Who here i$ $mart with money?

[Spiky Bugger]

So money. AND THE NUMBERS HERE ARE ALL PRETEND, SO HUMOR ME, K?

We bought a house that needed work and would not have passed a VA inspection. Now it probably will. We planned to refi to lower the interest rate. (Meanwhile, all rates, including VA have increased...but not a huge amount.)

So the issue at this point...money in the bank vs lower loan balance...what to do!?!?!?

We COULD put a huge chunk of our "discretionary" savings into the "down pymt" on a refi and in so doing, lower the house payment by well over $400/month. And that huge chunk of money IN THE BANK, at today's interest rates, earns a whopping...well, not even ten bucks a month. So pull the money out, pay down the balance and come out over $400/month ahead. No degree in nuclear physics to answer that one.

HOWEVER, money isn't always logical. Sometimes, knowing you've got enough easily accessible money in the bank to pay the bail bondsman's fee is a good thing. Knowing you could write the Good Faith Money check for your kid to buy a house might feel good. Looking at zero balances in savings accounts might not be uplifting, ya know what I mean?

And, back to logical, houses do not ALWAYS retain value.

Do you:
1--get a new loan on the existing balance and save maybe $150/month? Or,
2--rape your savings accounts and get a new loan on a smaller balance thus qualifying you for a loan that would save you more like $400-500/month?

Emotional consideration...what if after you do either of those things, the market crashes again and your house is worth half of what you paid for it and all you have to show for all your effort is a loan that is larger than the market value of your house...because stuff like that happens?

I know that this is a First World Problem...and we have loved ones dealing with much more challenging issues...but part of the issue is how to make sure we are in a position to help them when the need arises.

What say you? I'm so confused.

(PS...lender dude says we MIGHT want to rape the savings accounts, get the lower interest rate/lower payment loan...AND get a home equity line of credit in the amount we take out of savings...he says it wouldn't cost anything unless we use it...but we would have immediate access to that amount.)

 

[bearmom]

Ugh, we do this too often, and I wish there were an easy ap to crunch the numbers, but things are just enough different every month for every property from any lender to never have an apples to apples comparison.

Last I checked, under 3% was possible on a 15 yr with decent credit. I look at the current rates as a gift. With rates in that ballpark, and family members that may need emergency $$, I don't think it's worth the worry factor to take it out of the bank. Also, when you say "rape", do you mean empty the acct down to nothing? Depending on what your income source is, I don't think people should have less than a years wages in savings, just in case. I know that's a rule of thumb that many can't or won't do, and those that live on trusts or guaranteed funds can happily ignore that, but I've known too many that just had some medical stuff come up and turn their lives upside down.

The HELOC might be a good idea, especially for peace of mind, assuming the rate wouldn't be significantly higher.

If you find the easy solution to this, sell it to me.

 

[feeder]

Get a new loan on the existing balance and safe your money in the bank. Lender can promise anything like a home equity line of credit and you will get it now. What they don't tell you later down the road they can take away your line of credit, lower it, not renew it, up rates.

If the house goes back to the bank, it's some money lost, not your life savings. Be very careful to what I am saying as I am in malnourishment and things do not add up right now for me. Good luck, I can only image the stress this brings on. Then again you can always toss a coin for it.

 

[DianaCox]

Earthquake (or housing market crash) - you lose the part of the house YOU own, and the bank owns the land. If you owe money on the land, you still owe the bank and (in the case of earthquake) have no house to live in and have lost the equity in the house that you have paid for. Seems like it makes the most sense to have the bank bearing some big chunk of the risk in that case.

Death/Disability - how many years do you and/or Mr. Sue think you will live in the house? If one of you passes, or needs to go into assisted living, will the other live in the house alone? Assuming it hasn't been demolished in an earthquake, and you're not intending to hand it down to MiniSue, tying the money up in equity in the house seems to be limiting.

Having fun - keeping money available for you and Mr. Sue to go out and splurge on a big blowout vacay or whatever, while you still can, is something that would be high on MY list of things to do (hence, why we are selling our house and buying an RV). How much of your long-term planning involves maximizing YOUR fun vs. minimizing your risk of living long and not eating cat food (or in a subpar nursing home) vs. leaving as much as possible to MiniSue? That I can't answer for you.

If the value of the house goes up drastically, the more equity you have it it the better, of course - but that's a crap shoot too. Depends on WHEN you need to sell, and whether there will be a house (earthquake) or buyers when you do.

I don't know what your risks-aversions are, but I would look at how long you think you are going to be able to live in the house before you have to leave for one reason or another, as well as the certainty of your cash flow over time (since you are both retired, you should know that pretty well) and how much it will cost to live there and how much it would cost to move into an assisted living/nursing home.

But what do I know - we are moving because we can't afford our house anymore.

 

[Spiky Bugger]

Ugh, we do this too often, and I wish there were an easy ap to crunch the numbers, but things are just enough different every month for every property from any lender to never have an apples to apples comparison.

