Mortgage Rate Question

[SCNCY]

I had a question I wanted to float to the group. Since this is a mortgage thread, I thought this would be a good place to put it, even if not the OP's question.

My wife and I were starting to build up to buy a home. Yes, yes, I have argued on here a few times about renting versus buying and usually came down on the renting side, but a higher power intervened and it looks like I am going to buy something.

Yours truly along with my wife's husband were put on trial. I was going to lose either way.

As some of you might know, housing on the East Coast is in another universe than from Iowa or even the more expensive parts of the Midwest. Thing is, we can afford to save enough up to make a 20% down-payment (to avoid PMI) on even housing out here.

Which brings up two questions...

(1.) Should we do that? Is it worth avoiding the additional monthly payments and to burn off that much principle fast, or better to use the cash somehow else?

(2.) As I said, we would have to save it up first, which would not take all that long (not trying to brag here, but we are two high-income professionals in a high-income area with no debt or major expenses or kids yet, typical yuppie DINKs) to do. However, how should we store it in the meantime for 1-3 years? Cash? An index fund? Some other short-term security? I would have to lose out on any interest or return, but I am kind of worried about downside risk with equities when we are dedicating it to a specific purpose.

If it was long-term and earmarked for retirement or college someday, that is one thing, but I am not sure how to store a large amount in a semi-liquid fashion in the medium-term.

Thanks!

1. I would put down enough so you don't have to pay PMI. All your doing is giving money to your lender so they won't lose money if you default on your loan. There is no value in PMI to you.

2. I would put it into a bond fund or bond ETF. This would be a safe investment while getting a coupon payment every month. Reinvest those coupon payments back into the fund (DRIP). As for a fund/ETF itself, find one that has no trading fees; most major brokers like Fidelity offer their funds free of charge if you are on their platform.

 

[SCNCY]

Heads she wins, tails I lose. I am getting used to this marriage thing.



(1.) I figured as much. Thank you. Working on it. Worth it to go beyond 20%, if you can? Should it be a goal in itself or just a minimum?

(2.) Okay. A MM roughly keeps you even with inflation, at least.

I may be wrong, but I am not aware of any money markets that are paying 2-3% interest.

 

[SoapyCy]

They bought a while ago to get 2.8%

If 2.8 was a going rate everyone and their brother would refinance. I never saw that on any 30 year note.

I may be wrong, but I am not aware of any money markets that are paying 2-3% interest.

Ally CDs are the closest thing at 2.8%

 

[JY07]

I think it just comes down to what you're comfortable with. It shouldn't be too hard to find online calculators to calculate the monthly payments (and monthly interest) for:

1. Wait 50 years and pay cash money for the whole thing
   1. $0 monthly, $0 interest.. easy peasy
2. Wait until you can do 20% down on a 15 year mortgage
   1. No PMI with a low rate
3. Wait until you can do 20% down on a 30 year mortgage
   1. No PMI with a moderate rate
4. Buy that thang now with whatever it takes
   1. Wallet will be riding the pain train

Most people here opt for #1 obviously.

After calculating the monthly cost per tier (and how much of that is going up in flames in interest/PMI), having those numbers should make it easier to make a decision on timing and what you're willing to pay.

To answer the original question: we purchased our house about 3 years ago and I think that was a 30yr note at about 3.5% maybe. Since rates kept going down we ended up refinancing 6 months later for a 15yr at 2.75%

 

[BCClone]

I had a question I wanted to float to the group. Since this is a mortgage thread, I thought this would be a good place to put it, even if not the OP's question.

My wife and I were starting to build up to buy a home. Yes, yes, I have argued on here a few times about renting versus buying and usually came down on the renting side, but a higher power intervened and it looks like I am going to buy something.

Yours truly along with my wife's husband were put on trial. I was going to lose either way.

As some of you might know, housing on the East Coast is in another universe than from Iowa or even the more expensive parts of the Midwest. Thing is, we can afford to save enough up to make a 20% down-payment (to avoid PMI) on even housing out here.

Which brings up two questions...

(1.) Should we do that? Is it worth avoiding the additional monthly payments and to burn off that much principle fast, or better to use the cash somehow else?

(2.) As I said, we would have to save it up first, which would not take all that long (not trying to brag here, but we are two high-income professionals in a high-income area with no debt or major expenses or kids yet, typical yuppie DINKs) to do. However, how should we store it in the meantime for 1-3 years? Cash? An index fund? Some other short-term security? I would have to lose out on any interest or return, but I am kind of worried about downside risk with equities when we are dedicating it to a specific purpose.

If it was long-term and earmarked for retirement or college someday, that is one thing, but I am not sure how to store a large amount in a semi-liquid fashion in the medium-term.

Thanks!

Few things. Do the 20% down, it saves a bunch. Second, 15 year mortgage, make it work. Lower interest rate and here is a pitfall of building. Everything is new, many things have a 15-20 year life. Think furnaces, water heaters, roofs, A/C and such. Over 15-20 and now you are making large repairs and making a payment.

PMI blows bad. Here is one little thing many don't consider, we allowed it at our bank and most did in my area last I knew. Once you can show an appraisal that shows 20% equity, PMI disappears. If you make 3 payments but your house appreciates 5% in that time and bumps you to 20%. Get an appraisal and get it taken off.

 

[ricochet]

I may be wrong, but I am not aware of any money markets that are paying 2-3% interest.

Vanguard's Prime Money Market (VMMXX) is paying just a hair over 2% currently. We put our new car money in Vanguard's Treasury Money Market (VUSXX) which is just under 2%. We did that mainly because we wanted it in a separate account by itself and our property tax/ISU money is in Prime. As somebody else mentioned a CD could get a little higher return if you know for sure you won't need it for a while.

 

[Farnsworth]

I just closed on a home earlier this summer. Veridian had and still has a 4.375% rate on a 30yr mortgage with the highest bracket credit (above 750) and paid no points. I'd STRONGLY recommend using a them or any other credit union. US Bank and Wells Fargo both quoted about 4.5% on rate while also trying to sell me on a checking and savings account. Terrible experience...

That's odd. We recently refinanced an auto loan with Veridian and they forced us to open both a savings and checking account with them. Both just have the original $10 deposit sitting in them.

 

[cyfan92]

That's odd. We recently refinanced an auto loan with Veridian and they forced us to open both a savings and checking account with them. Both just have the original $10 deposit sitting in them.

That is odd. Maybe since the were just going to sell my mortgage vs. retain your auto loan that makes a difference.