Mikki <mikki@[EMAIL PROTECTED]
> writes:
> Car 1 -
> Purchase price $24,000
> Original loan value $24,000 (no money down)
> Interest rate - 1.9%, 60 month loan
> Current balance - $17,000
>
> Car 2 -
> Purchase price $16,000
> Original loan value $11,200
> Interest rate - 11.64%, 72 month loan
> Current balance - $3,500
> Perhaps we have too much invested in them, but we do plan on keeping
> them until maintenance costs significantly exceed remaining value. The
> 72 month loan was ridiculous, and the interest rate insane, but that
> is why I am paying off the car ASAP (most of it has already been paid
> off in less than one year).
It should be paid off tomorrow.
> I already have quite a bit of money available spread out between my
> money market savings, CDs, and some stocks (which I'm carefully
> selling off to preserve the capital for the house down payment). I
> could easily pay off both cars right now, it's just that I'd have
> nothing left for the house down payment :).
Paying off that absurd 11% loan is more im****tant than saving
money towards that house downpayment.
If you can't come up with 20% down *and* pay off these car
loans and that $4000 outstanding on your zero-interest-rate
credit card all at the same time - then you don't have
enough to buy the house you want.
I wouldn't be in a rush to pay off that 1.9% car loan -
you've already got the sunk costs which bought you down
to that rate (ie. you paid more for the car in exchange
for that low rate). Paying it off early just means
you'll have wasted that rate buy-down, and you can earn
more than that 1.9% on your cash in the meantime.
But pay off that 11% loan *today*.
> > > The only other debt that we carry is about $4000 on a no-interest
> > > credit card, which we pay $250 a month towards.
> >
> > Yet another sign that you are spending more than you earn, mostly
> What is wrong with keeping something on a 0% interest card and making
> regular payments on it? Wouldn't that $4000 be better invested, saved,
> or used towards something else in the meantime? Aside from the
Perhaps, but not usually. Those zero-percent credit card deals
often have triggers (ie. a single late payment, etc) or structures
(ie. new charges on the card accrue double-digit interest and
payments go only towards the zero-percent balance) which more
than offset the savings due to either risk or hidden costs.
You want this thing paid off before you consider buying a house,
> I understand that retirement savings should not be touched unless
> absolutely necessary. The contributions to Roth IRAs may be taken out
> at any time without penalty. Up to $10,000 may also be taken out of a
> traditional IRA for a first-time home purchase without penalty. That
They're very bad ideas. If you can't afford the down payment
without cutting into your retirement savings, you can't afford
the house.
> still doesn't make it a good idea, but if I needed a bit of extra
> money to avoid PMI, I would probably do that. I am 29, and my husband
You may be able to structure the deal with a primary mortgage
for 80%, plus a HELOC for the difference between that and the
amount you actually have available for the down payment. But
bear in mind that doing so means that if the housing market
keeps creeping lower, you may end up underwater. It's worthwhile
avoiding the PMI, but it's not worthwhile buying more house
than you really can afford, no matter how nice it sounds to
own a home.
> is even younger than that. I doubt most people our age already have as
> much as we do in our IRAs to begin with. I know by the time we retire,
> we'll need a LOT more in our retirement accounts, but I think we're
> doing pretty good so far.
Then don't screw that up by mortgaging your future to own a house
now. You're young. The most valuable assets you have are your
earning potential and *time*. But if you pull money out of your
retirement accounts - the time that that money needs to grow
to fund your retirement is getting whacked.
It would probably make a rough analysis of your situation more
accurate if we knew your whole balance sheet and cash-flow
situation (incomes, rents, assets, debts, etc). Knowing only
about those cars and the credit card and your intentions to
pull money from your retirement accounts for a down payment
paints a picture, at least to me, of someone trying to overreach.
That perception may be wrong, but the way to fix it is to
give us more information.
> We will probably be looking at buying a house in the $200-250k range,
> which means coming up with $40-50k down payment to avoid the PMI and
> to have lower payments in general. I guess we could always push back
> our moving plans by about 6 months; that would be enough income to
> make up the down payment without pulling from our IRAs. I'm really
Then there's no question in my mind that that's the right thing
to do. Homebuying and wealth-building are *slow* processes. If
you're so eager to do things that you can't wait 6 months,
something's wrong. Take those 6 months. Pay off the credit
card and the 11% car loan. Heck, take 6 more months and build
up a nice cash cu****on. Every home buyer out there can tell
you that after you buy that house, you inevitably spend a bunch
more money getting yourself set up in the first few months -
don't make the common mistake of putting that additional
spending on a credit card too. Houses are not going to
skyrocket in price. If you think you might be able to
afford that house in 6 months, you can bet that you'll still
be able to afford it in 12, with a much bigger margin of
day-to-day cashflow safety.
> eager to move, but perhaps being patient will pay off in the long run,
Major keys to wealth are patience and discipline. Ask
Warren Buffett. Be patient. Those who are capable of
delaying gratification have much much better chances
of building wealth.
> I do appreciate any feedback, and I realize how my previous post
> painted a bad picture of my financial situation (hopefully it's not
> that bleak though!).
That car loan really is frightening. Did one of you or
your spouse have seriously bad credit when that was made?
You may need to examine your credit ratings and make sure
you can even get the mortgage you think you can get.
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators
strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM
THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on
the
Newsgroup.
|
