Owning a home

Discussion in '2000-02 Archive' started by Gina B, Dec 20, 2002.

  1. Gina B

    Gina B
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    Let's play help the not so smart person, lol. How does this whole thingie work? Say I just bought a house this year and paid off $30,000 of it right away. If I found I needed a small amount of money for something, say $3000, is it possible to use the house to get it even though it's not paid off yet? What would I do to get it, bang on the chimney? LOL
    Go ahead and laugh at the question, but then answer it. I really know nothing about this stuff! Ask me about babies or poetry I'll have a clue. [​IMG]
    Gina
     
  2. bb_baptist

    bb_baptist
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    You could get a "home equity loan" also known as "second mortgage". Just call you mortgage company and tell that that you need the money and should have the money in a few weeks.
     
  3. Gina B

    Gina B
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    Looking it up. That's just way too easy! I like it. [​IMG]
    Gina

    [ December 20, 2002, 12:51 PM: Message edited by: Gina ]
     
  4. Johnv

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    There's also a "home equity line of credit", where you get a credit line using the equity of your home as collateral.

    Here in southern california, you can get one literally a month after getting ahome, thanks to our skyrocketing home prices. FOr example, I bought my condo in May for 103,000. My neighbor sold his in November for $148,000. I put down $15,000, so my current equity is $60,000. That's more than I make at work in a year!!!!

    Please don't tell my exwife, though. She's still renting [​IMG]
     
  5. bb_baptist

    bb_baptist
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    John, your equity is $63,000 but banks will only give you a home equity line or home equity loan for 80% of it (or $50,400).
     
  6. Johnv

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    Oh it that all???? :D

    Seriously, though, my concern is that I may lose equity if the So Calif housing market goes south. Or, will it continue to skyrocket to the point that I'll be stuck in a condo without ever being able to move up??
     
  7. Jeff Weaver

    Jeff Weaver
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    Gina

    I can be too easy. It can be a trap. Some lenders will lend with little if any collateral, or ability to repay. Be very very careful. I have seen folks who got themselves in serious trouble taking out these home equity loans, especially if they were marginal for paying the first mortgage. I have a rule, -- if I can live without it and don't have the money for it, I'll pass on it. Course I realize that sometimes the furnace dies, or the car needs replacing, but don't buy anything frivilous with money from a home equity loan -- such as a vacation, or a big screen TV.

    Jeff.
     
  8. LadyEagle

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    Gina, you could also refinance your whole note plus the cash you need included in the total refinance, at a lower interest rate. Some places might even wave closing costs to refinance (or include them in with the refinanced amt) & you still would come out ahead. That way your overall monthly payment might end up being lower than your present payment & you still would have the cash you need. [​IMG]

    My view is to put as little cash down as possible into your primary residence because the interest is nearly 100% of your house payment for the first several years and is tax deductible. The extra cash that you might put into the down payment could be turned into a CD or sit collecting interest in an account. It can always be applied to your house to reduce your mortgage balance at a later time. But that's just my view. A CPA would better advise you on that. [​IMG]

    Hey, isn't there a CPA in the house? ;)
     
  9. Gina B

    Gina B
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    SEE? That kinda talk is what makes a person just want to put down as much as possible and pay it off as soon as possible and get it all over with. LOL
    Not really worried about anything like that, if nothing changes it's all paid and done five years from last June.
    That said, what do you know on property tax? It seems as if all you have to do is put a Christmas wreath on your door and they raise it!
    In the end, the only difference between renting and owning appears to be that in owning you pay taxes instead of rent, plus do your own maintenance!
    Gina
     
  10. Jeff Weaver

    Jeff Weaver
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    Retired accountant here. She Eagle that scenario will only work in few occasions.

    Ok, if, say your refianced mortgage is 5.65 percent, currently the prevailing rate, adding in fees, etc., which brings the effective rate to near 6% (depending on the fees), then you would need to find a CD that paid at least 5% to break even. In the current market this isn't likely. You could get a break even return at about 4% but then you have to pay taxes on that return, so to stay dead even you'd need 5%.

    In my opinion, it is always a wise move to pay down debt as quickly as possible, and avoid it altogether if managable.

    Another way to look at it would be this way.

    If you had a $100,000 mortgage, over 30 years, the net payments would be approximately 190,000 with a 6% net rate, excluding taxes and insurance. The tax rebate from mortgage interest deduction would be approximately 24,000 over the course of the loan. You are still paying someone else $66,000. On top of that, if you haven't made sufficient down payment, most lenders require mortgage insurance, which is not tax deductible, and the rates are quite steep, IMO.

    Now if you have a low mortgage rate, and the prevailing CD/interest bearing account/investment returns approach the 7-8% rate, then it would be worthwhile to do as you suggest.

    These figures, except for the CD/accout returns are guesses on my part, I didn't look them up in amoritization tables. I did take the time to calcluate the necessary return for the 5.65 interest rate scenario, Anyway I hope you get the picture.

    Hope it helps.

    Jeff
     
  11. LadyEagle

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    Yes, Jeff, thanks for your post. It's always best to consult with experts in financial matters to be the best stewards of our money! Thanks for your post, it's appreciated.

    Now when I'm stumped on a financial problem, I know who to turn to! [​IMG]
     
  12. bb_baptist

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    Jeff, glad to see an accountant on board.

    I agree with the Jeff's post.

    1.) The best investment is to pay down debt.
    2.) It would be very difficult to get even 4% real return (after-tax) in this market. CD's pay about 1.5%.
    3.) Using Jeff's scenario, on a 30-yr mortgage for $100,000 with $6%, you'd pay $215,838 in total, of which, $115,838 would be interest. Clearly, there is a tax deduction for this (itemized, sch. A) but some of the deduction would be lost for a person who does not otherwise itemize. Further, the deduction in many states would be limited to the Federal (1040) deduction (since state limits for itemized deductions are usually higher than Federal limits) and in my estimate no more than 15% of the $115,838 would be received back from taxes. In that case, you'd pay about $100,000 in interest (after-taxes).
     
  13. Jeff Weaver

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    Former accountant. I had a couple of strokes from diabetes and was forced to retire. I have some difficulty keeping numbers and words straight now. Some small amount of dyslexia that wasn't apparent before.

    Merry Christmas
    Jeff
     

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