Did you put 20% down?

[Pandora II]

We put 20% down - there weren''t any mortgages that asked for less.

As we already own a property which had gone up considerably in value (despite the fall in house prices) since it was bought in 2004, we remortgaged and used the equity as a downpayment on the new place. The other property is rented out.

We were lucky to get Bank of England base-rate tracker mortgages on both properties so our monthly payments are pretty small. We spend less than half what the bank would lend us on the new property - what they would have lent us was CRAZY in my opinion.

Although we owe something in the region of £500k GBP to the bank (gotta love those London houseprices) we can afford the payments even if they double or one of us has no income. My DH is always adamant on having a minimum of 6 months safety net in the bank.

Here, I think owning is better than renting. My BIL rents and his monthy payment is more than double our combined mortgage payments....

 

[janinegirly]

Date: 1/6/2010 4:16:03 PM
Author: steph72276
As far as tax deductions go: If you have a $200,000 mortgage at 5% interest, you are paying $10,000 in interest. If you have a $10,000 tax deduction that means you don’t pay taxes on $10,000 of your income. If you lose that deduction because you paid off your mortgage, you’d have to pay taxes on the additional $10,000. Taxes on $10,000 for most people are probably around $3,000.

So not paying off your house means that you keep paying the bank $10,000 a year to avoid sending the government $3,000. That doesn't make much sense to me. If you want to turn $10,000 into something, give it to charity. You still get to deduct the $10,000, but you don't have a mortgage.

As far as I see it, I would rather be completely debt free with no mortgage payment at an early age so that I can put lots more away into investments...but that is what makes sense to me personally. I agree everyone should make up their own minds, but you stated that it doesn't make sense to pay it off early in your other post, so I wanted to show why it does make sense to me and a lot of others that think along the same lines.

Ok, well perhaps my point is it does not always make sense to pay it off early. I know that gut instinct says no debt is good, but there is such thing as good debt.

My general point is if you have a low mortgage rate (4-6% in today's market on average assuming good credit,etc etc), then your money is better off in an investment vehicle that gives you a better return than 4-6%. In today's world, that will not happen in a savings account, but certainly likely (but not guaranteed) over time in the stock market if you have a diversified portfolio. Add to that the tax deduction. It makes more financial/investment sense in that scenario. However there is also the emotional aspect and some people just prefer to live debt free, in which case it is a personal decision and may make more financial sense for those who may not want to incur any risk even if there is high potiential for better returns.

Regarding leveraging for additional properties, yes this is more risky, but also more lucrative, and a smart investment move if done with proper tools, research and enough $$ to carry all mortgages with risk factors taken into consideration (lost job, changes in rates, markets etc).

 

[Mrs Mitchell]

I agree with Pandora that owning is a better plan than renting in the UK. We still have to pay council tax, whether we rent or buy, and most people have contents insurance as renters. The only thing you'd save on by renting is maintenance costs and buildings insurance (and when I've rented out property, I've factored that into the monthly rent, so probably not really a saving). Rental costs in UK cities can be very high, making it difficult to save for a deposit on a property.

 

[steph72276]

Date: 1/6/2010 4:41:53 PM
Author: janinegirly

Date: 1/6/2010 4:16:03 PM

Author: steph72276

As far as tax deductions go: If you have a $200,000 mortgage at 5% interest, you are paying $10,000 in interest. If you have a $10,000 tax deduction that means you don’t pay taxes on $10,000 of your income. If you lose that deduction because you paid off your mortgage, you’d have to pay taxes on the additional $10,000. Taxes on $10,000 for most people are probably around $3,000.


So not paying off your house means that you keep paying the bank $10,000 a year to avoid sending the government $3,000. That doesn''t make much sense to me. If you want to turn $10,000 into something, give it to charity. You still get to deduct the $10,000, but you don''t have a mortgage.


