Better to pay cash or get loan to build custom home?
Beth LaPenna
11 years ago
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11 years agolast modified: 9 years agomountaineergirl
11 years agolast modified: 9 years agoRelated Discussions
Mortgage advice... Cash out refi or conventional loan?
Comments (3)I am going to be working under a similar arrangement. It is my understanding that it will be a refinance because you are basically refinancing a lien that is on your property. In my case, it is a construction loan through a bank but in the builder's name since the rate is so much lower and the bank will take a lien against the property. I will be interested in how this works out for you. A few lenders that I have talked to seemed to be confused by this but my reading of the Fannie Mae rules shows it to be a refi. It may also depend on how long you've own your lot....See MoreHome Equity Loan to Pay Credit Card Debt
Comments (12)One of the biggest problems with any scheme to pay off credit cards by using more credit is most people do NOT change their spending habits. The average consumer will take out a home equity loan to pay off outstanding balances and then only 2 or 3 years later find themselves with a home equity loan and credit cards at their max again. That doesn't solve the problem; it makes it worse. Plus there is the potential to lose you home if you fail to make payments on the home equity loan. In my humble opinion, this is not the best solution to your problem unless you and your significant other make some changes in your spending habits. Switching from one low/no interest credit card can be very damaging to your credit score. One of the components of a credit score is how long your current accounts have been open. Longer is better. New credit cards every 6 months will lower your score which means you pay higher rates or cannot qualify for those "teaser" rates. Also, be aware that the teaser rates will escalate very rapidly if you are ever late with a payment. The solution that I suggest to the personal financial management classses I teach is to stop using credit cards for any daily expenses. Save them for emergencies (a death in the family, an earthquake destroys your house, a hurricane is coming and you have to evacuate). Concentrate on paying off one card by paying extra on that card every month but continue to make the minimum payments on every card you have. When that card is paid off, apply that payment to the next card until it is paid off. If you have trouble avoiding temptation with credit cards, put them in a ziplock bag and seal it. Put that bag in another bag and fill it with water. Put both bags in the freezer and leave it there. Anytime you need a card it is available, but you have to wait to thaw it out to use it which means you have time to think about whether or not you really, really NEED what you plan to purchase with credit. While it sounds "dorky" and simplistic, it does work. Good luck...See MorePay cash or not - what would you do in our place?
Comments (17)"Short term (savings) rates (eg 5+% available at many online banks) and long-term rates (eg mortgages) are very close together right now, a phenomenon known as an inverted yield curve (or approaching it). Tax effects are approximately the same in both cases (cancel each other out) so they can more or less be ignored." Not really. The mortgage rate is locked in. The short-term savings rate is not. As I said, you should easily be able to beat the current interest rate on a 15-year mortgage with even a conservative long-term investment approach. If I understand you correctly, if you go the HELOC route, that menas you're going to buy the new house with cash. If you take a mortgage, you're not. In the first instance, you're going to have to liquidate some of your investments. In the second, case you're not. You're most likely to wind up further ahead if you keep more of your money invested, and that's true even taking the closing cost of the mortgage into account. Of course, it could be that the security you feel from not having to pay a mortgage is worth a financial sacrifice to you. You'll have to decide what that's worth to you. But since you want to know what I'd do, I'll tell you -- I'd go for the mortgage....See MorePay cash and get mortgage?
Comments (10)Hello, Bellamy. Here are the reasons: 1. At the price point I'm looking at, there will be some substantial repairs needed. The longer those are delayed, the more damage will occur and the more they will cost, so they should be done right away. Leaky plumbing is different from an ugly kitchen as far as how soon it must be dealt with. A nicer kitchen can easily wait till I get everything paid off. Structural stuff can't. 2. I'm not considering the mortgage deduction at all in deciding whether or not to do it this way, although I would prefer to do the loan as a mortgage so that it's deductible. If I'm paying some interest, why not have it be at least partially deductible, if it can be? I know what you're saying, though. My mother had a friend who was fairly well off and her accountant kept urging her to pay off her older mortgage, which was at a higher interest rate. She wouldn't, because she wanted the deduction, since it was the only big deduction she had. That was silly. 3. Yes, I could pay cash for the house and for the repairs, but it would put me in a position where I would feel very uncomfortable if I had a catastrophic medical situation, for example, and the total cost of the mortgage over its lifetime at the current interest rate would be approximately $4K, plus whatever fees. While it would be nicer not to have to put out that kind of money, to me it would be worth it to know that I could do this and still be set for emergencies and not making a huge dent in my retirement savings (I'm self-employed). I can live hand to mouth and have done that, but it's much pleasanter not to. I totally hate debt, but I've looked at this from a number of different angles and in the long run I think that buying will be cheaper than continuing to pay rent, since I live in a winter resort area and the only places where rents are going down proportionately to the drop in sale prices are those where the owners are in pre-foreclosure and desperate for any income. I don't want to get into that kind of situation. If my income level continues to be what it is now, I should be able to pay off the loan in four or five years at the most, and at worst I could scrape by on minimum wage and still make the basic payment as well as HOA, taxes, insurance. If I could pay cash for everything, if I stayed 6 or 7 years I could give the place away at to charity at the end of that time and really not be out more than I would if I continued to rent the same amount of time. The mortgage interest means I would need another year or so to get to the same place....See MoreUser
11 years agolast modified: 9 years agoBeth LaPenna
11 years agolast modified: 9 years agoUser
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9 years agolast modified: 9 years agoBeth LaPenna
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Beth LaPennaOriginal Author