I am planning on buying a home for 63,000 dollars I have about 35,000 dollars saved up in my bank account is it wise to try to pay off the house as quickly as possible in order to save on interest? I live at home with my parents so I am buying the house as an investment. I plan to put about 25 or 30 thousand down on the house and leasing out the house and I am going to try to pay it off in about 2 years....Is it wise to do this or should I just give a small down payment on the home and just save my money....Banks don't pay that much on interest 4 or maybe 5 % at most, but I would be gaining about 200-250 above my monthly payment on the loan if I gave a large down payment because my payments on the home loan would only be about 400 dollars and I would be renting out the home for about 650 dollars....Is it wise to put a large down payment and try to pay off the home quickly...Or should I just give a 20% down say about 12,000 dollars and then try to pay it off later when I've saved up?
2006-10-09 05:06:57 · 92 answers · asked by Suave 1 in Business & Finance ➔ Renting & Real Estate
Putting down 20% sounds good. Most of your interest is paid at the beginning of a loan, and goes down gradually, so whatever your payment would be add an extra 20 dollars or more if you can. All this goes on the principle and you would be surprised how it can actually cut the life of the loan off considerably, possibly by several years. Save your money,there may be unexpected expenses you have to shell out while owning the home
2006-10-10 08:00:29 · answer #1 · answered by 6.1fishbob 3 · 0⤊ 3⤋
Do you have credit cards, a car loan, or other interest debt that could be higher than a home loan? Pay that off first, more bang for your buck.
If you are buying a house as investment property, that interest is deductible against income, which is also good. This doesn't mean that you shouldn't pay off the loan, but it might help you with your priorities for the money you have saved.
My strategy would be to put 20% down, and having the rental income cover the payments. Then I keep a nest egg aside to cover repairs or legal expenses (what if you get sued?)
Banks don't pay much interest, but you might want to consider putting some savings into a stock or bond index in order to diversify, and create better gains. Keep some in a money market or savings account in case you need it.
If you are risky and unafraid of going bankrupt, you could also buy a second $60,000 house with the extra money and lease it. That way, you are buying two houses instead of just one. This is extrememly risky, and I wouldn't recommend this if you don't have the regular income to pay both mortgages without renters. But you can always roll the dice...
2006-10-09 09:08:24 · answer #2 · answered by Polymath 5 · 1⤊ 1⤋
As wise as you are to be making such an investment I would recomend saving some money back for possible improvements and repairs. Houses can have hidden flaws and a smaller down payment could be better...If there are no repairs needed in a year or two you could make a large extra payment.
Actually the intrest is deductable on your taxes and finance planners discourage paying it off but it is up to you.
talk more with a banker and see what they advise...see what amount of loan you are qualified for and see how to boost your credit rating. Sometimes not having any credit cards can hurt you.
so I would suggest you seek advise from people with more experience. My brother has a few properties that he rents out and he considers them his retirement nest egg. the tenants pay the mortgage payments and the only down side is when two move out at the same month. then it is a strugle to get them rerented quickly.
Housing is a great investment...just be careful and be prepared for the cost of remodeling too. that can double the value of the home if you update the kitchen and bathrooms...If it were me I would pay a nice down amount and save half back for inprovements...a nicer house means higher rent can be charged.
I'd have the kitchen and bath update in my plans from the start.
and I would have a ten year payoff plan rather than your five years or less plan... In the end it is...What are you most comfortable with.
Some people like to have the house paid for just for the peace of mind and they care not for the deduction on taxes, so figure for ytourself what is most comfortable for you to do.
2006-10-10 04:59:58 · answer #3 · answered by ??IMAGINE ?? 5 · 1⤊ 0⤋
Okay, if you put 35,000 down and you finance the other 28,000 for 15 years at 8%...
You will have a $267.58 payment. If you pay it off in 15 years, you will pay $20,164.40 in interest.
If you put $5,000 down and finance the other $58,000 for 15 years at 8% your payment would be $554.28 and you would pay $41,770.40 in interest.
However, if you go with option 1, and instead of paying $267.58/month, you made a monthly payment of $1267.58, you would pay off the house in just under 2 years, and you would save $17,775 in interest, paying only about $2,389 dollars in interest!
