a Different kind of thinking ....... 401K plan, house payments etc

datamax · 03-17-2005, 09:10 AM

Do you have a home mortgage ? At what % rate ?

Do you invest in 401K ?

Would it be better to invest that 401K money into the equity of your home ? Would you be better off in the long run doing so ?

Also ...... you live 30 miles from work. We know that the further away from cities as a rule the less expensive the property. 30 miles, 60 miles round trip, 300 miles a week. Your car gets 20 MPG = 15 gallons of gas = $ 30 a week, $120 a month.

If you moved 15 miles CLOSER to town, you'd save $60 a month on gas alone on your commute. $60 a month could get you into a home as nice as you're currently in, but overall a more expensive mortgage because of the difference in property value. In essence, you're spending the same, except the gas money equalizes your mortgage.

I have 750 +/- shares of FON stock. If I sell and put that $18,000 towards the equity of my home, will the "savings" on the intrest I'd have paid on my 30 year mortgage "outperform" the potential that FON stock could do in the financial markets over the next 10 years ?

Do ya'll see what I'm getting at ? Most people are so stuck on investing in 401K ...... yet can it be better invested in say, a home mortgage ? People love to move "out" and drive to work, yet is it really cheaper to do that ? Any other thoughts on outside the box ideas like this ?

bawanajim · 03-17-2005, 09:16 AM

Drop the thirty year note to fifteen. It will save you a forfune in intrest. Sell some of your stock to keep the same payments & you'll be way ahead.

Tazman · 03-17-2005, 09:19 AM

Good questions stealthymax, I for one moved further out in order to be able to get into a decent house, I live about 50 miles south of DC and in this area 10 miles closer to DC translates into a whole lot larger mortgage payment then one would save in gas, of course another factor far more important to me and my family is/was to get the heck away from all the congestion near DC, I sit on my back deck and I am out in the country, if I wish to see suburbia I sit on my front porch.

In regards to the 401K deal I only put what my company matches into mine resulting in an immediate 100% return on my 401K investment. However I feel you are correct in saying that money put into a home/property will get a larger return then money put into a non-matched 401K account.

etothepii · 03-17-2005, 09:26 AM

Quote:

I have 750 +/- shares of FON stock. If I sell and put that $18,000 towards the equity of my home, will the "savings" on the intrest I'd have paid on my 30 year mortgage "outperform" the potential that FON stock could do in the financial markets over the next 10 years ?

If you sell the stock, you'll have to pay income tax.

Your house will appreciate at the same rate, regardless of your amount of equity.

Moving closer to work--if it's in an appreciable neighborhood, sounds like a good idea.

charlie brown · 03-17-2005, 09:30 AM

Yeah, I agree. Drop the 30 year note. I just got approved for 75,000 pre-approval, good for one year. At 50,000, my payments would be about $410/month all inclusice (principal, interest, taxes, insurance) for a 30 year loan. The same set-up for 15 years would be $506. The difference $147,000 - 91,000 = $56,000 in interest!!!! Thats only for a $50,000 loan. I am sure the savings would be somewhere in the general area of equal to the loan at $75,000 too. I would look at two things if I were you. How long do you plan to stay where you are. See, for me, at 21 years old, it would make good sense for me to buy a house right now. The mine is going to be starting production here quick, so I could buy the house, and when the boom hit, either sell it or rent it out if I felt the need, and make a comfortable profit. I don't plan on staying here forever. So ask yourself how long do you want to stay. Are you going to be there for quite a while? If so, it would do you no good to put all that equity into your home to increase the value. UNLESS... you were to re-finance, and drop that 30 year note to 15, but the value of your home isn't worth what you have to pay off. Then sell the stocks you need, put it into equity in your house, re-finance, and save all the money on interest anyway, and be able to sink whats left into the 401k. I am not quite familiar with the outside source, financial bit, so I can't help you out. All I know is I don't pay into SS, and I have a state retirement system that I can draw 90% of my last paycheck at 25 years service (46 yoa for me) as long as I stay in the state retirement system.

datamax · 03-17-2005, 09:40 AM

Okay, heres my immediate situation.

$150,000 mortgage and I'll lock it in for 30 years and buy points down to 5.5 %

When I sell my house, I'll but $65,000 towards this mortgage.

In light of that, still do 30 or 15 ? I like the idea of having low payments in case anything happens with my job. And if I drop $65,000 into the quity, haven't I in essence reduced my mortgage to 15 years or less anyway ?

Quote:

All I know is I don't pay into SS, and I have a state retirement system that I can draw 90% of my last paycheck at 25 years service (46 yoa for me) as long as I stay in the state retirement system.

Sweet man. I wish I could have access to a plan like that [:@][:@]

ricoace · 03-17-2005, 09:43 AM

Before Dec 8 2004, I would have been able to contribute to this topic with some pretty good input...now All I can say in responce, is work hard, save anyway you want, take vacations and be grateful for everyday you can wake up and see the sun...It may be your last time.

Chilidog · 03-17-2005, 09:43 AM

Data, those are all important parts of the problem to consider but you left out what some consider the most important part.

It's not all about money.

Quality of life. That can include the schools, crime rate and simply the setting and demographics of the neighborhood. How will they effect you and your family. How will it effect the your lives over time? Where would you rather live when you are not working?

Also, what is the appreciation rate of the two currently equal properties over the period of the mortgage?
You also failed to mention the comparative property tax rates and one would have to do the income tax comparison to be thorough.

Its not so much as a different way of thinking as it is the proper way to approach any situation. Weigh all the factors.

charlie brown · 03-17-2005, 09:48 AM

Can you take that $65,000 and place it in an interest bearing fund that allows you to only take out so much per month? I was also told when I was talking to the mortgage guy, that if you pay a double payment every month, you would pay off a 30 year loan in about 23 years. Who knows how long on a 20 year loan. If you could set up an interest bearing account, to draw only the amount of your mortgage payment, and then draw only that much, and put into your mortgage, then you would be set. Or, get a 15 year note, and pay it off even sooner by sinking that $65,000 into the mortgage right away.

Charley · 03-17-2005, 09:51 AM

My employer matches 25% on 401Ks, up to 6%. I'm vested, so I make 25%, right off the bat. Managed a 16% return on investments last year, so mine has proformed well.
Do have a 30 year mortgage, but paying on a bi-weekly plan. Equivalent to 1 extra payment per year, but off the principal. Doing this, a 30 year note will be paid in 22 years, with a substantial intrest saving.

Planning on moving within five years? Look into an intrest only mortgage, if you buy in an area where homes appreciate ahead of inflation. Let the appreciation build your equity, and use your cash for other investments.