone certainly would. For me, it would depend on whether I could afford the monthly payment. Right now, I'm maxing out my Roth 401(k) and my traditional 401(k) so I couldn't afford a new monthly payment without eating Ramen noodles every night for dinner.

 

[IvanKaramazov]

Looking for some simple general 529 withdrawal advice. My son is starting his sophomore year this fall. I didn't make any withdrawals for last year, as I didn't think the account balance was going to cover all 4 years completely. I did however wait until Jan 1 to pay his spring semester dues so I could withdraw that this year.

Here is my basic plan:
- Keep contributing monthly to the plan so I get state tax credit.
- Wait until December to make withdrawals to keep money in the market for as long as possible.

How do I determine what I can withdraw for room and board if he is not living on campus? My financial advisor said I could take out the equivalent of what the school would charge, but that is dependent on what dorm someone lives in and what meal plan they choose, so not sure if there are published guidelines on this.

The university should have an official "cost of attendance" someplace on their website. I think they're required to have it fewer than so-many clicks away from their main page. My understanding is that you can always withdraw that amount, regardless of your actual spending, but don't hold me to that part.

 

[SFBayDuck]

Looking for some simple general 529 withdrawal advice. My son is starting his sophomore year this fall. I didn't make any withdrawals for last year, as I didn't think the account balance was going to cover all 4 years completely. I did however wait until Jan 1 to pay his spring semester dues so I could withdraw that this year.

Here is my basic plan:
- Keep contributing monthly to the plan so I get state tax credit.
- Wait until December to make withdrawals to keep money in the market for as long as possible.

How do I determine what I can withdraw for room and board if he is not living on campus? My financial advisor said I could take out the equivalent of what the school would charge, but that is dependent on what dorm someone lives in and what meal plan they choose, so not sure if there are published guidelines on this.

If there isn’t enough to cover all 4 years, can’t you just withdrawal what’s paid directly to the school and call it good? I mean will you have enough there to do that for the final 3 years without having to worry about the other?

As for room and board - off campus housing costs can be considered an eligible expense as long as they were incurred while the student was enrolled in a degree program - “up to the maximum of the school’s cost of attendance.”

My thoughts:
1. Yes, contribute to get the state tax credit if your state offers one
2. Are you invested in the markets in your 529? I was until she got to school, then transitioned most to their version of a money market and started withdrawing from the little I left invested in equities first. If you need the money in the next 1-3 years, it's pretty risky to have that still in equities.
3. Each school should publish that "cost of attendance", broken down by where they are living and by category (here is what it looks like where my daughter is). Her rent has been coming in a little higher than the amount shown in the category she lives in, so when I started withdrawing this year I just do it each month when I pay her rent (and screenshot the receipt and stick in a google folder), but I skip one month so I don't go over that annual amount (in her case, her tuition is largely covered by grants and scholarships).

 

[Snotbubbles]

Looking for some simple general 529 withdrawal advice. My son is starting his sophomore year this fall. I didn't make any withdrawals for last year, as I didn't think the account balance was going to cover all 4 years completely. I did however wait until Jan 1 to pay his spring semester dues so I could withdraw that this year.

Here is my basic plan:
- Keep contributing monthly to the plan so I get state tax credit.
- Wait until December to make withdrawals to keep money in the market for as long as possible.

How do I determine what I can withdraw for room and board if he is not living on campus? My financial advisor said I could take out the equivalent of what the school would charge, but that is dependent on what dorm someone lives in and what meal plan they choose, so not sure if there are published guidelines on this.

When I make 529 withdrawals all I have to do is check a box that says this is for a qualified educational expense.

Which is all well and good till you’re audited. The same would be true for HSA withdrawals. Keep receipts.

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

Do the payment schedules and interest/principle ratios change if you put a bunch toward the principle early on? I thought it just took payments off the back end. Totally IMO, but in this situation I'd hold on to the 25%, invest it in a CD ladder, money market, or something else conservative then pay the whole thing off when you hit that point. Siding and drywall isn't edible - you never know if and when you may need liquid funds.