As far as I see it, I would rather be completely debt free with no mortgage payment at an early age so that I can put lots more away into investments...but that is what makes sense to me personally. I agree everyone should make up their own minds, but you stated that it doesn''t make sense to pay it off early in your other post, so I wanted to show why it does make sense to me and a lot of others that think along the same lines.

Ok, well perhaps my point is it does not always make sense to pay it off early. I know that gut instinct says no debt is good, but there is such thing as good debt.


My general point is if you have a low mortgage rate (4-6% in today''s market on average assuming good credit,etc etc), then your money is better off in an investment vehicle that gives you a better return than 4-6%. In today''s world, that will not happen in a savings account, but certainly likely (but not guaranteed) over time in the stock market if you have a diversified portfolio. Add to that the tax write off. It makes more financial/investment sense in that scenario. However there is also the emotional aspect and some people just prefer to live debt free, in which case it is a personal decision and may make more financial sense for those who may not want to incur any risk even if there is high potiential for better returns.

JG, I see your point...I actually used to feel the exact same way, but in the last few years I''ve done a lot of studying and my thinking on finance has changed quite a bit. Different approaches work for different people, just wanted to share my POV

 

[janinegirly]

yea I know steph, same here! (except in opposite direction--I actually used to lean too conservative).

sorry if my posts seem to overgeneralize or are abrupt--happens while I'm at work late afternoon!

 

[steph72276]

Date: 1/6/2010 4:58:00 PM
Author: janinegirly
yea I know steph, same here! (except in opposite direction--I actually used to lean too conservative).


sorry if my posts seem to overgeneralize or are abrupt--happens while I''m at work late afternoon!

Nope not at all...I like hearing differing thoughts and opinions

 

[iheartscience]

Date: 1/6/2010 3:37:00 PM
Author: Haven

Date: 1/6/2010 12:19:16 PM

Author: thing2of2

Date: 1/6/2010 11:53:07 AM

Author: Haven

Date: 1/5/2010 10:37:36 PM

Author: movie zombie

yes, definitely did put 20% down. paying PMI is throwing $ out the window.


i read an article today that said we should return to buying a home, not a palace....or an investment. it also stated that new buyers should purchase a home at 75% of what they have been approved for a loan. just because one is approved doesn''t mean one has to get that amount as a loan. it also stated that every effort should be made to pay off early and that even one extra payment per year can make a difference over the long run. the article was really about returning to our grandparents values and not overloading ourselves with debt. and the writer doesn''t buy the idea that things cost more now, etc. his point of view is that things weren''t easy for our grandparents either and the only thing many of them bought on credit was a home.


mz

I wholeheartedly agree with this post. mz--You would probably enjoy reading some of Sarah Susanka''s Not So Big House books. They are all about quality not quantity in home design. I''m also a big proponent of the anti-McMansion movement. \n

Ha, my parents were looking at those Not So Big House books when they were deciding what type of house to build. Those houses are not so small! Some of the houses featured in those books were larger than the 5 bedroom house they were currently in that I grew up in. It was pretty funny because that''s what they were trying to get out of.

???? I wonder which specific book they read. I have three of them right here and can''t find a huge house in the bunch. She does detail one large house that, while large, still embraces the ideals of her ''not so big house.'' I wonder if that is what you''re thinking of.

I think your response is misleading, as these books are really fabulous resources for homeowners or builders who are interested in building a house that focuses on the quality of the space rather than the quantity. They do not showcase large homes.

Nope, it''s not misleading at all-it just depends on your definition of a not so big house. Compared to McMansions the houses are small, but that''s about it. I just checked and several of the houses featured on the website are over 2500 square feet and it looks like almost all of them are at least that big. The house I grew up in (with my 4 siblings) was 2600 square feet (not including the basement which was mostly unfinished). My parents were looking to downsize and got several of the books and looked into the plans because they loved her designs. They realized the houses weren''t any smaller than their current place so they scrapped it and went with plans from someone else.

 

[zoebartlett]

We own a condo and we didn''t put even close to 20% down when we bought it a few years ago. I agree with Steph when she said that different things work for different people, and we all have reasons for making the decisions we did.