Now, it gets tricky comparing these figures to leaving money in the bank. I am going to assume that you afford about $1270/month (about what it would take to pay off the house in 2 years). If you make a small down payment, I'm going to assume you put the difference back into savings ($1270 - $555), which is $715...
You leave $30,000 in the bank, and you put $715 in the bank while paying your mortgage. After 2 years you will have $51,543.45 in the bank. While this might sound good, remember, you started with $30,000 of that, and you still owe over $53,600! While you may have made $21,500, you essentially have a -$2,000 net worth on the deal. If you pay off the house, however, you have a $63,000 net worth.
Buy the house quickly if you can.
***EDIT***
If you are wondering about whether or not you'd come out ahead over 15 years...
I would suggest you sell the house when you have it paid for. Let's assume you get exactly what you paid for it. Do it all over again. Buy another house, putting $30,000 down, and put the other $33,000 in the bank. Pay off that house in 3 years, sell it, and now maybe you buy 2 houses, still leaving some in the bank... This is the best way (taking speed and saftey into consideration) to become a millionaire!
***EDIT***
There are several people here that mentioned taking a deduction on your taxes. While this is nice, it really isn't that big of a deal, unless you are a millionaire and you are looking for a tax shelter. Even then, you would want to do this with a very expensive house, not one that costs $63,000. You will STILL be able to take a deduction off of your taxes for the two years that you make payments. There was also someone that said your taxes on the house will be equal to the interest you save. This is simply not true, not even remotely. Since this is your first house, and a relatively inexpensive house, there is no reason that paying the house off in two years does not make good sense.
2006-10-09 20:03:54 · answer #4 · answered by Anonymous · 0⤊ 0⤋
Only if you have the ability to pay this $4,500 down in a reasonable amount of time. The 13% rate is probably costing you $50 a month in interest (give or take). Dropping it down to 3.5% has the potential to lower it to just $13 a month (plus that interest might be tax deductible). So far, very good. Where it gets dangerous is home equity lines actually put your house on the line for debt that is right now unsecured. So, if there is some problem with your income and/or budget and you stopped paying the cc company, the worst that would happen is they would cut off your credit card and maybe take you to small claims court to collect. If you can't or don't pay the HELOC, they can foreclose on your house. So, I would do it to save on the interest, but I would also make aggressive payments on it so it gets paid down in a quick amount of time. If you can pay $400 a month toward the HELOC, you will have this gone in less than a year. You might also want to look for a 0% balance transfer card and transfer it there to pay it off within a month. Once you do have the card at a $0 balance, only use it for expenses you can pay in full every month, so you don't get stuck paying interest again.
2016-03-28 02:41:09 · answer #5 · answered by Anonymous · 0⤊ 0⤋
Interest is front loaded. When you make mortgage payments, they are set at monthly, or sometimes bi-weekly amounts. Every time you make a payment, you then owe the bank less money. So your interest is lower.
When you make a small down payment, the first few payments you make after that go mostly toward interest. The more you put down, the better it is for you. Especially since you plan on renting the house out. In the beginning, the renters will basically be paying your mortgage. Once you have paid off the house, all the rent goes in your pocket.
Pay it off as soon as you can.
Unless you plan on investing that money elsewhere at a high rate, It's not gonna do you any good sitting in a bank account.
2006-10-09 17:59:04 · answer #6 · answered by Roadrunner 3 · 1⤊ 1⤋
One way to help pay off a home and able to gain equity and build your credit score is to send and extra one to two hundred dollars a month towards your mortgage payment. By doing this it will take 6-8 years off your payment. But double check with the lender to make sure that there are no pre-pay penalties by paying your house off early. It could cost you anywhere from $3000-$5000 plus.
Are you looking into investing into more property? If you plan on buying more homes in the future and either sell or rent them out, keep payment on this home for at least 2 years. Make all your payments on time so that when you do go get another loan the lender's like to see that the mortgage was never late and it won't be too difficult for you to get a loan.
Some lender's will only give you up to 5 loans for properties for investments and some do not care. You can contact the HUD; Housing Urban Development, in your state for more info on home owning and investments.