Yes, that’s my point. Though the monthly payments won’t change, the mix of principal vs interest changes significantly with prepayment. I’ll crunch the numbers and report back. I thought someone might have a definitive answer off the top of their head.

The difference is significant. Early in a mortgage, monthly payments mainly go to interest and only a small amount goes to principal. By prepaying, you move deep into the amortization schedule so that the payments become weighted towards paying off principal rather than interest. Here are the details. Let's assume a purchase of $100,000 with a 30 year fixed rate mortgage of 7%. Let's further assume that our buyer has $45000 in ready cash. (For more expensive houses, just scale up by the proper factor).

Option 1: Put $20000 down (20%) and hold on to the rest of the $25000 in cash for investment. That $80000 loan demands a monthly payment of $532 for 360 months. Total interest paid over the life of the loan is $111,600 making the total cost of the loan $191600.

Option 2: Put $20000 down (20%) and then prepay $25000 directly to principal in the first month of the mortgage. That $80000 loan demands a monthly payment of $532 for 160 months. Total interest paid over the life of the loan is $29,900 making the total cost of the loan $109,900.

Option 3: Put $45000 down (45%). That $55000 loan demands a monthly payment of $366 for 360 months. The total interest paid over the life of the loan is $76,700 making the total cost of the loan $131,700.

For someone who needs or wants a lower monthly payment, I can see the appeal of option 3. However, if the monthly payment in option 2 is tenable, then the loan is paid off in under 14 years and there's a savings of $46000 in interest. To me, option 1 is the worst, probably because interest rates are at 7%. I'd rather not keep that money in my pocket and instead deploy it to work down the principal.

In the most extreme example, even more could be saved by putting only 5% down and then prepaying 40% in month one. It yields an extra savings of $7K in interest over the life of the loan and it pays off the loan even faster, in ten years. A higher monthly payment of $632 is an important factor as well. You'd have to deal with PMI and then canceling PMI but the most frugal among us may be willing to do that.

I would do option 1 and invest the money or pay points to lower the rate.

So you’d rather pass on the option which pays off the loan in half the time and saves over $80000 in interest just to have $25K in your pocket which you’d like to invest and hope to do better? To each his own.

Absolutely. I was buying Amazon stock around year ago at $88-90 a share. It's at $200 now. That $25000 would be $56000. Bitcoin was around $25000 a year ago, it's at $60000 now. Nvidia was at $42 a year ago, now it's at $134. That $25000 would now be worth $80000. Paying down a tax deductible loan (even at 6 or 7%) isn't on the top of my list of things I want to do with my free cash flow. Heck, even a safe index fund like VOO would have returned you 26.8% in the last 12 months. I don't see why you would pay down a mortgage.

ETA: Just looked, if you would have put your $25000 into an index fund (I did VOO which is an S&P 500 tracker) in 2010, your $25000 would be worth over $125,000 today. A decent quote I like, "The Poor are Poor because they spend most of their money. The Middle Class are Middle Class because they Save most of their money. The Rich are Rich because they Invest most of their money."

Just to play devil’s advocate here - Going into 2022 one of the examples you would have given would have been Tesla. It went down about 44% from the start of 2022 through Q2 2024.

That's why I would put it in an index fund and over the long-term you'll make 10% AAR.

Sequence of return risk. We could have the 20 years up until 1981 again where the markets go nowhere. I figure 50/50 is reasonable conservative and will at least not bite you in the ***. Particularly if one works on it and tries to pay it off at year 10 or 15.

And index fund is a safe, long-term play. With only $25K, I'd be putting all that into crypto, specifically Bitcoin on the next major dump. But I like risk.

 

[Snotbubbles]

Looking for some simple general 529 withdrawal advice. My son is starting his sophomore year this fall. I didn't make any withdrawals for last year, as I didn't think the account balance was going to cover all 4 years completely. I did however wait until Jan 1 to pay his spring semester dues so I could withdraw that this year.

Here is my basic plan:
- Keep contributing monthly to the plan so I get state tax credit.
- Wait until December to make withdrawals to keep money in the market for as long as possible.