I don''t think that renting is waste of money either. It might not be ideal to some and they might think of it as throwing money out the window, but there''s a lot of good things about renting (as HH mentioned). We''re renting in our new state now, and we love our condo. We take care of it as if it was our own, but we''re not financially responsible for it. Unfortunately, we''re also still paying on our condo that we do own, and we ARE financially responsible for that.

If only money grew on trees...

 

[somethingshiny]

We put 0 down. We bought a house that was well within our budget at around half of what we were approved for. We made sure we could afford everything with one person''s paycheck. I don''t think that makes us irresponsible just because we didn''t have a dp. We are probably paying a much lower percentage of our income on housing because of our decisions. My husband lost his job 2 months after we got the house. (I''m a SAHM) We were able to make all of our bills on just unemployment.

I do hope that when we sell this house we''ll have enough improvements and equity to get at least a 15-20% dp on our next home with hopes of keeping the mortgage close to what it is now.

 

[Dancing Fire]

Date: 1/6/2010 11:31:31 AM
Author: Smurfyimproved
I have to agree with that renting is a total waste of money. We have been paying what we could be paying on a house mortgage for 2 years but that is just the reality until we can get our credit scores boosted up after having them seriously affected because of job loss. meh.

oh yea??? why don''t you talk to those whom bought into the housing bubble that are homeless today.

 

[Dancing Fire]

Date: 1/6/2010 3:11:54 PM
Author: janinegirly
Paying off the mortgage asap is only beneficial if you have no other more finanacially lucrative way to invest that money and if you plan on living in your house for the 30 years. Otherwise you are losing out on potential returns that cash could bring in other investment vehicles such as further house purchases (investment property), stock market,etc. With mortgage rates so low, it''s not impossible to imagine you are borrowing at 4.5-5% while making 10% on that same cash in the stock market on average. This would not be the case in the 70''s/80''s when interest rates were double digit.

10% ? where? give me the stock.

 

[Dancing Fire]

Date: 1/6/2010 4:16:03 PM
Author: steph72276
As far as tax deductions go: If you have a $200,000 mortgage at 5% interest, you are paying $10,000 in interest. If you have a $10,000 tax deduction that means you don’t pay taxes on $10,000 of your income. If you lose that deduction because you paid off your mortgage, you’d have to pay taxes on the additional $10,000. Taxes on $10,000 for most people are probably around $3,000.

So not paying off your house means that you keep paying the bank $10,000 a year to avoid sending the government $3,000. That doesn''t make much sense to me. If you want to turn $10,000 into something, give it to charity. You still get to deduct the $10,000, but you don''t have a mortgage.

As far as I see it, I would rather be completely debt free with no mortgage payment at an early age so that I can put lots more away into investments...but that is what makes sense to me personally. I agree everyone should make up their own minds, but you stated that it doesn''t make sense to pay it off early in your other post, so I wanted to show why it does make sense to me and a lot of others that think along the same lines.

steph...agree 100%

didn''t know you were that smart!!

yep, tax deductions is bunch of B.S., don''t why people still think it is to their advantage? paid $10k on interest and get $3K in return

 

[steph72276]

Haha, thanks DF...I can''t take the credit though for all the numbers....got it from Dave Ramsey. He is a financial expert that I have learned so much from the past few years

 

[Dancing Fire]

we bought our house in 1987 when i was 28 yrs old and we paid off our mortgage in 18 yrs by paying an extra $250 per month. believe me.... it feels so good w/o worrying about a mortgage payment every month even though we probably lost about $200K in equity after the bubble had bursted. right now i could care less if my house is worth $100K or 500K i can sleep well at night.my wish now is to recover the money that i lost in the stock market.

 

[pennquaker09]

We put 50% down and mortgaged the remainder. We have a 15 year mortgage. We have a mortgage simply because of the tax advantages.

 

[DiaDiva]

We put a 20% downpayment and still had to take a 30-year loan so that gives you a sense of Singapore property prices.

