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A few points I would like to make- if one owns their home free & clear, they can apply for a HELOC.........
...... Unless it is a zero percent loan on an auto it never works out borrowing to have an auto & even the zero percent just means the price has been padded.........
I HELOC is a poor option when compared with a mortgage. The amount that can be borrowed with a HELOC is usually minimal, the interest rate is much higher, and the loan is often for a much shorter period of time.
Next, I also assumed that I could get a better deal on a car by paying cash. Years ago that was certainly true. I am not sure who subsidizes the cost of a low interest rate loan but it is not the dealer. The dealer makes money when they issue a loan. Getting a "deal" on a new car is not at all difficult. The internet has taken the mystery and sleazy negotiations out of the process. We got more than a fair deal according to internet research. Basically the dealer had a high inventory of the deluxe models at the end of the year. New, high end buyers wanted the next year's model. We got an upgrade to heated leather seats, etc, for the same projected internet pricing for the lower cost model. After we finished horse trading, which really did not take much effort, the dealer found out we intended to pay cash. At that point they were willing to throw in a car top carrier and all weather floor mats. Before they would not give in. Anyway we both won. I am happy to have the $30K loan at less than 3% interest and the dealer also made money when writing the loan. It is my understanding that the dealerships often make more money by writing the loan than they make on the rest of the car sale.
Sometimes the way we feel things should be are not they way they actually are. In the case of car loans, it seems the manufacturers are subsidizing the loans. So yes the price is padded but the dealer is also paying that adjusted higher price.
Auto dealers do not underwrite the loans- they capture a small piece of the loan, the dealer makes the most from add on's such as gap insurance, extended warranties, undercoating etc.
I reiterate my point- buying an auto is a depreciating item and to take a loan on a depreciating item makes no sense unless that is the only option & if that is the case then one needs to forgo ego on a luxury purchase & focus on a utility then.
Yes, a HELOC could have a higher interest rate than a refinance mortgage but I think the point is if someone needed cash/ liquidity in a hurry then a HELOC makes sense. I have a credit card with a large limit but like a HELOC it is there for a "just in case" and I pay off any balance in full every month.
I think the point is most that have a house that's paid for most likely have sufficient cash flow and are free to put funds towards future investments. The goal for most folks is to have a paid off mortgage by the time they reach retirement.
I like the meaning of the origins of the word "mortgage" in Latin- so true.
Auto dealers do not underwrite the loans- they capture a small piece of the loan, the dealer makes the most from add on's such as gap insurance, extended warranties, undercoating etc.
I reiterate my point- buying an auto is a depreciating item and to take a loan on a depreciating item makes no sense unless that is the only option & if that is the case then one needs to forgo ego on a luxury purchase & focus on a utility then.
..... The goal for most folks is to have a paid off mortgage by the time they reach retirement. ........
I fail to understand any of your logic. If I buy something it makes no difference whether it depreciates. I would rather have a low cost loan and have cash in hand. I do understand some people buy luxury cars because the financing makes that easy. That is a whole different point. Personally I buy basic cars and run them as long as possible.
Also I fail to understand the goal of paying off the mortgage. My goal is to maximize my assets. If someone is willing to give me a low cost loan, then great.
I fail to understand any of your logic. If I buy something it makes no difference whether it depreciates. I would rather have a low cost loan and have cash in hand. I do understand some people buy luxury cars because the financing makes that easy. That is a whole different point. Personally I buy basic cars and run them as long as possible.
Also I fail to understand the goal of paying off the mortgage. My goal is to maximize my assets. If someone is willing to give me a low cost loan, then great.
It's lots of things. As you said before, no one can explain feelings. Ultimately, how much risk one is willing to take for what reward is based on subjective values.
To pay interest expense on a depreciating asset is compounding the loss of capital.
My comments are not directed to your decisions specifically as I have no stake in your successes or failures although I do wish you experience successes.
It doesn't favor the lender. You agree to pay x% on the outstanding loan and they agree to charge you said percentage, the same with a car loan
Take out a 250k 30 year 4% mortgage and make a 225k payment on day 1 and let me know what the impact is
Of course a mortgage favors the lendor. Again as the previous poster said just look at the amortization table. The first years are almost entirely interest, you hardly knock off any principal at all in your monthly payments until you are well into your 30 years.
Considering far more people sell and move long before their 30 year mortgage is up than actually pay off the loan over 30 years and there is the proof. If you sell after 10 years in theory 1/3 of your loan would be paid off, but with the way it's set up you aren't even close to 1/3 of the loan being paid at 10 years. All you did was hand the lender a tremendous amount of interest while the principal remained high. If you attempt to pay it off early, as your unrealistic example suggests, you are assessed additional fees to make up for the lost interest they would have received had you paid according to the original terms.
Of course a mortgage favors the lendor. Again as the previous poster said just look at the amortization table. The first years are almost entirely interest, you hardly knock off any principal at all in your monthly payments until you are well into your 30 years.
Considering far more people sell and move long before their 30 year mortgage is up than actually pay off the loan over 30 years and there is the proof. If you sell after 10 years in theory 1/3 of your loan would be paid off, but with the way it's set up you aren't even close to 1/3 of the loan being paid at 10 years. All you did was hand the lender a tremendous amount of interest while the principal remained high. If you attempt to pay it off early, as your unrealistic example suggests, you are assessed additional fees to make up for the lost interest they would have received had you paid according to the original terms.
It doesn't favor anyone for fixed rate products which most people get you always pay the fixed rate on the outstanding loan balance. You pay the most when you owe the most. You as the borrower a favored in the amount of leverage you are allowed to use to purchase a house.
Your theory is incorrect and ignores the reality of mathematics. Also most fixed rate mortgage also do not have a prepayment penalty but for my rediculous example it's irrelevant as I was point out simply the function of the interest paid and amortization schedule
Low- I like your euphemism on being approved for a loan as "favored" in the amount of leverage allowed (like the bank is doing you a favor)...no the borrower is doing the bank a favor as this is how they make money/ spread or at least how it used to be before all the obnoxious non-interest income ploys.
Prepayment of mortgages typically do not have fee's but there may be some contracts in which an early payoff cost may be associated.
It doesn't favor anyone for fixed rate products which most people get you always pay the fixed rate on the outstanding loan balance. You pay the most when you owe the most. You as the borrower a favored in the amount of leverage you are allowed to use to purchase a house.
Your theory is incorrect and ignores the reality of mathematics. Also most fixed rate mortgage also do not have a prepayment penalty but for my rediculous example it's irrelevant as I was point out simply the function of the interest paid and amortization schedule
Below is the amortization table for a $200,000 fixed rate loan. After 5 years if you were truly paying 3.75% interest throughout the term of the loan your balance would be $167,6676 (1/6th of the original loan amount). Instead the principal balance is $180,154, showing very clearly that you have paid far more than the 3.75 rate you signed up for. So yeah the math clearly says the loan favors the lender, the home owner is simply not paying the agreed upon fixed rate of 3.75% as you claimed unless they stay in the home for 30 years. That is very rare so in the vast majority of loans the home owner ends up paying much more than the agreed upon fixed rate of 3.75%.
I paid my note off early and I most certainly paid a pre-payment penalty for paying off the loan early. It is standard in nearly every mortgage loan from what I have heard.
"Most prepayment penalties kick in if you pay off your mortgage loan within three to five years. BankRate says most lenders that use prepayment penalties charge from 2 percent to 4 percent of the existing mortgage loan. For a $200,000 loan, a prepayment penalty of 4 percent would cost you $8,000, which is no small sum"
Last edited by DaveinMtAiry; 05-06-2017 at 01:41 PM..
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