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Old 04-04-2015, 01:37 PM
Location: San Jose
57 posts, read 60,097 times
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My write offs ( intrest, taxes, etc) drop my tax rate to 19%. This is on a 30 year note In California.
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Old 04-05-2015, 01:18 PM
12,404 posts, read 9,236,459 times
Reputation: 8869
Originally Posted by gsilver View Post
So, there's a house that I'm interested in, that's very close to work and generally has most of what I'm looking for. It's also larger than I really need, but it's split-level, so I can easily rent out some of the extra rooms with minimal inconvenience to myself (I'm still fairly young and single, and am used to being on the other side, renting rooms in someone else's house).

Now the question is, should I go with a 15 or 30 year mortgage? If I get a 15 year mortgage, my total debt goes up to 37.5% of gross income, assuming that I rent out no rooms. Renting out some of the rooms should bring this down substantially. The only other debt that I have is a car payment, which I'm planning on paying off as soon as I can after getting the house, since I'll no longer be saving for a down payment, which would bring the debt load down to about 33%.

That's still over the "recommended" 28%, and I can't guarantee that I'll be able to rent out the extra rooms, but the amount that I've been saving per month for the downpayment + my old rent + recent salary increase for a promotion is still more than the 15 year mortgage cost. If I do manage to rent out the lower floor, out-of-pocket drops significantly.

I really like the idea of getting the house paid off sooner and throwing away less to interest (the 15 year mortgage comes with a 0.75% interest rate reduction), but I don't want to be putting myself in a corner, either. My initial plans are to make "big payments" on the house (half my salary + all of the rental income) to get it paid off as soon as possible.
DTI over 30% is awfully tight and doesn't allow much for any changes in circumstance. If I were you, I'd go for a 30/15 balloon note or a 15/15 ARM. You can still pay it off in 15 years with fully amortized payments by adding the correct extra payment each month, and the increase in rate compared to a 15-year fixed is minimal. But it gives you the flexibility of making a smaller payment if needed at some point. Once you build up some equity you can get a HELOC. You don't have to actually use the HELOC, but keep it standing by. Thus, if you do need to make some minimum payments on the first mortgage (thus falling slightly behind the 15-year payoff schedule) and have a small balance in 15 years, you can move it to the HELOC. Of course with the 15/15 ARM the HELOC isn't even necessary at all, as any small balance remaining will just roll over at the reset. A higher reset rate won't matter much if you only owe a small amount (e.g. $20k).
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Old 04-05-2015, 01:32 PM
12,404 posts, read 9,236,459 times
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Originally Posted by gsilver View Post
Hmm... The ARM could be pretty risky. I'm kind of surprised that interest rates have stayed as low as they are for as long as they have. Good for the initial term, but the possibility of a 6-7% interest rate at the end could eat up any gain, especially if some of the initial plans fall through.
The monthly payment on an ARM is actually calculated by amortizing the balance at the time of reset. Unlike a fixed rate mortgage, prepaying an ARM will reduce the monthly payment at the next reset. So I think it really depends. I think an ARM with at least a 10 year fixed period isn't too bad if you are going to be paying it down quickly, since the smaller remaining balance will protect you from payment increases. I wouldn't do one with a shorter fixed period though.
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Old 04-05-2015, 08:05 PM
Location: Durham NC
1,126 posts, read 1,183,755 times
Reputation: 869
Originally Posted by keraT View Post
So the person paying 10K and getting back 2.5K is losing 7.5K to interest. vs had they paid off their home mortgage they would be 7.5K richer :S

How is mortgage tax helping
Some people live in areas where the property taxes and their total mortgage is so low they are better off taking the standard deduction. Makes no sense to me to pay 10 bucks to the bank to possible save 4 bucks.
I would take a 30 and pay it off as quickly as possible. Market has been going up for over 30 years on balance there is no guarantee it will continue. Same thing goes for an ARM. I would lock in these rates bonds have been going up interest rates down since 1980. Trees don't grow to the sky.
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Old 04-08-2015, 11:03 PM
148 posts, read 227,793 times
Reputation: 81
Well, I'm closing on the mortgage tomorrow, I have tenants lined up (basically, my friends who are just finishing up college and need a cheap place to stay) out-of-pocket closing costs were surprisingly light, resulting from a shrewd buyer's agent and a "motivated seller", a fixed rate well below 4%, and no MI obligation.

Combining the money I had been saving for the down payment, the rental income, the recent raise (and that's before the promotion), I can probably make 2.3 times the normal monthly payment and still have as much discretionary income as I had last year, and this is on a nearly new house. Not too shabby for a first-time buyer.
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