bye bye, sweet brz.

[Coachrhino11]

Originally Posted by Irace86.2.0

Yea, that would be hard to swallow because, like you said, you pay the interest up front. If paying it off faster make someone feel better to have that off their books then that is good. That person has some different types of flexibilities, but what they aren't doing is saving as much as that same person who put money into a home and house. Like I said, not only is the return likely to be higher than the interest paid on a home loan, but the money is growing at compound interest, which is highly dependent on time. The later example would grow the compound interest over 30 years versus the 15 years for the person who paid off their home early then started saving.

Example:

Person 1:

--Buys a home for $200k at 5% interest for 15 years.
--Pays $1582/month for a total of $284,686 over 15 years.

--Invests $1582/month after that into the market at 8% return over 15 years.
--401k/ira balance after 15 years is $522,407

Person 2:

--Buys a home for $200k at 5% interest for 30 years.
--Pays $1074/month for a total of $386,512 over 30 years.

--Invests $508/month (the difference between a 15 and 30 year loan) into the market at 8% return for 30 years.
--401k/ira balance after 30 years is $718,197.

Moral of the story: compound interest. Person 2's home is worth the same amount of money after 30 years as Person 1's home, so don't be confused by the total amount paid for the home. They both have a home worth X; they both were paying $1582 a month for 30 years. Person 2 walked away with an extra $195,790 by investing for longer time because of compound interest, and because they made that 3% difference between the 5% loan and the 8% market for a long time too.

Edit note: The 15% loan would likely have a lower interest rate like 4.5%, but the difference wouldn't offset the numbers enough to change the point.

I like this and completely agree with most but unfortunately most will not actually invest difference and we know that. Also, the interest on mortgage is guaranteed savings, the hypothetical 8% market return is well...hypothetical and is risk. I completely understand your thought and overall agree. But my wife is very conservative financially and hates risk. I invest our retirement funds thank goodness. She takes care of day to day money in and money out thank goodness!

[e30kawi]

Originally Posted by Irace86.2.0

Yea, that would be hard to swallow because, like you said, you pay the interest up front. If paying it off faster make someone feel better to have that off their books then that is good. That person has some different types of flexibilities, but what they aren't doing is saving as much as that same person who put money into a home and house. Like I said, not only is the return likely to be higher than the interest paid on a home loan, but the money is growing at compound interest, which is highly dependent on time. The later example would grow the compound interest over 30 years versus the 15 years for the person who paid off their home early then started saving.

Example:

Person 1:

--Buys a home for $200k at 5% interest for 15 years.
--Pays $1582/month for a total of $284,686 over 15 years.

--Invests $1582/month after that into the market at 8% return over 15 years.
--401k/ira balance after 15 years is $522,407

Person 2:

--Buys a home for $200k at 5% interest for 30 years.
--Pays $1074/month for a total of $386,512 over 30 years.

--Invests $508/month (the difference between a 15 and 30 year loan) into the market at 8% return for 30 years.
--401k/ira balance after 30 years is $718,197.

Moral of the story: compound interest. Person 2's home is worth the same amount of money after 30 years as Person 1's home, so don't be confused by the total amount paid for the home. They both have a home worth X; they both were paying $1582 a month for 30 years. Person 2 walked away with an extra $195,790 by investing for longer time because of compound interest, and because they made that 3% difference between the 5% loan and the 8% market for a long time too.

Edit note: The 15% loan would likely have a lower interest rate like 4.5%, but the difference wouldn't offset the numbers enough to change the point.

I get what you are saying and yes it makes good sense in ways, but I am of a similar mind set as dadhawk and want to minimize that debt quicker with paying less interest, I also pay more than necessary, should take me ten years to pay off my new loan. Refinancing to consolidate some debt and lower my payments required and saves a ton on interest at the new rate.

Ultimately it's up to the individual and people really need to do the research and go with what works for them. But I like most people, are open to suggestion, and kind of mirror some of what you're saying. I was lucky enough to buy well within my means so paying extra on a fifteen year note and still sticking a comfortable amount of money into retirement and savings for a rainy day. It's nice to be able to still enjoy life and still plan for retirement, but retirement isn't guaranteed.

Kinda unrelated, but my outlook changed quite a bit about two years ago. Was in a bad motorcycle accident that I'm still recovering from. Luckily no head injuries or internal stuff but if I'd have been a foot to the right I probably wouldn't be here, so I want to also enjoy my life with my wife while we're still here, so having fun money to spend is essential.

[Irace86.2.0]

Originally Posted by Dadhawk

You are forgetting the part where Person1 in your example has a paid for house for 15 years, eliminating a huge risk in their life (they now have a roof over their head regardless of what else happens except straight up financial collapse on their part) and that completely changes how you do things, and how you sleep at night, and it creates flexibility.

