Lower education standards in US colleges?

KRAM1 · January 17, 2014

Moral of the story: If you don't have a 15-yr note, or less, you are insane.

And, if you can, add a little extra prin payment to each of the payments you make...even $10 would make a big difference in how much in total you end up paying.
Congrats on making the correct decision with regards to your refinance. Great decision.

MDH · January 17, 2014

Though there were some horrible lending deals that banks signed knowing full well they were going to rake a borrower over the coals (think an ARM on a 30yr mortgage), I would say most of the issues were caused because people knowingly or unknowingly bit off more than they could chew.

I wouldn't mind some kind of class about family financial planning and lending being added to part of the core curriculum.
Side note: We refinanced our house recently. After pissing my pants when faced with the amortization schedule (now a law that you must see it before signing a note) on what we drafted up for a 30-yr note (we were going to save something like $250-300/mo! Great deal right? NO!), we backed out and found a 15-yr note that worked for us, for only a slightly higher monthly payment (like $30) than what we were paying before when we were some of the blissful youth who signed a mortgage we shouldn't have.

Moral of the story: If you don't have a 15-yr note, or less, you are insane.

Or anyone that's moderately experienced in investments. Most passively managed investment funds will beat your after tax cost of interest on a 30-year. No way would I sign a 15 year note and give up borrowing at what are still historically low interest rates. The average American would do best to go with a 15-year mortgage, especially when most (not saying you) don't know what a budget is so sucking up as much of their take home pay into principal repayment would be a good thing. You'd do better to pay a slightly higher rate on a 30 year and max out your employer sponsored and individual retirement account contributions.

Edited January 17, 2014 by MDH

KRAM1 · January 17, 2014

Or anyone that's moderately experienced in investments. Most passively managed investment funds will beat your after tax cost of interest on a 30-year. No way would I sign a 15 year note and give up borrowing at what are still historically low interest rates. The average American would do best to go with a 15-year mortgage, especially when most (not saying you) don't know what a budget is so sucking up as much of their take home pay into principal repayment would be a good thing. You'd do better to pay a slightly higher rate on a 30 year and max out your employer sponsored and individual retirement account contributions.

Not sure I can agree with you here. Most, and it has been proven, do not have the discipline to "invest the difference". This is the deal lots of insurance folks pitch...by term and invest the difference! Great idea...hardly ever followed. Most just buy the term and spend the difference. One can get a lower rate on a 15 year mortgage than they can a 30 year and the difference in total repay is quite significant.

However, one needs to decide if they are "simply renting" their own home to themselves or actually looking to purchase the home. If you are buying your first home...it will probably not be your last home. So, really different dynamics in play regarding finances. So, the "one size fits all" solution is usually worthless for everyone.

The decision on how to finance a home is actually a tad more complicated than most think. And, the options and parameters are pretty varied depending upon one's circumstances.

BTW...calculate the total repayment on a thirty year mortgage and then do the same on one with a "slightly higher rate". Might surprise you...can be a pretty significant amount depending upon your definition of "slightly higher". Now, cash flow is critical as well. Household bills are paid by cash flow, so...it's a balance, right? Anyway, I love working through this sort of personal financial question. Done quite a bit of "financial counseling" for folks through the years. Pretty fun...if the subject is willing to actually listen.

MDH · January 17, 2014

Not sure I can agree with you here. Most, and it has been proven, do not have the discipline to "invest the difference". This is the deal lots of insurance folks pitch...by term and invest the difference! Great idea...hardly ever followed. Most just buy the term and spend the difference. One can get a lower rate on a 15 year mortgage than they can a 30 year and the difference in total repay is quite significant.
However, one needs to decide if they are "simply renting" their own home to themselves or actually looking to purchase the home. If you are buying your first home...it will probably not be your last home. So, really different dynamics in play regarding finances. So, the "one size fits all" solution is usually worthless for everyone.
The decision on how to finance a home is actually a tad more complicated than most think. And, the options and parameters are pretty varied depending upon one's circumstances.
BTW...calculate the total repayment on a thirty year mortgage and then do the same on one with a "slightly higher rate". Might surprise you...can be a pretty significant amount depending upon your definition of "slightly higher". Now, cash flow is critical as well. Household bills are paid by cash flow, so...it's a balance, right? Anyway, I love working through this sort of personal financial question. Done quite a bit of "financial counseling" for folks through the years. Pretty fun...if the subject is willing to actually listen.

