Mortgage Down Payment

[RDU Irish]

Stick with a double wide and pay cash.

 

[wizards8507]

Stick with a double wide and pay cash.

I know you're joking, but cash would be a fantastic way to go if you have it. You definitely don't want a trailer (depreciating asset), but owning real estate free and clear would be a nice feeling when you go to sleep at night.

 

[BleedBlueGold]

BBG - $250k loan at 2.875% for five years and making an $1800/month payment instead of $1037 would result in a balance of $172,600 after five years. If the next five years are at 4.875%, your balance after 10 years would be $98,100. Increase to 6.875% for the next five years would bring balance to $9750 at the end of 15 years. So if the loan has five year locks on increases, you are pretty much same boat as the 15 year fixed loan in the worst case scenario for rate increases. I doubt the resets lock for five years, in which case your worst case gets less appealing.

Thanks for doing this. The scenario I ran had an intro rate of 2.865% for 5 years. Then it increased by 2.0% each year for the next few years until it hit the cap rate of 8.865% The balance was paid off in about 17 years using the max payment throughout. Either way it was paid off sooner than the 30 year term, BUT there was mention of early pay off penalties (which aren't associated with fixed rate loans).

7 year ARMs look like they are about 1/8th to 1/4th percent higher than the 5 year. 10 year ARM looks 1/4th to 3/8ths higher than the 7 year and the same or slightly higher than a 15 year fixed. If the 1800/month is pretty much maxing out your budget - I think it is important to keep the cash flow flexibility of an ARM with a lower minimum payment in trade for the risk of rising interest rates. In that case, you are really comparing 30 year fixed versus the ARMS since the cash flow risk of the 15 year takes that option off the table.

If cash flow is not a concern, I would do the 15 year fixed.

EVEN IF the rate went to 8.875% after five years, you would be paid off 14 years later (19 years total) for total payments of about $410,000 versus about $320,000 total payments on a 15 year loan.

With my 15-year fixed scenario I came out well ahead of the ARM in terms of number of years paying as well as total interest paid. The benefit is that a motivated/diligent person can then put the entire payment that was going to the house into his investments that much sooner. I agree with what Wizard said in response to the cash flow flexibility also. If something comes up and you need to pull cash from your mortgage payment to cover it, you probably have other problems in your household finances. I just prefer to lock in a low 15-year fixed rate, knock it out asap, and then dump money into investments after. Personal preference.

 

[CTHindman]

Avoid ARMs at all cost. 15 year fixed is best route for those that can afford it.


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[RallySonsOfND]

At this point I wish I was married so my wife could pick out the damn colors of everything.

Cabinets, granite, walls, fixtures, lighting, exterior... first world problems. haha

 

[RallySonsOfND]

I know you're joking, but cash would be a fantastic way to go if you have it. You definitely don't want a trailer (depreciating asset), but owning real estate free and clear would be a nice feeling when you go to sleep at night.

Just waiting on an inheritance for that. haha jk