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alnorth
10-23-2005, 08:31 PM
This may be a bit controversial, but I am very new to the whole concept of credit scoring, so we'll see what happens. I just got my FICO score today from Experian. I'll need to get a car loan next summer so I'll need to work on my credit till then, but I wanted to see how it compares with a random sampling of chiefs planet fans who are inclined to anonymously vote their range in a poll.

onescrewleftuntwisted
10-23-2005, 08:40 PM
where is the option for

i have no credit, so f*ck off :(

BigRedChief
10-23-2005, 08:44 PM
I have to maintain great credit or I lose my job.

ENDelt260
10-23-2005, 09:10 PM
When I refinanced my place earlier this year I was sitting at 760, IIRC.

Bowser
10-23-2005, 09:18 PM
When I refinanced my place earlier this year I was sitting at 760, IIRC.

Good thing you hocked Phil's truck in Mexico.......

DTLB58
10-23-2005, 09:21 PM
Good FICO score = Debt! Who needs it.

Your credit FICO score ranges from 300-850 it is based on your payment history 35%, How much you owe 30% The length of your credit history 15% The type of credit you use 10% and applying for new credit 10% is based on that.

Instead of working on your credit sscore till you need a car loan, why don't you save up and pay cash for the car instead?

The average car payment in America is $378 over 63 months (source: USA Today) If instead you pay cash for your vehicles and slowly move up in car over time you will be far ahead of the finacial game and have a lot more money than your broke friends who tie up their money paying payments most of their adult life.

Remember, "The borrower is slave to the lender" Go here www.daveramsey.com to change your financial future.

ENDelt260
10-23-2005, 09:31 PM
Good FICO score = Debt! Who needs it.

Me. I like having a roof over my head.

luv
10-23-2005, 09:35 PM
Instead of working on your credit sscore till you need a car loan, why don't you save up and pay cash for the car instead?


If you have that kind of money laying around, then I have a better idea. Why don't you buy the car for me, so I don't have to worry about my credit?

DTLB58
10-23-2005, 09:36 PM
Me. I like having a roof over my head.

You can get a mortgage without having a good FICO score. Car debt is waaayyy different than a mortgage also.

DTLB58
10-23-2005, 09:43 PM
If you have that kind of money laying around, then I have a better idea. Why don't you buy the car for me, so I don't have to worry about my credit?

We are currently saving for another car, this one for my wife. You take care of your family I'll take care of mine. :)

alnorth
10-23-2005, 09:46 PM
Good FICO score = Debt! Who needs it.

Your credit FICO score ranges from 300-850 it is based on your payment history 35%, How much you owe 30% The length of your credit history 15% The type of credit you use 10% and applying for new credit 10% is based on that.

Instead of working on your credit sscore till you need a car loan, why don't you save up and pay cash for the car instead?

The average car payment in America is $378 over 63 months (source: USA Today) If instead you pay cash for your vehicles and slowly move up in car over time you will be far ahead of the finacial game and have a lot more money than your broke friends who tie up their money paying payments most of their adult life.

Remember, "The borrower is slave to the lender" Go here www.daveramsey.com to change your financial future.

In theory I agree with you. The reality is, I'll need a new car next summer. It doesnt have to be "new" as in 2006 model, but I need something very reliable and decent. I dont know if I'll be able to have $6,000+ banked by June. To make up for that, I plan on having a short-term loan of only 2-3 years. Taking out a 5-10 year loan for a car so that you can have small payments is stupid. I dont give a rat's ass what the payments are (within reason), as long as the interest is low and the duration of the payments are short, I care more about the dollars paid out at the end of the loan. All the extra interest you pay for 2-3 more years is money not invested or spent elsewhere. I'll seriously think about investing some extra money each month after this summer for the next 4-5 years to pay cash for the next car, though.

In other topics we are probably not far apart. I put away about $200/month (50% matched, so really $300/month) in an extremely diversified 401k with some moderate risk (at 28, I am still young enough to tolerate a lot of risk). I dont own a home or have a mortgage, I rent. I see absolutely no reason not to continue to rent as long as houses continue to be massively overpriced. Everyone is pre-programmed to buy a home as soon as they start making money, but the low price of rent is one of the best-kept secrets in America. In theory, a "fair" rent/month should be 1% of the home's value. Right now, in many places where I live, either the rent is about half the price it should be, home values are nearly twice as high as they should be, or a combination of the two. Even when you figure in the income tax deduction from paying interest, rent is a bargain right now.