Also, be careful if you are going to charge more money for rent on your mortgage; ex: your payment would be $400 and you want to charge $650 for rent. I know that where I live, if you charge rent more than the mortgage payments you have to claim the additional money to the IRS as income. I believe that it applies in the US, but I could be wrong. Contact the Attorney Generals Office in your area to get more info.
2006-10-09 05:41:59 · answer #7 · answered by Anonymous · 4⤊ 0⤋
What you are doing would be what we called rich in equity and poor in the bank.
Conventional wisdom is that you pay as little down as possible for real estate. If putting the 20% down would make the monthly mortgage payments and the monthly rent closer together that makes sense. Save your money. The mortgage interest is a tax write off as well as the depreciation on any rental. (Please check with your tax preparer or advisor for tax information)
If this is gonna be a rental for life and you don't plan to reside there I would get a 30 year fixed rate loan or longer. If you find that you have extra money on hand you can always pay the mortgage down.
About the money you have in a saving account at your bank, you can do better than that. Find a mortgage Banker that does 2nd mortgages. Tell him that you are interested in investing in 2nd mortgages. He can normally get a lot better. Make sure that he is doing 2nd mortgages and have other investors. Ask him for 3-4 referrals off his investors list.
There are other instruments that will give you a better return on your money than the bank is offering, you should consider checking with an investment counselor or someone in your bank that sell other instruments giving you a better return on your money.
About the place you are planning to purchase, you should contact a "Mortgage Broker" to get pre-apporved to purchase the property.
He will ask for a lot of documents to prove you have a job as well as your monthly income. Once you have supplied him with the documents and information he requested he will then fill out an application, pull your credit report with your credit scores.
This information will cause him to be able to tell you what loan programs you are qualified for like if you need to make a down payment or not and if so how much. Based on your information he will also be able to tell you the amount you are qualified to borrow. He will also be able to tell you the interest rate, approximate interest rate.
Now with this information he will issue you a pre-approval letter, so you can find a real estate agent or recommend one to you.
Once a property has been selected the real estate agent will draw up a sales contract for you and the seller to sign. He will then give this contract to the mortgage broker.
The mortgage broker will then order an appraiser to verify the value of the property, open up an escrow closing agent, get a title report and order your loan docs for you to sign.
I hope this has been of some use to you, good luck.
"FIGHT ON"
2006-10-15 11:21:01 · answer #8 · answered by Skip 6 · 0⤊ 0⤋
It really depends on what type of mortgage you have, or get. If you have a fixed-rate mortgage, I would say no. Over the life of a 20 year mortgage, inflation is going to eat into the principle to the point that the 63k is only going to be worth about 55k (or maybe even less) in adjusted dollars. You'd be better off investing the money you have saved in long term bonds or some low-risk stocks. If you have an adjustable rate mortgage, I would say yes, pay it off, since interest rates fluctuate with the inflation rate. In other words, if the inflation rate is high, any benefit you gain from inflation eating away at the value of the principal will be made up by higher interest rates.
2006-10-10 03:37:16 · answer #9 · answered by Knowitall 3 · 0⤊ 0⤋
which part of the country do you live in??? where I live, $63,000 is not enought for 20% down payment!
If interest rate is high, I would recommend to pay as much as you possibly can afford. Since the interest rate is still low right now, I would probably just put 20% down and put the money in money market or cd account. The interest you paid on mortgage can be tax deductible. I refinanced my house with a 5.5% mortgage rate two years ago. Right now my money market account pays more than 5%. I am pretty sure in a couple of years the interest I get from money market will be higher than my mortgage rate so I will be ahead.
2006-10-10 03:31:28 · answer #10 · answered by Bet 2 · 0⤊ 0⤋
I have a few different options. 1st the 35 grand you have, at what interest rate is it growing at? if you are make 10 to 12% you might not want to touch it. It is much different collecting 10 to 12% than paying 5 to 6%. Also if you are living at home w/ parents you should have your money in other money market accounts where it can grow more aggressively. 2ND if you correct the 1st part the comparison will not even compare. If you make 200 a month off the property only putting 20% down you will still be in a win win situation. It may not look like it now but the interest you pay will be tax deducible. And most of all if you are wanting to put down more money make sure to buy down your points to have a cheaper interest rate. Good Luck.
2006-10-09 08:04:47 · answer #11 · answered by Chris T 2 · 2⤊ 0⤋