For example, if both want to move at year 16 (or year 5 for that matter), there is a major difference in the amount of equity available to roll into a new house.

Each person has to decide for themselves what the long-term goal is, and what they are most comfortable with in the long term.

This is true. It is all in what feels best. Some might want to have a home paid for in full after 15 years, something they may be able to liquidate if necessary. Others may want to have partial equity to liquid and have 15 years worth of investment/savings, and those same would be horrified of the idea of not havings savings. It all depends.

The reason why the rich get richer is because they can just do what results in the most money most of the time. Surprisingly huge companies like Walmart borrow money all the time to invest in projects instead of paying cash when they have the cash to spend. Why? Because it is better to invest with someone else’s money, so that’s what they do. Likewise, it is best to take the 30 year loan and invest using “someone else’s money”, but I can see your perspective.

[Dadhawk]

Originally Posted by Coachrhino11

Nice, the Dave Ramsey way, lol

Well, I have personally done this multiple times, going back well before most folks had heard of Dave Ramsey, but yes it is the method he often tells listeners about.

[ame="https://www.youtube.com/watch?v=xcw4IqvGfpE"]Drive Free Cars - YouTube[/ame]

First time I did it was when I was 16, and did multiple rollovers in 3 years. I went from driving a $300 Dodge to a $5,000 nearly new Honda Civic Wagon (this was mid 70s) flipping 5 cars during that time and never had a car payment.

[Coachrhino11]

Originally Posted by Dadhawk

Well, I have personally done this multiple times, going back well before most folks had heard of Dave Ramsey, but yes it is the method he often tells listeners about.

First time I did it was when I was 16, and did multiple rollovers in 3 years. I went from driving a $300 Dodge to a $5,000 nearly new Honda Civic Wagon (this was mid 70s) flipping 5 cars during that time and never had a car payment.

As much as I like Dave Ramsey, I do disagree with many of his assumptions. I disagree with his 12% return every year, I disagree about being able to sell car a year later for same amount after driving for year, nonsense. I’d rather put about half down, pay off super early like I generally always do. Never had a 475 month car payment because we always throw good chunk down and pay essentially no interest because how quick we pay off loan. I paid less than $100 interest on my ‘17 Jeep we paid off in December.

[Dadhawk]

Originally Posted by Coachrhino11

As much as I like Dave Ramsey, I do disagree with many of his assumptions. I disagree with his 12% return every year, I disagree about being able to sell car a year later for same amount after driving for year, nonsense. I’d rather put about half down, pay off super early like I generally always do. Never had a 475 month car payment because we always throw good chunk down and pay essentially no interest because how quick we pay off loan. I paid less than $100 interest on my ‘17 Jeep we paid off in December.

Yea, Ramsey's stuff can be a little too optimistic but some of it is just common sense and simple enough for folks that don't want to spend every hour of the day worrying about finances can still get ahead.

As far as the 12%, it's more of a long haul thing than a "year to year" but it can be done. I've got several funds in my 401K that have done that or better over the past 10 years even with downturns. Last year obviously helped that (some of them had >30% last year)

As far as selling a car a year later for the same price, you can on the low end of the market. I've done it myself, and have had a couple of occasions where I've driven a car for a year or more and sold it for more than I paid for it.

No, it won't happen with a new car, or even a car two or three years old, but once you get over five, the price becomes relatively stable over a 12 month period. Of course, with a lot of things the money is made at the buy not the sell.

[Coachrhino11]

Originally Posted by Dadhawk

Yea, Ramsey's stuff can be a little too optimistic but some of it is just common sense and simple enough for folks that don't want to spend every hour of the day worrying about finances can still get ahead.

As far as the 12%, it's more of a long haul thing than a "year to year" but it can be done. I've got several funds in my 401K that have done that or better over the past 10 years even with downturns. Last year obviously helped that (some of them had >30% last year)

As far as selling a car a year later for the same price, you can on the low end of the market. I've done it myself, and have had a couple of occasions where I've driven a car for a year or more and sold it for more than I paid for it.

No, it won't happen with a new car, or even a car two or three years old, but once you get over five, the price becomes relatively stable over a 12 month period. Of course, with a lot of things the money is made at the buy not the sell.

Agree. I like him overall even if I don’t always follow steps exactly. I’ve been getting good returns too but the average person is NOT getting 12% average long term, not even 8. Any fund that gained 30% or more last year lost much more in 2008. I like to sleep at night and stay balanced overall, not complaining. Yeah, you are right about older cars and money being made on buy, not sell.