Mosbonian
10-23-2005, 09:46 PM
I have to maintain great credit or I lose my job.

Work in Credit?

mmaddog
*******

Skip Towne
10-23-2005, 09:47 PM
I could probably live on what Endelt pays in interest.

recxjake
10-23-2005, 09:59 PM
i disagee w/ alnorth, renting is just throwing money away, this houseing boom thing doesn't apply to most americans, it affects california, florida...basically retirement places w/ nice weather... by renting you loose gaining equity on your home and whatever gain in value in the home when you sell, i made 25,000 in 1 year on my house!

also don't buy cars, lease them, much lower payments, get a new car every 2 or 3 years... investing money in cars is really stupid unless you get an employee discount and sell w/ in 6 months so you save the 15% most people loose when they drive off the lot

joesomebody
10-23-2005, 10:03 PM
I rent and have a car loan... BOooo...

My credit sucks, its between 630 and 670 depending on whom I check through and when I check. I'm currently trying to become debt free, which is a very long process.

Working on credit is a pain. Get someone who has to co sign for you instead, credit cards are the debil.

alnorth
10-23-2005, 10:08 PM
i disagee w/ alnorth, renting is just throwing money away, this houseing boom thing doesn't apply to most americans, it affects california, florida...basically retirement places w/ nice weather... by renting you loose gaining equity on your home and whatever gain in value in the home when you sell, i made 25,000 in 1 year on my house!

also don't buy cars, lease them, much lower payments, get a new car every 2 or 3 years... investing money in cars is really stupid unless you get an employee discount and sell w/ in 6 months so you save the 15% most people loose when they drive off the lot

You are assuming that homes will appreciate significantly over the next 20-30 years. I am gambling that they wont, home prices will likely fall short-term, and rise modestly long-term.

I avoid the property taxes, maintenance costs, insurance (renter's insurance is dirt-cheap), etc by virtue of the landlord not charging me nearly enough to get a good return. The market here demands that he currently eats a lot of these costs.

In other words, I am betting that the difference between my rent and the much larger mortgage, even when figuring in the tax break, can be invested at a far better rate to at least bring me even with home ownership without the risk of a housing collapse, the permanency while working in a career that could mandate my move several times in the next 10-20 years, and the hassle.

If housing costs were much cheaper where I lived, or if the value had nowhere to go but strongly up, then I would agree that buying would make more sense.

luv
10-23-2005, 10:13 PM
In other topics we are probably not far apart. I put away about $200/month (50% matched, so really $300/month) in an extremely diversified 401k with some moderate risk (at 28, I am still young enough to tolerate a lot of risk). I dont own a home or have a mortgage, I rent. I see absolutely no reason not to continue to rent as long as houses continue to be massively overpriced. Everyone is pre-programmed to buy a home as soon as they start making money, but the low price of rent is one of the best-kept secrets in America. In theory, a "fair" rent/month should be 1% of the home's value. Right now, in many places where I live, either the rent is about half the price it should be, home values are nearly twice as high as they should be, or a combination of the two. Even when you figure in the income tax deduction from paying interest, rent is a bargain right now.
I put in 4% of my salary into my 401k. My company only matches 25% up to 4% of salary. You're the same age as me, but you consider moderate risk as a lot of risk? I have 50% in high risk, 25% in moderate, and 25% in low. I, too, rent, but I wish I could be putting my rent payments into house payments. On my salary, I can probably afford a decent older home, but I cannot afford all of the extras (maintenance, insurance, taxes, etc). I don't see how paying half the price you should be paying for rent is helping you at all. You are not getting anything back on your money.

alnorth
10-23-2005, 10:20 PM
I put in 4% of my salary into my 401k. My company only matches 25% up to 4% of salary. You're the same age as me, but you consider moderate risk as a lot of risk? I have 50% in high risk, 25% in moderate, and 25% in low. I, too, rent, but I wish I could be putting my rent payments into house payments. On my salary, I can probably afford a decent older home, but I cannot afford all of the extras (maintenance, insurance, taxes, etc). I don't see how paying half the price you should be paying for rent is helping you at all. You are not getting anything back on your money.

Well, as long as you invest the other half that you would have put into the mortgage, then it depends. IF houses where I live are overpriced (check) and IF I am betting that they will fall or stagnate (check), and IF I work in a career that could mandate several moves in the future along with all the extra costs of buying and selling homes (check) and IF I can avoid the property taxes in a market where competitively the landlord cant pass it all down to me (check), then it gets more complicated. I think its a wash, so I'm taking the less-risky option by investing the difference.