Last I checked, under 3% was possible on a 15 yr with decent credit. I look at the current rates as a gift. With rates in that ballpark, and family members that may need emergency $$, I don't think it's worth the worry factor to take it out of the bank. Also, when you say "rape", do you mean empty the acct down to nothing? Depending on what your income source is, I don't think people should have less than a years wages in savings, just in case. I know that's a rule of thumb that many can't or won't do, and those that live on trusts or guaranteed funds can happily ignore that, but I've known too many that just had some medical stuff come up and turn their lives upside down.

The HELOC might be a good idea, especially for peace of mind, assuming the rate wouldn't be significantly higher.

If you find the easy solution to this, sell it to me.

We could (probably) qualify for a 15-year loan, but I might have to cook at home and shit...on a regular basis, no less. It could undermine the local restaurant economy.

We are both retired, fixed income, and there are (relatively minimal) other funds...but not easy to access and we'd have to pay taxes upon hitting up those assets...so, yes, it would wipe out most of our go-to-hell money, but we do have fixed income and over a year's income in those hard-to-access accounts. Like I said, a First World Problem.

But I have this nagging yet unreasonable (?) fear that after (using make-believe L.A. prices for a MODEST home in an area with limited drive-by shootings) that a $600,000 home with a $480,000 mortgage is "safer" than owning that same $600,000 home with a $350,000 mortgage... Because, if the bottom falls out and you have to walk away from it all, if you have the bigger mortgage you still have that cash (the $130,000 difference) in the bank and can start over elsewhere...even if it's a lot smaller RV than Diana's. If all your cash goes into the down payment, what you've got is receipts. And we are too old and too beat up and sickly to actually work for a living.

On the other hand, how dumb are you if (using the numbers above) you fork over $700-800/month in INTEREST, for crap's sake, in order to keep that $130,000 in the bank where it earns $50/month.

No, dammit, you sell me the answer!!

 

[Spiky Bugger]

Get a new loan on the existing balance and safe your money in the bank. Lender can promise anything like a home equity line of credit and you will get it now. What they don't tell you later down the road they can take away your line of credit, lower it, not renew it, up rates.

If the house goes back to the bank, it's some money lost, not your life savings. Be very careful to what I am saying as I am in malnourishment and things do not add up right now for me. Good luck, I can only image the stress this brings on. Then again you can always toss a coin for it.

We MAY toss a coin for it...Lol. I guess I'm irritated by the miniscule interest rate that money earns in the bank vs the cost of borrowing that amount...even at today's low rates.

 

[Spiky Bugger]

Earthquake (or housing market crash) - you lose the part of the house YOU own, and the bank owns the land. If you owe money on the land, you still owe the bank and (in the case of earthquake) have no house to live in and have lost the equity in the house that you have paid for. Seems like it makes the most sense to have the bank bearing some big chunk of the risk in that case.

Death/Disability - how many years do you and/or Mr. Sue think you will live in the house? If one of you passes, or needs to go into assisted living, will the other live in the house alone? Assuming it hasn't been demolished in an earthquake, and you're not intending to hand it down to MiniSue, tying the money up in equity in the house seems to be limiting.

Having fun - keeping money available for you and Mr. Sue to go out and splurge on a big blowout vacay or whatever, while you still can, is something that would be high on MY list of things to do (hence, why we are selling our house and buying an RV). How much of your long-term planning involves maximizing YOUR fun vs. minimizing your risk of living long and not eating cat food (or in a subpar nursing home) vs. leaving as much as possible to MiniSue? That I can't answer for you.

If the value of the house goes up drastically, the more equity you have it it the better, of course - but that's a crap shoot too. Depends on WHEN you need to sell, and whether there will be a house (earthquake) or buyers when you do.

I don't know what your risks-aversions are, but I would look at how long you think you are going to be able to live in the house before you have to leave for one reason or another, as well as the certainty of your cash flow over time (since you are both retired, you should know that pretty well) and how much it will cost to live there and how much it would cost to move into an assisted living/nursing home.

But what do I know - we are moving because we can't afford our house anymore.

You were supposed to answer all these, not ask them!

And now I have to review both my earthquake and flood insurance policies.

 

[Spiky Bugger]

Ugh, we do this too often, and I wish there were an easy ap to crunch the numbers, but things are just enough different every month for every property from any lender to never have an apples to apples comparison.

Last I checked, under 3% was possible on a 15 yr with decent credit. I look at the current rates as a gift. With rates in that ballpark, and family members that may need emergency $$, I don't think it's worth the worry factor to take it out of the bank. Also, when you say "rape", do you mean empty the acct down to nothing? Depending on what your income source is, I don't think people should have less than a years wages in savings, just in case. I know that's a rule of thumb that many can't or won't do, and those that live on trusts or guaranteed funds can happily ignore that, but I've known too many that just had some medical stuff come up and turn their lives upside down.

The HELOC might be a good idea, especially for peace of mind, assuming the rate wouldn't be significantly higher.

If you find the easy solution to this, sell it to me.

We could (probably) qualify for a 15-year loan, but I might have to cook at home and shit...on a regular basis, no less. It could undermine the local restaurant economy.