 

[NewEnglandLady]

Date: 1/6/2010 7:25:33 PM
Author: steph72276
Haha, thanks DF...I can''t take the credit though for all the numbers....got it from Dave Ramsey. He is a financial expert that I have learned so much from the past few years

Hehe, when I mentioned finally paying off a student loan, I almost said "I''ve been keeping that loan around like a pet". I briefly thought about calling in so I could declare "I''M DEBT FREE!" but the truth is that it took me 8 years to pay it back, which is kind of pathetic, haha. I''m a big fan and used to listen every day. He''s one of the main reasons that 20% down and a 15-year mortgage are non-negotiable for us. My dream would be to pay cash...I just need a MUCH better paying job!

 

[janinegirly]

Date: 1/6/2010 6:50:10 PM
Author: Dancing Fire

Date: 1/6/2010 3:11:54 PM

Author: janinegirly

where? give me the stock.

DF: Maybe you missed out on my comments which specified well diversified portfolio. Historically on AVERAGE the stock market averages 10%. It is dependent on looking long term, however and no one stock will save you unless you like to gamble Vegas style.

 

[janinegirly]

Date: 1/6/2010 8:41:59 PM
Author: pennquaker09
We put 50% down and mortgaged the remainder. We have a 15 year mortgage. We have a mortgage simply because of the tax advantages.

Nice, and if I remember correctly you have more than one property

 

[lulu]

We paid cash for both the Michigan and Florida houses. But we''re at a different time of life than most of you. I''m 56 and DH is 65.I feel very blessed to be in this position and I think about it most nights when I''m in bed.
Also blessed that we were both raised by parents who didn''t like debt. In this country they make it very tempting to live beyond your means and without good role models we might have ended up in that boat.

 

[pennquaker09]

Date: 1/6/2010 9:41:44 PM
Author: janinegirly

Date: 1/6/2010 8:41:59 PM

Author: pennquaker09

We put 50% down and mortgaged the remainder. We have a 15 year mortgage. We have a mortgage simply because of the tax advantages.

Nice, and if I remember correctly you have more than one property

LOL, I wish! We used the money we made off the sale of our previous home to buy this one. New Jersey costs a WHOLE lot more than Pennsylvania.

 

[Arcadian]

Its been a while, but I think between 25-30% at the time? We bought our house in 1997 and at the time thought it was pretty sky high (boy were we ever wrong!) We paid our house off in 2006. We still have to pay taxes of course, but its nice to not have the monthly payment anymore. He wanted the house paid off by the time he hit 40, so we worked toward that.

-A

 

[Dandi]

I bought my first house on my own about 6 years ago, and I wouldn''t buy until I had saved 20% of my intended price range, primarily to save on mortgage insurance. DH bought his first home 1.5 years prior to that and did the same as me. We had 0% deposit for the home we own now, because we had alot of equity in our two old homes, which we subsequently sold.

 

[SapphireLover]

Date: 1/6/2010 4:40:24 PM
Author: Pandora II
We were lucky to get Bank of England base-rate tracker mortgages on both properties so our monthly payments are pretty small. We spend less than half what the bank would lend us on the new property - what they would have lent us was CRAZY in my opinion.

You are SOOO lucky! We were previously on variable rate and had done ok. It then came to the end of the tie in (Jun 0 and interest rates had been going up and up and we decided that we weren''t happy to stay on variable as they were predicted to go up even further. In the end we tied into a fixed rate 3 year deal at just under 6%. Such a HUGE mistake!!!! We should have stayed with variable, but at the time, who knew? The decision we made at the time was the right one for us- we didn''t want our repayments to get out of control. Oh well, you win some, you lose some (and in our case Nationwide has definitely won some!)

 

[Lynnie]

We just settled in October.

We did an FHA 3.5% down loan. DH is currently unemployed, but going to school full-time, so it made better sense to not plop down ALL our savings. We couldn''t have swung 20%... maybe 10, but then we wouldn''t have any savings.