If housing prices collapse, I will definitely consider buying.

alnorth
10-23-2005, 10:24 PM
You're the same age as me, but you consider moderate risk as a lot of risk? I have 50% in high risk, 25% in moderate, and 25% in low.

We might have different definitions of high risk. I see high risk as putting the vast majority of it into foreign funds and low-cap high growth funds.

I've got it spread out into 9 different funds, with maybe 15% of it in Asia, and the rest of it distributed throughout the four corners of the style chart. None of it is in bonds or money markets, which are rock-solid safe with pathetic returns. So, I call it moderate, but many people might call what I've described as fairly high risk.

luv
10-23-2005, 10:28 PM
We might have different definitions of high risk. I see high risk as putting the vast majority of it into foreign funds and low-cap high growth funds.

I've got it spread out into 9 different funds, with maybe 15% of it in Asia, and the rest of it distributed throughout the four corners of the style chart. None of it is in bonds or money markets, which are rock-solid safe with pathetic returns. So, I call it moderate, but many people might call what I've described as fairly high risk.
I see. I probably don't pay as much attention to details as I should. I look at the overall outcome over a period of time. If I lose some in the high risk, that's why it's called high risk. However, if I continue lose here and there over a period of time, then I call my representative to make some changes. I don't pay too much attention to the details of what country my stock is in, the reason for the drop, etc. I just know that if I am consistently losing money each quarter with what I've got, then I need to make changes.

Jenny Gump
10-23-2005, 10:31 PM
My score is 29. That's good right?

luv
10-23-2005, 10:34 PM
My score is 29. That's good right?
Yep. Just like golf. The lower the score the better. :thumb:

ROFL

alnorth
10-23-2005, 10:35 PM
I see. I probably don't pay as much attention to details as I should. I look at the overall outcome over a period of time. If I lose some in the high risk, that's why it's called high risk. However, if I continue lose here and there over a period of time, then I call my representative to make some changes. I don't pay too much attention to the details of what country my stock is in, the reason for the drop, etc. I just know that if I am consistently losing money each quarter with what I've got, then I need to make changes.

Well, without diving into the gory details, you can quickly filter out a few funds as no-buys, by making sure you only buy no-load funds with the overall fee less than 1.5% (preferably under 1%). Managers of loaded funds claim they are able to significantly beat the average, but generally they do not do much better than average, and when you figure in the extra you pay for the load, its usually not a good buy.

KCJake
10-23-2005, 10:37 PM
How can I find out what my credit score is? I have a feeling it's shitty. I applied for a credit card and got denied. Supposedly because I have bad credit. Never been late on a payment. Never filed for bankruptcyn. Not sure what i've done wrong?

luv
10-23-2005, 10:42 PM
Well, without diving into the gory details, you can quickly filter out a few funds as no-buys, by making sure you only buy no-load funds with the overall fee less than 1.5% (preferably under 1%). Managers of loaded funds claim they are able to significantly beat the average, but generally they do not do much better than average, and when you figure in the extra you pay for the load, its usually not a good buy.
What do you do for a living again? Are you an advisor, or you just pay particular attention to your own financial concerns?

alnorth
10-23-2005, 10:44 PM
How can I find out what my credit score is? I have a feeling it's shitty. I applied for a credit card and got denied. Supposedly because I have bad credit. Never been late on a payment. Never filed for bankruptcyn. Not sure what i've done wrong?

You can get your FICO score and credit report for $30-40 online quickly from Experian. (or you can go to the other 2 major credit reporting agencies, Equifax and Transunion) The FICO score is the score in the poll. under 600 is bad, 600-640 is shaky, 640-680 is averagish, 680+ is good. The credit report is the details of your credit history that youll need if your unhappy with your score and want to find something incorrect to dispute.

Or, if you arent in a hurry, Congress passed a brand-new law which allows every citizen to get their report once a year for free. I dont know if theyll give you a FICO score free or not, but you can write one of the agencies a letter requesting your free credit report once a year. I dont know the mailing address or any forms needed, since I wanted my score quickly and bought it online.

alnorth
10-23-2005, 10:46 PM
What do you do for a living again? Are you an advisor, or you just pay particular attention to your own financial concerns?