We are both retired, fixed income, and there are (relatively minimal) other funds...but not easy to access and we'd have to pay taxes upon hitting up those assets...so, yes, it would wipe out most of our go-to-hell money, but we do have fixed income and over a year's income in those hard-to-access accounts. Like I said, a First World Problem.

But I have this nagging yet unreasonable (?) fear that after (using make-believe L.A. prices for a MODEST home in an area with limited drive-by shootings) that a $600,000 home with a $480,000 mortgage is "safer" than owning that same $600,000 home with a $350,000 mortgage... Because, if the bottom falls out and you have to walk away from it all, if you have the bigger mortgage you still have that cash (the $130,000 difference) in the bank and can start over elsewhere...even if it's a lot smaller RV than Diana's. If all your cash goes into the down payment, what you've got is receipts. And we are too old and too beat up and sickly to actually work for a living.

On the other hand, how dumb are you if (using the numbers above) you fork over $400-500/month in INTEREST, for crap's sake, in order to keep that $130,000 in the bank where it earns $50/month.

No, dammit, you sell me the answer!!

 

[Whit]

I had a 610K home the bottom fell out and then I had a 305K home and owed 500K. But before the bottom I invested 100K t refi.
Yep cash. Real estate never a bad investment...right? I did not panic I wanted to Short Sale. But my husband talked me out of that. We did not do any crazy financing. We were both employed and paying bills. Fast forward. House appraised at 650K pulled out 100K. Paid off all other debit. Saving like crazy. going to sell home and move to Palm Springs. I still want to buy. The need to own is strong. What to do....

 

[Spiky Bugger]

I had a 610K home the bottom fell out and then I had a 305K home and owed 500K. But before the bottom I invested 100K t refi.
Yep cash. Real estate never a bad investment...right? I did not panic I wanted to Short Sale. But my husband talked me out of that. We did not do any crazy financing. We were both employed and paying bills. Fast forward. House appraised at 650K pulled out 100K. Paid off all other debit. Saving like crazy. going to sell home and move to Palm Springs. I still want to buy. The need to own is strong. What to do....

Right?

 

[newanatomy]

I am not really smart with money. My hubby is a Financial Advisor so, I married smart. Anyway, how much interest is your savings generating? Can you make that money work smarter for you? How much are you going to pay in interest for each of the loans?

 

[Spiky Bugger]

I am not really smart with money. My hubby is a Financial Advisor so, I married smart. Anyway, how much interest is your savings generating? Can you make that money work smarter for you? How much are you going to pay in interest for each of the loans?

The accessible savings that I can dip into are generating almost nothing in interest! Best I can figure, I will end up around $400-500/month ahead of the game by taking that money out of savings and throwing all that cash into the mortgage refi. HOW-FREAKIN'--EVER, if we were to end up underwater like so many have...we are old, unable to work at most any job including as Walmart Greeters...and we would have not so many years left to ride out that slump awaiting the next increase in home values. IOW, if he decided he neded to sell to park me in an assisted living, he'd have to sell at the then-current market rates, even if it meant making just enough to pay off the mortgage and all the cash were just lost. He'd still have income and some retirement money, but assisted living places are an easy $6-9k per month, which can put a dent in the Bingo budget...not that he'd ever play Bingo...but you get my meaning.

 

[Spiky Bugger]

Hmmm...I think I've talked myself into splitting, at way less than 50-50, the difference. Instead of paying down the balance enough to feel very poor, maybe just pay a bit in points to lower the interest rate enough to save a a couple hundred on payments each month.

Years ago, I was taught that a refi wasn't worthwhile for less than a full point reduction n interest rates. The lender is tellng me that nowadays people keep refinancing for as little as 1/4% interest rate reduction...with a "no cost" loan. But you know...no cost usually STILL runs $3-4k in title and escrow and appraisal fees. And the more costs and fees you add into that "no cost" loan, the higher the interest rate...and eventually, why bother, right?


I hate all this thinking!

 

[hilary1617]

Were I in your shoes, I would get a new loan on the existing balance and would pay a bit extra every month from savings on a discretionary basis to reduce principal and concomitant actual interest expense. We put a 50% down payment and regret having the money tied up and also subject to the volatility of the real estate market. Perhaps part of that regret was that we purchased at the peak of the market in 2006...

 

[Spiky Bugger]

Were I in in your shoes, I would get a new loan on the existing balance and would pay a bit extra every month from savings on a discretionary basis to reduce principal and concomitant actual interest expense. We put a 50% down payment and regret having the money tied up and also subject to the volatility of the real estate market. Perhaps part of that regret was that we purchased at the peak of the market in 2006...

Sounds good. I may pay a point or two to lower the pymts a bit...but not my first brainstorm. I'm just too insecure.

We, too, bought at a high point...2005...with almost 60% down...and then watched as other similar and identical units in our condo dropped by a third. It took years to catch up.

We didn't get crazy because we (constantly) reminded ourselves that the bulk of that down pymt came from a totally unjustifiable increase that allowed us to walk away from the previous property we owned with 255% of what we paid for it, in hand...after only about three years. Seriously over-inflated.

I found a site called mtgprofessor dot com that seems to be a wealth of info.