.

[CapnCy]

All very valid points, however, paying off a 3% mortgage early is the equivalent of investing your money at 3%. If you can borrow the money at 3% and invest the difference at 10% (very possible over the long term) or even 8%, you might pay your house off even SOONER.

But it's all a matter of the borrower's/investor's comfort level with debt and/or investment risk.

I said this earlier, but I agree with acrozier22's logic assuming most people don't follow up and truly invest the extra money or see it that way.

I am in the school of thought that if you pay it off in 15 years, you not only save on future interest (and likely are more disciplined overall with your family budget), you also have zero house payments in 15 years and open up a new line of income in 15 years after being used to paying a large amount each month.

But, again, if someone is truly disciplined and does the math and says "I would have paid $900 a month, I'm going to instead pay $700 for a 30 year and now am investing the difference" the math works out....but I don't like debt.

 

[CapnCy]

You left out some unknowns regarding rate and length of term. If someone knows those items, it's simple math. I'm looking at how I can pay off my house in the shortest amount of time without crippling my monthly budget and being able to live the life I want to.

So let's just make up some numbers here for fun. 3.5% and 30 year loan.

50K down - $700 (add $200 per month on the principal. I mean, you have it in your budget since you think the $900 is a better deal. I know, it's an assumption)

Paid off in 19.9 years. Paid $58,398 in interest. Total amount - $208,398.

5k down - $900

Paid off in 30 years. Paid $121,462. Total amount - $318,462


My conclusion.

I like to save $110,000 and pay my house off in an quicker amount of time. My real advice is get a 15 year loan and save even more money.

One more point and I'll hang up and listen.....I think people lack the discipline to make this math work. The fact the OP has 50k ready to potentially put down for a down payment shows they are likely ahead of the curve greatly (I just spoke with someone that had a "hang up" getting a pre-approval letter for a loan as there was a credit error over a Sears card balance of less than $500...if your finances are that close or volatile, I'm concerned about your overall money management strategies).

I work with people that, on paper, have VERY good incomes....and sometimes am baffled at hearing them have "financial crisis" over something less than $1000.....sometimes on paper one thing seems right, but if you can't follow through can dig a much bigger hole.

 

[isufbcurt]

Yeah, so dumb. Not everyone needs to own a house. So are both rates 3%?

Just like everyone doesn't need health insurance, everyone doesn't deserve a chance to go to college, etc. Only rich people should have the above mentioned items.


For me personally I always take the lowest down payment option.

 

[JWIL4CY]

So lenders didn't learn much from 2008?

Exactly. My brother in law is taking advantage of this program. He's broke and in debt and in no position to be buying a house. Ugh.

 

[BCClone]

Just like everyone doesn't need health insurance, everyone doesn't deserve a chance to go to college, etc. Only rich people should have the above mentioned items.


For me personally I always take the lowest down payment option.

House ownership is a little different. If you are in a career where you move every couple years, like an assistant coach at the college level, renting is probably best. Single and in the military, or just out of college are probably best to rent. I don't think he was saying rich versus poor. Just that home ownership doesn't make sense all the time.

Also, if you have been renting for 10 years and can't afford a 10% down payment, if you need a major repair you are probably going to struggle with that.

 

[SoapyCy]

Just like everyone doesn't need health insurance, everyone doesn't deserve a chance to go to college, etc. Only rich people should have the above mentioned items.

For me personally I always take the lowest down payment option.

Based on the details in the original post why would the state of Iowa give a better deal to someone without savings than to someone with savings? Both of our interest rates are the same, both terms are the same, but the difference is the state of Iowa is picking up the tab for the PMI. The state has said this person's lack of down payment doesn't matter and the state will give them monthly amounts for PMI PLUS 2500 for closing costs.

Because I bought a house in 2008 (and lost money on it!) - I don't get this program? Why would the state give a great deal to one person but not another? if the state gave me the option to pay $61/month to float me 50k I'd do it, but of course I wasn't given that option because I have down payment money.

 

[ruxCYtable]

I said this earlier, but I agree with acrozier22's logic assuming most people don't follow up and truly invest the extra money or see it that way.

I am in the school of thought that if you pay it off in 15 years, you not only save on future interest (and likely are more disciplined overall with your family budget), you also have zero house payments in 15 years and open up a new line of income in 15 years after being used to paying a large amount each month.

But, again, if someone is truly disciplined and does the math and says "I would have paid $900 a month, I'm going to instead pay $700 for a 30 year and now am investing the difference" the math works out....but I don't like debt.