Actuary. I was required to learn a significant amount of financial mathematics. The rest I learned on my own just enough to be dangerous. You make life-altering decisions using my advice strictly at your own peril. Check with someone else to make sure I am not insane first, I'm fine if I lose my own money, I'd hate to lose yours too.

luv
10-23-2005, 10:47 PM
How can I find out what my credit score is? I have a feeling it's shitty. I applied for a credit card and got denied. Supposedly because I have bad credit. Never been late on a payment. Never filed for bankruptcyn. Not sure what i've done wrong?
I can get a car, apartment, credit card, furniture, etc on my credit. I don't know what my score is either. However, I cannot seem to get a regular checking account. I must have a bad check out there from sometime 8-10 years ago, but I don't know what it was for. I have an electronic access account at a local bank. The company I work for set it up for direct deposit purposes. I can withdraw as much as I need to, but I can only do my transactions (additional deposits, etc) through the ATM. No chance of getting overdrawn, which is the point of the account. Sucks when I have to send payments by mail though. I either get money orders or give dad the cash for writing some checks.

alnorth
10-23-2005, 11:04 PM
I can get a car, apartment, credit card, furniture, etc on my credit. I don't know what my score is either. However, I cannot seem to get a regular checking account. I must have a bad check out there from sometime 8-10 years ago, but I don't know what it was for. I have an electronic access account at a local bank. The company I work for set it up for direct deposit purposes. I can withdraw as much as I need to, but I can only do my transactions (additional deposits, etc) through the ATM. No chance of getting overdrawn, which is the point of the account. Sucks when I have to send payments by mail though. I either get money orders or give dad the cash for writing some checks.

My credit has a few blemishes on it. I have a checking account from my first bank way back in Kansas that I opened years ago. However, when I tried to open a new account from a bank close to where I work, I was denied. So, me and my current bank in Kansas are both stuck with one another untill things improve. In the meantime, I have to pay ATM fees.

luv
10-23-2005, 11:09 PM
My credit has a few blemishes on it. I have a checking account from my first bank way back in Kansas that I opened years ago. However, when I tried to open a new account from a bank close to where I work, I was denied. So, me and my current bank in Kansas are both stuck with one another untill things improve. In the meantime, I have to pay ATM fees.
You can also pay to get a listing from the check service you newer bank goes through. It would have any bad checks listed on it. What confuses me is how I can get all of these things on credit, but open a simple checking account due to the bad check.

keg in kc
10-23-2005, 11:10 PM
I fall somewhere in the middle of "bad" and "don't care".

Ari Chi3fs
10-23-2005, 11:17 PM
Good FICO score = Debt! Who needs it.

Your credit FICO score ranges from 300-850 it is based on your payment history 35%, How much you owe 30% The length of your credit history 15% The type of credit you use 10% and applying for new credit 10% is based on that.

Instead of working on your credit sscore till you need a car loan, why don't you save up and pay cash for the car instead?

The average car payment in America is $378 over 63 months (source: USA Today) If instead you pay cash for your vehicles and slowly move up in car over time you will be far ahead of the finacial game and have a lot more money than your broke friends who tie up their money paying payments most of their adult life.

Remember, "The borrower is slave to the lender" Go here www.daveramsey.com to change your financial future.


ah yes... thanks for getting him started! ROFL

BigRedChief
10-23-2005, 11:22 PM
Work in Credit?

mmaddog
*******

nope.

ENDelt260
10-23-2005, 11:36 PM
I could probably live on what Endelt pays in interest.
four hundred and some change a month at the moment.

ENDelt260
10-23-2005, 11:38 PM
also don't buy cars, lease them, much lower payments, get a new car every 2 or 3 years... investing money in cars is really stupid unless you get an employee discount and sell w/ in 6 months so you save the 15% most people loose when they drive off the lot

Bah. I was raised in a household where you drive a car until it dies. My truck's paid off. Has been for awhile. It gets me from point A to point B consistently. I'll replace it when that changes.

ENDelt260
10-23-2005, 11:40 PM
How can I find out what my credit score is? I have a feeling it's shitty. I applied for a credit card and got denied. Supposedly because I have bad credit. Never been late on a payment. Never filed for bankruptcyn. Not sure what i've done wrong?
Buck up. I have a friend who was denied a BMG membership.

Seriously.

luv
10-23-2005, 11:42 PM
Bah. I was raised in a household where you drive a car until it dies. My truck's paid off. Has been for awhile. It gets me from point A to point B consistently. I'll replace it when that changes.
Like when your repair bills get to be worth more than the value of the truck.