How do I determine what I can withdraw for room and board if he is not living on campus? My financial advisor said I could take out the equivalent of what the school would charge, but that is dependent on what dorm someone lives in and what meal plan they choose, so not sure if there are published guidelines on this.

When I make 529 withdrawals all I have to do is check a box that says this is for a qualified educational expense.

Which is all well and good till you’re audited. The same would be true for HSA withdrawals. Keep receipts.

You must not know me from the tax thread, I am a cheater and I don't care. It's my money, not the governments.

 

[-OZ-]

Would you leverage your house to invest in the market today? I’d prefer to pay cash for my townhouse rather than borrow at 6%+.

at our current rate? I’d be ****ing ecstatic if I could borrow up to 80% of our home value at our mortgage rate.
At 6% I’d borrow more now and pay it off before retirement, assuming fixed rate.

 

[-OZ-]

You must not know me from the tax thread, I am a cheater and I don't care. It's my money, not the governments.

- YouTube

Auf YouTube findest du die angesagtesten Videos und Tracks. Außerdem kannst du eigene Inhalte hochladen und mit Freunden oder gleich der ganzen Welt teilen.

youtu.be

 

[IvanKaramazov]

(here is what it looks like where my daughter is).

If you scroll down just a bit, you will be treated to a truly epic mustache. Pretty sure that guy was a bare-knuckle boxer in the 1920s in a previous life.

Well, either that, or he tied Nell to the train tracks.

 

[Ministry of Pain]

Question: I have 45% of the money required to buy a house so a mortgage is necessary. 20% down eliminates PMI so that is a given. Is it better to put all 45% down when buying or should I put 20% down then, once the mortgage is active, pre-pay the 25% I’ve got in my pocket? I like the idea of speeding through the early stages of amortization, but I just don’t know if it makes a difference. Could be a wash. TIA.

I saw this post and I'm going to guess you got a lot of posts but you might as well get one more to pile on here

-Absolutely NOT! You should not put down 45% right now, especially since folks keep talking about homes going down in value in many parts of the country
I would understand the 20% and avoiding 60 months of PMI which is going to run you at least a couple hundred a month.

We have bought and sold a few homes here in the MoP house and we almost never put a lot of money down.
I like being liquid and if you have 45% then you could buy 2 Homes, rent 1 and help pay for the other, seriously

Good Luck
Cheers!

 

[Snotbubbles]

You must not know me from the tax thread, I am a cheater and I don't care. It's my money, not the governments.

- YouTube

Auf YouTube findest du die angesagtesten Videos und Tracks. Außerdem kannst du eigene Inhalte hochladen und mit Freunden oder gleich der ganzen Welt teilen.

youtu.be

I don't cheat with my kids 529, but I'm not saving receipts. If by the remote chance, I did get audited it would take me 2 minutes to go into my kids college portal and print out the payments I made to the school since I do it at the beginning of every semester.

 

[shuke]

Looking for some simple general 529 withdrawal advice. My son is starting his sophomore year this fall. I didn't make any withdrawals for last year, as I didn't think the account balance was going to cover all 4 years completely. I did however wait until Jan 1 to pay his spring semester dues so I could withdraw that this year.

Here is my basic plan:
- Keep contributing monthly to the plan so I get state tax credit.
- Wait until December to make withdrawals to keep money in the market for as long as possible.

How do I determine what I can withdraw for room and board if he is not living on campus? My financial advisor said I could take out the equivalent of what the school would charge, but that is dependent on what dorm someone lives in and what meal plan they choose, so not sure if there are published guidelines on this.

If there isn’t enough to cover all 4 years, can’t you just withdrawal what’s paid directly to the school and call it good? I mean will you have enough there to do that for the final 3 years without having to worry about the other?

As for room and board - off campus housing costs can be considered an eligible expense as long as they were incurred while the student was enrolled in a degree program - “up to the maximum of the school’s cost of attendance.”

I think I'm going to have enough now so I want to start withdrawing this year.

I guess for room and board, how do I need to keep track of costs for non-housing like utilities, groceries, etc. He'll have 4 roommates. Do I need to get copies of utility bills and keep them?