Agreed, most people wouldn't have the discipline to stick with such a plan. But assuming one did...

You would, of course, be investing that additional $200 per month but you'd also have the remaining $44,000 (what's left after 3% down) and that alone would double, conservatively, in 8-10 years.

I don't have time right now but I'm going to run the numbers later just for ***** and giggles. I'm of the camp too that says just put it down and pay it off in 15 years but I like doing this **** just for fun.

 

[isufbcurt]

House ownership is a little different. If you are in a career where you move every couple years, like an assistant coach at the college level, renting is probably best. Single and in the military, or just out of college are probably best to rent. I don't think he was saying rich versus poor. Just that home ownership doesn't make sense all the time.

Also, if you have been renting for 10 years and can't afford a 10% down payment, if you need a major repair you are probably going to struggle with that.

I understand what you are saying. But from my experience in a lot of cases your house payment is less than rent on an apartment. And if you don't have to put down a down payment it is more money kept in your pocket in case you have that major repair.

Just an example - I know people renting for $1000 - 1400 per month. We bought our dream house (log home) with a 40' x 42' shop, 5 acres and 2 ponds and our mortgage payment is $1200/month.

 

[BCClone]

I understand what you are saying. But from my experience in a lot of cases your house payment is less than rent on an apartment. And if you don't have to put down a down payment it is more money kept in your pocket in case you have that major repair.

What you are saying is totally logical. For myself and assuming yourself, that works. For many people out there, the extra 50 bucks a month, or whatever, becomes just that 50 more in their pocket and spent. My first job out of college was an Ag loan officer, I saw what many spending habits are. There is very little saving happening around here.

 

[JY07]

Based on the details in the original post why would the state of Iowa give a better deal to someone without savings than to someone with savings? Both of our interest rates are the same, both terms are the same, but the difference is the state of Iowa is picking up the tab for the PMI. The state has said this person's lack of down payment doesn't matter and the state will give them monthly amounts for PMI PLUS 2500 for closing costs.Because I bought a house in 2008 (and lost money on it!) - I don't get this program? Why would the state give a great deal to one person but not another? if the state gave me the option to pay $61/month to float me 50k I'd do it, but of course I wasn't given that option because I have down payment money.

If you bought a house in 2008 you should have gotten a $8k credit on it.. I think you got the better deal

I feel like we're missing some details in this story... for one why did you put down 25% instead of 20%, and two: even if the state of iowa is picking up the other person's PMI payments, there's no way they should have ended up with the same interest rate as you if you were putting down 20%+.. might be time to call some other banks

 

[isufbcurt]

Based on the details in the original post why would the state of Iowa give a better deal to someone without savings than to someone with savings? Both of our interest rates are the same, both terms are the same, but the difference is the state of Iowa is picking up the tab for the PMI. The state has said this person's lack of down payment doesn't matter and the state will give them monthly amounts for PMI PLUS 2500 for closing costs.

Because I bought a house in 2008 (and lost money on it!) - I don't get this program? Why would the state give a great deal to one person but not another? if the state gave me the option to pay $61/month to float me 50k I'd do it, but of course I wasn't given that option because I have down payment money.

Because that is what the Iowa Finance Authroity is for. I used to do the audit of Polk County Housing Trust and they received money from IFA for various projects. The purpose is to help low income people who want to buy a home.

I would say that when you bought your house in 2008 your mortgage person did a bad job of not showing you everything that was out there. When I bought my first house in 2004 my mortgage person showed me all sorts of options and programs that would help me. Ended up getting a no downpayment loan with a pretty good rate. I know lending rules are different now but there are still some pretty good programs out there.

 

[DeereClone]

I would err towards the side of paying the $50K down and staying away from IFA and little-down purchase programs, if you can drop the $50K and not have an issue with that.

If you don't have the cash I don't see anything wrong with the IFA program, as long as you have sufficient income to pay for it.

 

[SoapyCy]

If you bought a house in 2008 you should have gotten a $8k credit on it.. I think you got the better deal

i bought my house a month before the program kicked in. the program in 2008 was retroactive so no one really knew it was coming. say it was created in july and retroactive to march. well i bought in february. it was a crazy time for mortgages back then.

edit - my question is/was: is the $61/month worth the extra 50k in loan amount? i think if I had to do it over again and had the opportunity i would do that.