Nzoner
10-23-2005, 11:43 PM
Buck up. I have a friend who was denied a BMG membership.

Seriously.

That's pitiful,I've never heard of anyone being denied by BMG until now.

ENDelt260
10-23-2005, 11:43 PM
Like when your repair bills get to be worth more than the value of the truck.
Something like that.

ENDelt260
10-23-2005, 11:44 PM
That's pitiful,I've never heard of anyone being denied by BMG until now.
He was the first I'd ever heard of being denied, too. We bust his balls about it. A lot.

KingPriest2
10-24-2005, 12:53 PM
You can get a mortgage without having a good FICO score. Car debt is waaayyy different than a mortgage also.


What do you consider a bad score? Where is the breaking point in where you can't get a loan?

Do you know what type of loan you can get with bad credit?

KingPriest2
10-24-2005, 12:58 PM
I rent and have a car loan... BOooo...

My credit sucks, its between 630 and 670 depending on whom I check through and when I check. I'm currently trying to become debt free, which is a very long process.

Working on credit is a pain. Get someone who has to co sign for you instead, credit cards are the debil.


Actually your creidt is decent. You can still get a great rate on a mortgage.

GoTrav
10-24-2005, 01:09 PM
also don't buy cars, lease them, much lower payments, get a new car every 2 or 3 years... investing money in cars is really stupid unless you get an employee discount and sell w/ in 6 months so you save the 15% most people loose when they drive off the lot

I actually thought about leasing, but a few things I don't like are paying the "fees" to get into the lease, which IMO, your just p1ssing your money away. And also the way they cap your mileage at a ridiculously low number.

I need to run a more recent credit report. I plan on upgrading to a new home next spring. What are some decent online sites?

Cntrygal
10-24-2005, 05:53 PM
Bah. I was raised in a household where you drive a car until it dies. My truck's paid off. Has been for awhile. It gets me from point A to point B consistently. I'll replace it when that changes.


How many tailgates has it had now? :D

Mr. Laz
10-24-2005, 07:43 PM
789 last time i checked

alnorth
10-24-2005, 07:44 PM
What do you consider a bad score? Where is the breaking point in where you can't get a loan?

Do you know what type of loan you can get with bad credit?

No clue for mortgages, but for car loans, under 630 is when the interest rate begins to escalate dramatically, and some lenders who stick with safe risks will deny you. Under 600, you begin to get denied by a lot of lenders and have to pay the rate given to high-risk borrowers.

Under 550, if you can find a lender at all, youll pay insane interest. Fortunately, it is very difficult to get a score so bad that its under 550.

ENDelt260
10-24-2005, 07:45 PM
How many tailgates has it had now? :D
Only two.

alnorth
10-24-2005, 07:46 PM
I need to run a more recent credit report. I plan on upgrading to a new home next spring. What are some decent online sites?

There are 3 credit reporting agencies, Experian, Transunion, and Equifax. I use Experian, but that was luck of the draw, I didnt have a preconception of which was better, so I picked one of the 3 at random. Dont bother with any 3rd parties, order it directly from these guys online, or send a letter for your once a year free credit report. (Think you gotta pay for the score, though)

Skip Towne
10-24-2005, 07:48 PM
He was the first I'd ever heard of being denied, too. We bust his balls about it. A lot.
What is BMG?

ENDelt260
10-24-2005, 07:50 PM
What is BMG?
"Join now and get twelve CDs for only a penny! With nothing more to buy ever! *wink, wink*"

KcMizzou
10-24-2005, 07:52 PM
What is BMG?A mail order music company... like "Columbia House"

You sign up for X number of CD's for a penny each.... and they send you (and bill you for) one a month for the rest of your life.

GoTrav
10-24-2005, 07:53 PM
A mail order music company... like "Columbia House"

You sign up for X number of CD's for a penny each.... and they send you (and bill you for) one a month for the rest of your life.

lol, my mom saved me from them when I was like 14.

Iowanian
10-24-2005, 08:06 PM
My credit is excellent. 800+
I only borrow money when I need it, I don't spend it on stupid things(often), I don't live outside our means, I pay extra on loans and pay them off early(years early) by paying a little extra on principle each month.

My first house was affordable(and a mess), I've remodeled it, moved to a larger and signed an offer for double what I paid this week.