I hate having to pay PMI... it''s 80 bucks a month, which would obviously be better off going towards another bill. But a $600 rent (for us) didn''t make much sense either - it would''ve probably taken us 2 more years to save 20%, at a cost of $14K (for rent).

So we''re doing direct-debit biweekly payments. Each payment has $25 added to the principle, too (it makes the deduction a nice round number).

We did get the 8K tax credit (we didn''t amend last year''s return, so we''ll be getting it with this year''s). The plan was to put 5K of it right towards the principal of the mortgage. Then the transmission in our car went. So we''ll see what we''ll end up doing. I would like to put at least 2K right to the mortgage. The quicker we can get to that 20% mark, the better. $1000/year just towards PMI kinda makes me sick!

I can''t believe that the banks approve people (including us) for way more than they can afford...

 

[meresal]

Lynnie- *tiny TJ*- Do you happen to remember what your lending company charged you for your intital PMI Funding fee?

ETA: N/M, I found the mandatory rate.

 

[Lynnie]

Mer... I just looked it up. It was $3200. But it was included as part of the closing costs, which were covered by the buyers.

ETA: Mer, I missed your N/M. Is it a standard rate, like a percentage?

 

[meresal]

Date: 1/7/2010 11:22:23 AM
Author: Lynnie
Mer... I just looked it up. It was $3200. But it was included as part of the closing costs, which were covered by the buyers.

ETA: Mer, I missed your N/M. Is it a standard rate, like a percentage?

Thanks anyway

Yes, it's standard. If you are implementing an FHA loan (ie, less than 20% down), the standard rate is 1.75% of the loan amount.

 

[Allison D.]

Date: 1/6/2010 10:59:54 AM
Author: meresal



PMI is only hundreds of dollars a month if you buy an enormous house or one with an enormous price tag. Ours is barely going to be over $50/month. Which, like I said earlier, to me is less of a problem then forking over an extra $20k that my family could need in an emergency.

We will have 20% of our house paid off within 16 months of buying, which is only about $1000 in PMI payments to the bank. If we were to stay in our apt those extra 16 months, we would end up paying almost $5000 over what our mortgage payment is going to be. Different things work for different people, but holding onto money I know I could need is more important to me than meeting some '20% quota' that people seem to think is the be-all-end-all of financially stability.

PMI is not always a horrible thing. Yes it is money that we could be using somewhere else, but it is still much much less than what we would have to give up in order to make the 20% down. PMI is not always a bad thing, it can be used to your advantage.

Right on. I disagree that PMI is always a bad thing or that it only benefits the bank.

We did an 80/10/10; 80% primary, 10% second (HELOC for $37.5K), and 10% down. We paid off the 10% HELOC in 2.5 years, and we now pay that extra $250 a month toward the principal of the primary.

If we'd waited the 2.5 years to save that additional 10% to have the full 20% down prior to buying, we'd have spent $48,000 in rent, none of which would be recoverable at the end of the term. During those 30 months, we instead put that money into mortgage payments (the principal of which will likely come back to us at a future point when we sell the house years from now), and we are 2.5 years closer to paying off our mortgage than we would've been.

We didn't have to pay PMI because we qualified for the 80/10/10, but if we had, I still feel it would have been worth it for us. I'd still rather have paid $3000 in PMI and $10K in property takes over 30 months than $48K on rent, none of which we'd recover. To me, in that instance, paying the PMI would have been the lesser of the two evils.

To be clear, PMI itself isn't the 'evil' when used properly. It's only problematic when people use it to buy more house than they could otherwise afford. The barometer for whether or not one can afford a house isn't how much they can put down, it's whether or not their income(s) are reliably sufficient to pay the mortgage every month without prayer.

 

[somethingshiny]

Date: 1/7/2010 3:54:52 PM
Author: Allison D.

The barometer for whether or not one can afford a house isn''t how much they can put down, it''s whether or not their income(s) are reliably sufficient to pay the mortgage every month without prayer.

Well said.