Good news for a change (housing)

Hi, Until our kids reached Jr. high wife worked part time to make sure one of us is home with kids at all time. Now kids all grown up, on their own, a MD and an engineer like me, she started a business with her pro. knowledge and experience. She is doing very well. Bless her with good health.

Very wonderful house husband?

Glad to hear you enjoyed it. Not sure I would say I enjoyed it unless I had / have good tenants.

All I was saying before is that there are a lot of bad tenants as well as bad landlords but it seems that it's only the landlords that get the bad press. Yes, there are bad landlords, no argument there.

Always rented ???

Beats me but we seem to have a lot of OT around here. Well I won't defend them but at least they're not spamming the newsgroup so I can live with their OT.

If it bothers you that much, take a break... relax !!!

too many poorly maintained homes in any neighborhood tend to drop home values for everyone...

espically exterior maintence.

hey our rental home needs new windows, that will cost 5 grand.

instead of that lets go on a cruise?

see what i mean?

So you wouldn't refinance a 9% mortgage at current rates?

I agree. It's going to be a long time and this "good news" doesn't show any new trend on a chart. We're still near bottom, going sideways.

If you are really asking me, I see your point. As I said, there are bad landlords but I feel the bad tenants don't get the same press the bad landlords get so people tend to think the landlord is always at fault.

Hard to argue with you !!

My first was around the high 8s. About 5 or 6 years into the loan we refi'ed around 5% and knocked about 5 years off.

Maybe if you borrowed more money. I'm just refinancing the balance due on the house. The 3 refi's I've done have been no-brainers. Initially, the rule of thumb was, only refi when there is a 2% drop in interest rates, but that's obviously not always true. You have to look at closing costs. By going through Costco I save much more which was one of the reasons I refi'ed this time. The other reason is I want control of the escrow money.

I just missed that, and paid 8.5 % on my first mortgage in '76. It was well into Reagan's second term before I could refi at a better rate. "Luck' often figures into this stuff, like everything else. It's tricky figuring it out, because you can't be sure what's going to happen short-term. My last refi was in 2004 or 2005. 3 year ARM at 3.5%. Had to have a backup plan in case rates took off, but I was in a position to do it. Luckily, that ARM never went past 6% and averaged about 4.5%.

I paid off the mortgage last year, taking a tax hit by cashing in part of my IRA. I'm still not sure of the bottom line on that, but I don't regret it. Here's something for those interested to think about, and what played into my decision to take the tax hit. My sister was doing taxes for H&R block when she said this to me years ago. Now she can't remember saying it, and can't even figure out what the hell it means. She said "Never think about your mortgage interest for just this year. It's there again next year, and the year after, and the year after."

So you pay down principle $10g on a 10% long term loan in January. It's easy to see you just saved $1000 in interest that year. Never forget you also saved $1000 next year, and the next year, etc. Yeah, everybody knows at least something about amortization. But the "next year and year" way of thinking about it worked for me, and prodded me to pay down fast.

In some ways. In others, we're right back there, without the inflation but that's coming.

When we were looking for our first house, the interest rates were 18%.

My CPA wife is sleeping right now but based on what I've heard on tv, you should not use your IRA to pay off the mortgage. I'm not sure why to be honest but here's my take... you didn't say how many years left on your last mortgage but I think if it were at the tail end, you aren't paying much in interest so you are paying mostly just principle so you might think of this loan at this point as almost an interest free loan. Now your IRA is compounding each year and the greater the amount within, the greater the compound amount becomes and so forth. I don't know what the yield is on your IRA but by taking out some principle, you have to be losing some years that the compounding did for you. I don't know how to figure this out without more thought but I think you get the idea what I mean (I hope). Now if your loan was at the beginning, I think the picture gets more fuzzy but I still think I still never heard anything to the effect to use your IRA money to pay off your loan. Maybe someone else can break this down better.

No point in that unless they are a financial twin of me. I didn't recommend that anybody else should do it. But my circumstances were as follows. No penalty on IRA distribution. Effective tax rate on distribution was 9.4%. Mortgage interest rate was about 4%. IRA earnings rate (interest CD) was 1.25%. I'll be dead before 1.25% does any serious compounding. The mortgage was 6 years into a 30 year schedule. Even 3 year ARM's have a 30 year amort schedule. Mine did, anyway. I have no extra disposable regular income to pay down the mortgage. That's the tricky part. If I could pay it down quickly from my "normal" income, I might have done that. But it's still tough to figure out, because then you're working with assumptions. Not only "can" I pay, but "will" I pay. And even that effective tax rate of 9.4% is deceptive. That's the total income rate. IRA money will always get taxed upon distribution. And there's no point to money unless you spend it. The *extra* tax I paid on income because of the IRA distribution, while ridding myself of that mortgage, was maybe 10%. So on $20k - which is all I had left on the mortgage - that was an $2000 *additional* tax hit. My mortgage interest totaled $600 for that same year. On the surface it looks like I spent $2000 to get $600. But that's a one-year view. Anyway, my personal finances have nothing to do with it. Everybody's has to be considered separately. My point was what my sister said. "Never think about your mortgage interest for just this year. It's there again next year, and the year after, and the year after." And some of this is purely psychological - debt aversion. I like having no debt. Compounding interest works real well when you're young and building a nest egg. It's pretty useless when it's time spend the nest egg. If you can earn more on interest or investment than the mortgage rate, then there's no sense paying down the mortgage. But one thing is always certain - the amort schedule is locked in.

IRA's can be used for down payments but NOT for mortgage payments. So, unless the owner has hit 59.5% years of age and can start pulling money out, the biggest reason not to use an IRA for this purpose is the 10% off the top haircut. (NOT a CPA but coming closer to 59.5 years old)

If you have a 401K instead of an IRA, the rules were at one time (not sure about now as I have not checked) you could borrow money out of it and while you payed interist, it was back to you.

Yup. I pulled about 20k out of mine to pay down the mortgage. I never quite figured out if the paid back interest also allowed more than "max" untaxed contributions. That's also something that needs thought and a back-up plan. If the investment is earning less than the mortgage is costing, like the lousy money market fund my employer had, it works. But if you leave the employer for any reason, it has to be paid back pretty quick (30-60 days?) or you'll pay the early withdrawal penalty, and taxes. My backup plan was to open a home equity line of credit for the loan amount, so I could cover it if I got fired/laid off.

You can only borrow from the 401k if you're still working for the same company.

I borrowed 10K, once, just before I was laid off, as a buffer. I wasn't

AFAIK, loan pay-back is completely separate from contributions. It depends on how the 401k is set up, whether you get the interest, or not.

I have a hundred or so choices of investment instruments. Currently I'm in some pretty good bond funds. They've been really solid for the past seven or so years.

Not true, at least not an IRS rule. I did it (see above) with no penalty at all. If I hadn't paid the loan on schedule, I would have had to pay the penalty.

You're correct. Looking it up, that's a "rare" case, so everybody has to look up the rules for their 401k. Since mine said it had to be paid back in total in 60 days, I opened the line of credit. Probably would have done that even if I could pay back on schedule, as you could. I took the shortest term loan possible, and the payback took a good chunk out of my paycheck. Without a paycheck, and no backup plan, a good chance I would default, and have to pay the penalty and taxes. You always need a backup plan for any action where no plan can screw you. Unless you're okay with getting screwed, which works for some people. Look at all those people carrying a credit card balance. I know plenty, and they're living happy. I never tell anybody how to live their life. And even the best laid plans......