Good credit is not difficult to build...pay your bills on time, and don't try to live like a rock star if you are on a fast food workers budget.

alnorth
10-24-2005, 08:24 PM
I pay extra on loans and pay them off early(years early) by paying a little extra on principle each month.

Ooh, you reminded me of another subtle point many people dont think of.

In general, obviously paying some extra towards the principle on your loans to retire them early is a good idea... IF the interest is above 6%.

For mortgages and car loans, most people will have an interest rate high enough for it to make sence to pay off early.

HOWEVER, if your loan has an interest rate at about 3% or so, then you should not pay that loan off one microsecond earlier than you have to. Why? 3% is cheap money, you can do better than 3% in the market even with safe investments. Take the extra money you were going to use to paying off principle, and use it on an investment instead and youll come out ahead.

This only works if youve got the discipline to invest the money. If your going to blow it on beer and smokes, then you should use it on the loan instead. 3% is better than nothing.

Iowanian
10-24-2005, 08:35 PM
Most people don't realize that on a $700 mortgage payment..they're only knocking 45/month off the principal....and paying that extra 75/month will take YEARS off of the debt not counting the extra interest you're not paying.

I'll have to disagree for my personal choice...no debt, is good debt

alnorth
10-24-2005, 09:40 PM
Most people don't realize that on a $700 mortgage payment..they're only knocking 45/month off the principal....and paying that extra 75/month will take YEARS off of the debt not counting the extra interest you're not paying.

I'll have to disagree for my personal choice...no debt, is good debt

For a typical 100,000 home, a monthly payment of 700 that pays only 45 principle (and 655 interest) on the 1st payment implies a monthly effective rate of 0.655% interest, which works out to a nominal rate of about 8%. 45 principle out of 700 also implies a loan that was amortized 30 years or longer.

In that case, its a no-brainer. Pay extra on the loan to retire that 8% 30-year debt quicker.

However, if youve got a nominal 3% rate (so 0.25% effective monthly) 30-year loan on a 100,000 home, your payments will be about $420. (If the payments are that low, it probably shouldnt be stretched out to 30 years)

Option a) pay an extra $280/month to make it an even 700.

Option b) Pay the minimum 420, and put the extra 280 into a conservative investment that earns 6%, with a 2% fee upon sale.

Option a) you pay the home off early after 14 years and 9 months

Option b) after 14 years and 9 months you owe $61,853. Your investment has reached $79,388.24. If you sell today you have $77,800.48 after fees. If you take out more for capital gains, you are still significantly ahead. You probably could have bought the house 2-3 years earlier if you intended to sell the investment as soon as it = outstanding balance.

Increase the fees a little or make them front-loaded if you like. If the interest on the loan is extremely low (~3%) and you can get a reasonable return on investments, (~6+%) youll still come out ahead by paying the minimum and investing the extra you were going to add to the loan payment.

Again, this only works if you have the discipline to follow through.

When the interest gets to the 8% implied by your example though, youd have to do unbelievably well to out-perform your loan's interest rate, youd be better off taking the safe route and paying off the loan faster in that situation.

KingPriest2
10-26-2005, 01:37 PM
Most people don't realize that on a $700 mortgage payment..they're only knocking 45/month off the principal....and paying that extra 75/month will take YEARS off of the debt not counting the extra interest you're not paying.

I'll have to disagree for my personal choice...no debt, is good debt


or you can just divide that payment in two and do biweekly payments.

KingPriest2
10-26-2005, 01:38 PM
For a typical 100,000 home, a monthly payment of 700 that pays only 45 principle (and 655 interest) on the 1st payment implies a monthly effective rate of 0.655% interest, which works out to a nominal rate of about 8%. 45 principle out of 700 also implies a loan that was amortized 30 years or longer.

In that case, its a no-brainer. Pay extra on the loan to retire that 8% 30-year debt quicker.

However, if youve got a nominal 3% rate (so 0.25% effective monthly) 30-year loan on a 100,000 home, your payments will be about $420. (If the payments are that low, it probably shouldnt be stretched out to 30 years)

Option a) pay an extra $280/month to make it an even 700.

Option b) Pay the minimum 420, and put the extra 280 into a conservative investment that earns 6%, with a 2% fee upon sale.

