Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 01-24-2011, 08:31 PM   #21
Thinks s/he gets paid by the post
MooreBonds's Avatar
 
Join Date: Aug 2004
Location: St. Louis
Posts: 2,091
Although this isn't specifically what I'm doing, it is in an indirect way.

This past Friday, I applied/locked in to refinance a 20 year, 4.99% Pen Fed Home Equity Loan with the Pen Fed 30 year, 5/5 ARM at 3.375% (with 1/8 point, no closing costs). I fully intend to have the house paid off by year 10, largely from cashing in some savings bonds that reach final maturity each year over the next several years.

After 5 years, the ARM resets the rate once every 5 years, and can only increase the rate by a max of 2.00% each time...so worst-case scenario is my mortgage rate will be 3.375% years 1-5, and 5.375% years 6-10.

My monthly payment will drop from $1,240 to about $880. I'm debating on what to do with the excess cash flow (since I already max out all available tax advantage accounts)...I'm pretty sure I'm not going to pay anything off early in years 1-5, but don't know if I should redeploy the cash in a Vanguard fund or individual dividend payers or what. My pipeline MLPs have risen nicely, and still might have some room to run, but have also been agonizing over whether to take the gains or simply leave them there and collect the 6%+ tax-advantage distributions.

As the savings bonds mature in 2011 through 2016, there will be a significant tax bite, but after taxes, they will account for roughly 80% of the mortgage principal.

I have substantial assets to where I can afford to take the risk with investing the extra $400/month; also, I like the added bonus of having the potential of having a 'reasonable rate' mortgage in years 10-15 if somehow rates stay low/fall again (surely not counting on it, though) and simply continue making bi-weekly mortgage payments with letting the money ride - although, if rates are this low 10 years from now, it likely means the economy is in the crapper, and there likely won't be many attractive investment options (not to mention that my entire portfolio would likely be down).

Now that I think about it, perhaps I'll be re-evaluating the paydown option in year 6....
__________________

__________________
Dryer sheets Schmyer sheets
MooreBonds is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-24-2011, 08:50 PM   #22
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,102
Quote:
Originally Posted by MooreBonds View Post
Although this isn't specifically what I'm doing, it is in an indirect way.
Same here.

When I bought our motorhome in 2007 I paid half in cash and used our variable rate HELOC to finance the balance. My plan was to wait until 08 to pay it off but the market crash meant I'd have to sell at the bottom to do so.

Thankfully the market and my HELOC interest rates moved in opposite directions. The rate dropped to 2.4% in late 08 and is still there. I'm doing significantly better than that in the market, so I'm not going to pay it off unless/until my interest rate increases.
__________________

__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 01-24-2011, 08:51 PM   #23
Recycles dryer sheets
 
Join Date: Jan 2011
Location: Marietta
Posts: 117
Being a spring chicken and only just having paid of my Mortgage about two weeks ago I want to let this exciting little flutter in my heart play out for a lot longer before taking on debt again. There is a feeling I cant really explain to being fully debt free at 38. I am womdering how I will feel in another 12 months or even a few years from now having no debt payments to make.

My feelings are I can always get anotjer loan if I want to go back to the world of having to work if things go against me. Just ask yourself the question, is it greed making you take on the extra risk to eek out a few extra percentage points. Even compounding you only have 6-7 years to go before ER, is the couple extra thousand worth the risk of having to work past 51 if the investment goes against you?
__________________
RetirementColdHardTruth is offline   Reply With Quote
Old 01-25-2011, 07:10 AM   #24
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,139
Quote:
Originally Posted by RetirementColdHardTruth View Post
Being a spring chicken and only just having paid of my Mortgage about two weeks ago I want to let this exciting little flutter in my heart play out for a lot longer before taking on debt again. There is a feeling I cant really explain to being fully debt free at 38. I am womdering how I will feel in another 12 months or even a few years from now having no debt payments to make.

