Minimum Amount Needed to Put Down on Home Purchase
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re: Minimum Amount Needed to Put Down on Home Purchase
Posted by seawolf06 on 12/28 at 3:59 pm to mytigger
quote:

mytigger


1. Don't you need to covert all of those payments over 30 years back to present value which makes it much less than $143k?

2. What if you can invest in something that pays 7% interest? Wouldn't that be 3% better than paying your house off early?



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Posted by Chris Farley on 12/28 at 4:23 pm to seawolf06
The time value of money is very difficult for some people to comprehend.


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Posted by GenesChin on 12/28 at 8:31 pm to mytigger
quote:


I disagree. Anytime you can pay a lesser price for something that's always a smart move.

$200,000 loan at 4% over 30 years will cost $343,000.

quote:
Put down as little as you can and spend as little of your own money as you can.


No, you're paying an extra $143,000 to borrow $200,000. Spending 171% of the purchase price to pay less today so you can to spend more tomorrow.

Now, take that same $200k over 15 years and you end up spending $266k, saving yourself $77k in the process, in addition to the equity that you've paid into the house.



That is under the assumption that inflation stays under 4%. If inflation hits 4% (which is likely) then having a long term loan like 30 years is pretty sweet because you really aren't losing money assuming you bought something that appreciates in value along with inflation



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Posted by Cajun Revolution on 12/28 at 10:40 pm to GenesChin
I just want to buy something keep for 5 years then upgrade. Not looking to retire in it.


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Posted by RandySavage on 12/28 at 11:20 pm to dustinm27
quote:

ETA: The only time you should every pay off anything quickly is if you plan on keeping it your whole life or it is an item that depreciates (like a car)


Why would you not want to pay down/off a house early which gets rid of PMI much quicker and saves 10s of thousands of dollars in interest?


This post was edited on 12/28 at 11:23 pm

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Posted by GenesChin on 12/29 at 1:29 am to RandySavage
quote:

Why would you not want to pay down/off a house early which gets rid of PMI much quicker and saves 10s of thousands of dollars in interest?



PMI can be deducted off your taxes (I think that still is in effect?) but assuming you don't have to pay for PMI cause you put 20% down

A house can be considered an asset. First case scenario, assume that a house's value as a commodity stays constant in 2012 US Dollars, if you take out a loan at 4% interest and inflation goes over 4% in 2 years and stays above 4% for the rest of your mortgage, relative to the US dollar your house has gained value so you could sell it for more than the principal and the interest on your house.

It is an interest vs inflation battle and most economist are predicting in 5-10 years inflation will be around 10% so a loan at 3-4% and a housing market that does even slightly better will net you a significant return compared to paying off your house early


Take all things previously mentioned and see that the housing market took a dip, unless the market is going to be on a decline again (which in the words of my friend who owns a large commercial real estate company "God isn't creating any more land any time soon") is unlikely. So if inflation goes over 4% and your house appreciates even marginally then you are making profit


This post was edited on 12/29 at 1:31 am

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Posted by Danchase on 12/29 at 3:12 am to mytigger
Couldn't agree more. Read into Dave Ramsey's money management philosophies. Some concepts may seem foreign to many people I.e. living free of consumer debt (cars, credit cards, student loans). Don't let the current mortgage rates pressure you into buying something you cannot afford because there is a low interest rate. But if you buy a house 20-25% down on a 15 yr fixed with the payments not exceeding 1/4 of your take home pay.


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Posted by MikeBRLA on 12/29 at 3:22 am to RandySavage
quote:

Why would you not want to pay down/off a house early which gets rid of PMI much quicker and saves 10s of thousands of dollars in interest?


Why pay it off now when you can pay it off later with "cheaper" money? Think about inflation. 20K right now is worth a lot more than 20K will be 20 years from now. I'd rather pay that debt later when (bc of inflation) 20K is easier to earn.

Also money is cheap as shite right now to borrow if you have good credit. You really are missing out if you aren't borrowing as much as you can at a fixed rate.

As was previously stated, time value of money isn't an easy concept for everyone to truly understand.





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Posted by GenesChin on 12/29 at 4:09 am to MikeBRLA
You should never finance or take a loan out to purchase anything that doesn't appreciate in value.

The only reason to take a loan out to buy something that has a constant value is if you are betting inflation is going to be a higher percentage than the interest on said loan.

Right now inflation and interest rates are artificially low as a result of the FED's policies which are in no way sustainable



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Posted by dustinm27 on 12/31 at 2:59 pm to mytigger
quote:


I disagree. Anytime you can pay a lesser price for something that's always a smart move.

$200,000 loan at 4% over 30 years will cost $343,000.


I think you misunderstood my point. I was saying that if you're only going to buy a house and live init for 5 years, then you should pay the absolute minimum. Including down payment. If you're going to own a house forever, then it makes sense to pay it off early



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Posted by dustinm27 on 12/31 at 3:00 pm to GenesChin
quote:

You should never finance or take a loan out to purchase anything that doesn't appreciate in value.

The only reason to take a loan out to buy something that has a constant value is if you are betting inflation is going to be a higher percentage than the interest on said loan.

Right now inflation and interest rates are artificially low as a result of the FED's policies which are in no way sustainable


agreed



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