Option a) you pay the home off early after 14 years and 9 months

Option b) after 14 years and 9 months you owe $61,853. Your investment has reached $79,388.24. If you sell today you have $77,800.48 after fees. If you take out more for capital gains, you are still significantly ahead. You probably could have bought the house 2-3 years earlier if you intended to sell the investment as soon as it = outstanding balance.

Increase the fees a little or make them front-loaded if you like. If the interest on the loan is extremely low (~3%) and you can get a reasonable return on investments, (~6+%) youll still come out ahead by paying the minimum and investing the extra you were going to add to the loan payment.

Again, this only works if you have the discipline to follow through.

When the interest gets to the 8% implied by your example though, youd have to do unbelievably well to out-perform your loan's interest rate, youd be better off taking the safe route and paying off the loan faster in that situation.

I have been doing mortgages for over 5 years. I have never seen a fixed 3% rate.

sedated
10-26-2005, 01:45 PM
also don't buy cars, lease them, much lower payments, get a new car every 2 or 3 years...

...except you are never without a car payment.

I have a car loan now, and when that's done I won't have fork over that monthly check for 5-10 more years.

How much will that lease cost you over those years? (but you will have a newer car)

Iowanian
10-26-2005, 01:50 PM
I don't claim to be a financial/investment genius. I'm always open to advice, but generally try to just use common sense.

My Personal theory on home mortgages is, If I want the 15 year payment, I'll get a 20-25 year note and make close to the 15 year payment. ALOT more comes off of principal for the same money.

In my case, not running up cc debt unless needed, only getting loans I need ,and paying them off early has worked out well. When I need a loan...banks fight for it. I bought a house in June, and had the money within 2 weeks for closing.

My intention is, to get most of my debt paid off, which for the most part, I now have, which sets me up with more capitol/month that I can save/invest for the long term. I'll probably work with short term money market stuff, with the intention to invest in land when I can and the oportunity arises. In the mean time, I put whats allowable in my matched work savings plan. Our vehicles are now paid, and my intent is that any further car purchase, to put a significant % down and "stay on top" of the value.

thats the Iowani-plan and probably won't work for everyone.

Calcountry
10-26-2005, 02:03 PM
In theory I agree with you. The reality is, I'll need a new car next summer. It doesnt have to be "new" as in 2006 model, but I need something very reliable and decent. I dont know if I'll be able to have $6,000+ banked by June. To make up for that, I plan on having a short-term loan of only 2-3 years. Taking out a 5-10 year loan for a car so that you can have small payments is stupid. I dont give a rat's ass what the payments are (within reason), as long as the interest is low and the duration of the payments are short, I care more about the dollars paid out at the end of the loan. All the extra interest you pay for 2-3 more years is money not invested or spent elsewhere. I'll seriously think about investing some extra money each month after this summer for the next 4-5 years to pay cash for the next car, though.

In other topics we are probably not far apart. I put away about $200/month (50% matched, so really $300/month) in an extremely diversified 401k with some moderate risk (at 28, I am still young enough to tolerate a lot of risk). I dont own a home or have a mortgage, I rent. I see absolutely no reason not to continue to rent as long as houses continue to be massively overpriced. Everyone is pre-programmed to buy a home as soon as they start making money, but the low price of rent is one of the best-kept secrets in America. In theory, a "fair" rent/month should be 1% of the home's value. Right now, in many places where I live, either the rent is about half the price it should be, home values are nearly twice as high as they should be, or a combination of the two. Even when you figure in the income tax deduction from paying interest, rent is a bargain right now.After this post, I checked where you are from. Obviously you don't live in California.

Amnorix
10-26-2005, 02:06 PM
thats the Iowani-plan and probably won't work for everyone.


Frankly, the Iowani-plan is a common sense plan that should work for nearly everyone.

One of the most amazing things about my (mid-30s) and younger generations is this incredible capacity for stupidity in fiscal management. "spend every dime you make, AND go into debt while you're at it, to live large" seems to be the rule of thumb. It boggles my mind. I know MANY people who are otherwise smart who consistently do unbelievably stupid things in terms of fiscal management.

And, of course, nobody wants any advice because they don't want to hear how they shouldn't be living large for today.

With Social Security restructuring a 100% certainty before my generation hits retirement age 30 years from now, I dont' even want to think of how these folks are going to avoid working until they're 75.

Andoverer
10-26-2005, 02:15 PM
Frankly, the Iowani-plan is a common sense plan that should work for nearly everyone.