 

[dualthreat]

Depends. Is your house in Marshalltown? If so, you lose.

 

[isufbcurt]

wow. easy choice. why would the IFA give a first-time buyer that option but no one else?

Because that is the point of the IFA, they help low income families and first time buyers get into homes.

 

[1100011CS]

Depends. Is your house in Marshalltown? If so, you lose.

^d-bag

 

[SoapyCy]

Because that is the point of the IFA, they help low income families and first time buyers get into homes.

the income cutoff is 65k. i'm not judging the program because i'm only interested in the number-crunching. but 65k doesn't seem too low income in iowa.

 

[ArgentCy]

All very valid points, however, paying off a 3% mortgage early is the equivalent of investing your money at 3%. If you can borrow the money at 3% and invest the difference at 10% (very possible over the long term) or even 8%, you might pay your house off even SOONER.

But it's all a matter of the borrower's/investor's comfort level with debt and/or investment risk.

This is possible but very VERY few people will pull it off. You have to be very disciplined and be a knowledgeable or lucky investor. By not paying off the home you are essentially leveraging your balance sheet. This can be dangerous, just ask any oil company atm.

 

[ruxCYtable]

I couldn't resist running the numbers immediately because I love this crap. At today's rate at my credit union of 3.8%, if he put all $50K down and paid $321 extra (the diff between payments if he put $50K down vs. 3% down), he would pay the house off in just under 11 years. (assuming $150K loan at 3.8% for 15 years)

If he put 3% down, invested the remaining $44K at 8.8% (a 5% spread over mortgage rate) he'd be able to pay it off in 9 as below.

[TABLE="width: 192"]
[TR]
[TD="class: xl63, width: 64"]Year-end[/TD]
[TD="class: xl63, width: 64"]Mtg Bal[/TD]
[TD="class: xl63, width: 64"]Inv Bal[/TD]
[/TR]
[TR]
[TD="class: xl64, align: right"]1[/TD]
[TD="class: xl65, align: right"]$184,215[/TD]
[TD="class: xl65, align: right"]$47,872[/TD]
[/TR]
[TR]
[TD="class: xl64, align: right"]2[/TD]
[TD="class: xl65, align: right"]$174,052[/TD]
[TD="class: xl65, align: right"]$52,085[/TD]
[/TR]
[TR]
[TD="class: xl64, align: right"]3[/TD]
[TD="class: xl65, align: right"]$163,496[/TD]
[TD="class: xl65, align: right"]$56,668[/TD]
[/TR]
[TR]
[TD="class: xl64, align: right"]4[/TD]
[TD="class: xl65, align: right"]$152,532[/TD]
[TD="class: xl65, align: right"]$61,655[/TD]
[/TR]
[TR]
[TD="class: xl64, align: right"]5[/TD]
[TD="class: xl65, align: right"]$141,143[/TD]
[TD="class: xl65, align: right"]$67,081[/TD]
[/TR]
[TR]
[TD="class: xl64, align: right"]6[/TD]
[TD="class: xl65, align: right"]$129,314[/TD]
[TD="class: xl65, align: right"]$72,984[/TD]
[/TR]
[TR]
[TD="class: xl64, align: right"]7[/TD]
[TD="class: xl65, align: right"]$117,028[/TD]
[TD="class: xl65, align: right"]$79,406[/TD]
[/TR]
[TR]
[TD="class: xl64, align: right"]8[/TD]
[TD="class: xl65, align: right"]$104,267[/TD]
[TD="class: xl65, align: right"]$86,394[/TD]
[/TR]
[TR]
[TD="class: xl64, align: right"]9[/TD]
[TD="class: xl65, align: right"]$91,013[/TD]
[TD="class: xl65, align: right"]$93,997[/TD]
[/TR]
[/TABLE]


That's a virtual wash IMO and not worth the investment risk to your principal. Put the $50K down and don't look back!

 

[SoapyCy]

This is possible but very VERY few people will pull it off. You have to be very disciplined and be a knowledgeable or lucky investor. By not paying off the home you are essentially leveraging your balance sheet. This can be dangerous, just ask any oil company atm.

our rate is 4%. i don't know what the market will do but putting more down is an automatic 4% gain and whatever extra principal you pay each month is 4% gain locked-in. yeah, it's not liquid but it's less debt on the spreadsheet. that's why i chose to put more down - why not lock-in as much as possible and if i lose my job my monthly payments are smaller than if i only put down 3%.

the math is interesting.