My feelings are I can always get anotjer loan if I want to go back to the world of having to work if things go against me. Just ask yourself the question, is it greed making you take on the extra risk to eek out a few extra percentage points. Even compounding you only have 6-7 years to go before ER, is the couple extra thousand worth the risk of having to work past 51 if the investment goes against you?
+ 1 Get out and stay out of debt.
__________________
Danmar is offline   Reply With Quote
Old 01-25-2011, 07:17 AM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
FWIW, although I borrowed to invest, as a rule I really do not like the idea. I did so because I had a lot of ground to regain due to the crash and there was a really fat pitch there. Now I have zero out on the HELOC and I aggressively pay down my PF 5/5 ARM with roughly triple the scheduled payment every month.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 01-25-2011, 12:18 PM   #26
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,139
It just occurred to me that many people effectively do just that by using their cash flow for investing rather than paying down the mortgage faster? This probably makes more sense when you are younger as it is riskier?
__________________
Danmar is offline   Reply With Quote
Old 01-25-2011, 02:08 PM   #27
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
I've never thought of the equity in my home as cash I can use. I don't buy on margin, don't invest in leveraged funds, and just pay down the mortgage asap so that I can be totally debt free (DF) when I ER. Then I'll be a DFER (pronounces "duffer").

I'm glad I used some of the gains before 2008 to pay down the mortgage. Now I just have 2 years left before the mortgage is no more and I can ER at 51.
__________________
nun is offline   Reply With Quote
Old 01-25-2011, 06:07 PM   #28
Recycles dryer sheets
 
Join Date: Jan 2011
Posts: 62
Quote:
Originally Posted by Danmar View Post
+ 1 Get out and stay out of debt.
I see no inherent problem with debt. Its all in how you use it. I had no problem taking out a mortgage in '99 to purchase my current home instead of using cash. Mortgage rates were 6.75% when I borrowed. I have averaged 16.7% with the funds and made several times over the value of the money I borrowed. I had the cash to pay off the mortgage at any time and was confident I could do better. Even if I had performed as poorly as the S&P500 I would not have been out much.

I would not hesitate taking a sizable mortgage in this environment to keep my investments intact.
__________________
bcinvest is offline   Reply With Quote
Old 01-26-2011, 08:52 AM   #29
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by bcinvest View Post
I see no inherent problem with debt. Its all in how you use it.
I agree, but many can become addicted to debt, or rather the appearance of affluence that it can provide. With rates so low at the moment my aversion to debt has been a bit tempered, but as a general rule I try to avoid it. The mortgage is a case where there's no practical alternative if you want to own a home, however, i often wonder if I would have been better off to rent for the last 20 years rather than paying the costs of home ownership.
__________________
nun is offline   Reply With Quote
Old 01-26-2011, 09:42 AM   #30
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,139
Quote:
Originally Posted by bcinvest View Post
I see no inherent problem with debt. Its all in how you use it. I had no problem taking out a mortgage in '99 to purchase my current home instead of using cash. Mortgage rates were 6.75% when I borrowed. I have averaged 16.7% with the funds and made several times over the value of the money I borrowed. I had the cash to pay off the mortgage at any time and was confident I could do better. Even if I had performed as poorly as the S&P500 I would not have been out much.

I would not hesitate taking a sizable mortgage in this environment to keep my investments intact.
If there is a problem with debt it relates to the added financial risk it causes. In most cases things work out pretty well. In other cases the debt becomes a real concern. Glad things have worked out for you. I doubt we will hear of any cases where it hasn't on this forum. I used debt extensively and successfully during my working life but when I retired I also retired the debt.
__________________

__________________
Danmar is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Cashing out home equity to invest in Mutual Funds ADJ FIRE and Money 83 05-10-2007 01:16 PM
Advice....Should I look at home equity this way? ijuba FIRE and Money 65 02-11-2007 09:37 AM
Can you invest in a private equity/VC fund? Olav23 FIRE and Money 4 01-10-2007 06:48 AM
home or invest coolwave Young Dreamers 8 09-12-2006 10:58 PM
Invest your home equity? dimwit FIRE and Money 6 08-16-2005 06:14 PM

 

 
All times are GMT -6. The time now is 03:09 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.