One of the most amazing things about my (mid-30s) and younger generations is this incredible capacity for stupidity in fiscal management. "spend every dime you make, AND go into debt while you're at it, to live large" seems to be the rule of thumb. It boggles my mind. I know MANY people who are otherwise smart who consistently do unbelievably stupid things in terms of fiscal management.

And, of course, nobody wants any advice because they don't want to hear how they shouldn't be living large for today.

With Social Security restructuring a 100% certainty before my generation hits retirement age 30 years from now, I dont' even want to think of how these folks are going to avoid working until they're 75.

You are so right on the money (pun intended).
"Live on less than you earn" is foul mouth language to some people.
For a great and eye-opening book read "The Millionaire Next Door". It is excellent and should be required reading. Our schools, sadly, don't teach the right ways to handle financial matters so when kids get their jobs the first thing they want to do is go into debt to buy their first car. I know, I did the very same thing.

Area 51
10-26-2005, 02:33 PM
I don't claim to be a financial/investment genius. I'm always open to advice, but generally try to just use common sense.

My Personal theory on home mortgages is, If I want the 15 year payment, I'll get a 20-25 year note and make close to the 15 year payment. ALOT more comes off of principal for the same money.

In my case, not running up cc debt unless needed, only getting loans I need ,and paying them off early has worked out well. When I need a loan...banks fight for it. I bought a house in June, and had the money within 2 weeks for closing.

My intention is, to get most of my debt paid off, which for the most part, I now have, which sets me up with more capitol/month that I can save/invest for the long term. I'll probably work with short term money market stuff, with the intention to invest in land when I can and the oportunity arises. In the mean time, I put whats allowable in my matched work savings plan. Our vehicles are now paid, and my intent is that any further car purchase, to put a significant % down and "stay on top" of the value.

thats the Iowani-plan and probably won't work for everyone.


I've used the same basic plan with a few modifications.

It works for me.

Andoverer
10-26-2005, 02:43 PM
High FICO scores don't indicate what wealth you may have or how brilliant you are with finances. Actually quite the contrary. It only indicates you like to borrow money time after time and are willing to make payments time after time. It's an "I love debt" score in reality.

Iowanian
10-26-2005, 03:05 PM
I don't see it that way, as I've only borrowed money in 4 categories...1.college loans 2. Car notes 3. home mortgage 4. refinance for capitol for remodel

I think the score shows 1 thing....if you pay your bills, and if you are good financial risk for any future loan. In no way do I think a good credit score indicates "wealth". We all know that a widow with 10mil in her mattress is wealthy, but if she never borrows, her score would be bad.

1 Thing I DO want to do is keep-attain some cash capitol, at whatever level I can manage...be that $1k or 100K....so that when the people who ARE living beyond thier means, if interest rates go up....I'll be able to buy some of their bad investments...dirt cheap.

1 thing I'm making a concious effort to do, is make sure my wife maintains a high credit rating....getting some loans and a credit card in her name.....so that if something happens to me, she'll still have solid credit. Its also a good idea for those longtime housewives.....when they become widowed...the family/husband's credit doesn't automatically pass on.

rockchalkgirl
10-26-2005, 03:08 PM
I need to run a more recent credit report. I plan on upgrading to a new home next spring. What are some decent online sites?

A new federal statute that went into effect this year provides that you can get a free copy of your credit report from each of the three credit reporting agencies once every twelve months. Go to www.annualcreditreport.com and follow the links. Make sure that you link to each of the agencies through that website, or it won't be free.

Andoverer
10-26-2005, 03:17 PM
1 Thing I DO want to do is keep-attain some cash capitol, at whatever level I can manage...be that $1k or 100K....so that when the people who ARE living beyond thier means, if interest rates go up....I'll be able to buy some of their bad investments...dirt cheap.

And what better way to increase your wealth assets than by not making monthly payments to a lender. Save up money for a purchase, then get a big big bargain with that cash in hand. Make "payments" to yourself every month to build wealth instead of sending it to a lender every payday. It's a cycle that most people don't realize that if they break it they will begin to prosper. It's not an easy thing, because we've become a gotta have it now culture, and that mindset is causing most people in America to live broke all their lives because all their hard earned money is going to other people instead of to themselves.

Iowanian
10-26-2005, 03:31 PM
You pay for your house with Cash?

In theory you are right, however, young people have to start building thier station in life with intelligent debt. Its taken me 10 years of working my ass off, and in some cases severely restricting my 'fun money' to get to the point where I'm just now able to start considering your idea as a reality.