Fine, anyone with financial acumen and an above moderate risk appetite We both agree that most Americans shouldn't do this - just stating the academic reason of my "insanity" in not taking the 15 year. It's no wonder we don't agree, I'm in the buy term and invest the difference camp for my clients, and I do have a little bit more control over what they do than your average planner. I've yet to meet an insurance man that wouldn't rather sell the universal/variable policy over term, the commissions on the large universal/variable/permanent policies put a lot of them through retirement! Let's settle on maximizing retirement plan contributions, how say you Mark?

MeanGreenTexan · January 17, 2014

Or anyone that's moderately experienced in investments. Most passively managed investment funds will beat your after tax cost of interest on a 30-year. No way would I sign a 15 year note and give up borrowing at what are still historically low interest rates. The average American would do best to go with a 15-year mortgage, especially when most (not saying you) don't know what a budget is so sucking up as much of their take home pay into principal repayment would be a good thing. You'd do better to pay a slightly higher rate on a 30 year and max out your employer sponsored and individual retirement account contributions.

Or maybe even better if I pay a much lower rate on a 15 yr note AND max out my 4% employer contribution? Key is, my house isn't too expensive (because we bought big a long time ago and didn't move after I got promotions). It's not about what we could borrow... that to me, is what gets people in trouble.

oldguystudent · January 17, 2014

Personal finance might trump religion and politics as the most verboten topic of conversation at a dinner party. Nobody wants to admit to any errors, and everybody is an expert.

oldguystudent · January 17, 2014

I guess I'll add that while long-term financial strategies are best left to different strokes for different folks, everybody should be educated enough to understand the concept of compound interest and not get bent over and rammed with a splintery dowel by credit card companies and/or usury payday loan scams.

The Fake Lonnie Finch · January 17, 2014

Just, buy low and sell high.

oldguystudent · January 17, 2014

and sell high.

But you JUST said that marijuana is for losers!

KRAM1 · January 17, 2014

Personal finance might trump religion and politics as the most verboten topic of conversation at a dinner party. Nobody wants to admit to any errors, and everybody is an expert.

Maybe at your dinner party! I rather enjoy discussing various personal strategies...as do many of my Friends and it is often a dinner topic discussion. But, our rule is...you play the "holier than thou" guy and you buy dessert for the table! Seems to have worked fine for the last 20 years or so. Different strokes for different folks as everyone has a different set of financial priorities due to age, experience, risk appetite, etc.

But, our sports conversations and kid conversations and politics...now that gets interesting. ha! We stay way away from religion. If you knew the group you would know why...finance is much much safer! ha!

Quoner · January 17, 2014

My god...think of all the deserts we are all owed. WE'RE RICH AND WE ALL HAVE DIABETES!

oldguystudent · January 18, 2014

Religion and finance. Jesus saves! But Moses invests!

KRAM1 · January 18, 2014

My god...think of all the deserts we are all owed. WE'RE RICH AND WE ALL HAVE DIABETES!

Oh, I don't know...in that crowd you might be the one doing the owing! Who knows? Come join us sometime and see if you can keep up....pretty interesting group. We could use some "young blood".

KRAM1 · January 18, 2014

Religion and finance. Jesus saves! But Moses invests!

Blasphemy!

Censored by Laurie · January 18, 2014

Oh, I don't know...in that crowd you might be the one doing the owing! Who knows? Come join us sometime and see if you can keep up....pretty interesting group. We could use some "young blood".

new guy brings the fishbowl.