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Author: imsaving Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Real-Estate Leveraging Date: 8/29/2005 10:25 PM
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Everyone, what do you think about this?

1. I have an installment loan for $26,700 ($342.00/month for 15 years)

2. I have a car loan for $15,500. ($491.00/Month for 3 more years)

3. I have a $120,000 in equity of my house (which is paid for)


I'm thinking of consolidating both loans into a mortgage loan of $43000 for 30 years. That way I can leverage the house to deduct the interest off of my taxes at the end of the year. Also, it will give me a low payment of $253.00 per month.

With our income being $5,000 per month after taxes, I will stack up on a pretty good emergency fund and stack up on a majior liquid situation.

I already max out my 401K and 1 Roth IRA. I want to know your thoughts about my mortgage loan leveraging??

Thanks
imsaving
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Author: OldOne Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47476 of 74759
Subject: Re: Real-Estate Leveraging Date: 8/29/2005 10:33 PM
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Yoiur payment is going down primarily because you are exchanging relatively short-term debt for long-term debt.

Buying a car on a 30 year loan is not a good idea. The car will be rust & dust before the loan is paid off.

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Author: imsaving Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47477 of 74759
Subject: Re: Real-Estate Leveraging Date: 8/29/2005 10:50 PM
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I need to clear one thing up....

I plan to have at least $43000 in the bank to pay my loan off within the first 2 years (if I want to . Of course I'm dragging a car loan out....but you can't look at it thia way. There is good debt and bad debt. Since my house is payed for, don't you think it makes sense to consolidate? That's my question. Also, I always like to have liquid cash with a nice realized income...that's my goal. A great happy life all around.

Thanks
imsaving

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Author: Matt1344 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47478 of 74759
Subject: Re: Real-Estate Leveraging Date: 8/29/2005 10:59 PM
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"I want to know your thoughts about my mortgage loan leveraging??"

Hi imsaving,

Pay off the bills and leave your home mortgage free... If that $5K income is safe then the bills will get paid... I'd much prefer losing a car as apposed to having to sell my house due to financial reversals...

Also, too many folks end up right back where they were... hey it's only $XXX a month, I can handle that cause I only have that small mortgage payment... Wonder how many folks are paying off dead horses from refis to by "stuff/things" and owe more than the did before the refi???

Just my 2¢ worth.

Regards, Ken

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Author: theHedgehog Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47479 of 74759
Subject: Re: Real-Estate Leveraging Date: 8/29/2005 11:13 PM
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Also, too many folks end up right back where they were... hey it's only $XXX a month, I can handle that cause I only have that small mortgage payment.

Agreed. Many people would be better off just suffering along with 20% interest credit card debt rather than trading their house for cars and toys.

Hedge

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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47521 of 74759
Subject: Re: Real-Estate Leveraging Date: 8/31/2005 12:17 PM
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I plan to have at least $43000 in the bank to pay my loan off within the first 2 years (if I want to . Of course I'm dragging a car loan out....but you can't look at it thia way. There is good debt and bad debt. Since my house is payed for, don't you think it makes sense to consolidate?

You didn't tell us what the interest rates are on the various loans you already have, versus the proposed mortgage rate, so it's quite hard to come up with a good answer. For example, if you're paying 12% on the 15 year personal loan, then it might make sense to exchange that for a 5.5% mortgage rate.

In general though, if the interest rates aren't considerably far apart, it doesn't make sense to mortgage your stability and security just to save what might turn out (after mortgage closing fees and costs) to be very small dollars.

If you plan on having $43000 in the bank within 2 years, why couldn't you first use a portion of that to pay off the car loan, then use the extra savings that puts in your pocket to pay off the other loan?

2old


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Author: ToddW217 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47524 of 74759
Subject: Re: Real-Estate Leveraging Date: 8/31/2005 11:56 PM
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The point above regarding transaction costs/fees seems to be the biggest initial problem - someone in the mortgage business could probably provide a better estimate, but I'd guess anwhere from $1000-$4000 to refinance.

You are going to have to have an awfully large spread on the cost of your current loans vs a mortgage to make up that kind of difference.



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Author: imsaving Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47525 of 74759
Subject: Re: Real-Estate Leveraging Date: 9/1/2005 8:58 AM
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If you plan on having $43000 in the bank within 2 years, why couldn't you first use a portion of that to pay off the car loan, then use the extra savings that puts in your pocket to pay off the other loan?



The reason is because if I refinance and have a small payment, this will enable me to save the $43000 a lot easier within 2 years. If you notice above, I will cut my payments in half. That's why they call it leveraging.

Also the installment loan is secured with my home property with a 5.8% interest. The car loan is around 5% as well.

Interesting thoughts from all of you.

imsaving

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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47527 of 74759
Subject: Re: Real-Estate Leveraging Date: 9/1/2005 11:35 AM
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If you plan on having $43000 in the bank within 2 years, why couldn't you first use a portion of that to pay off the car loan, then use the extra savings that puts in your pocket to pay off the other loan?
**************
The reason is because if I refinance and have a small payment, this will enable me to save the $43000 a lot easier within 2 years. If you notice above, I will cut my payments in half. That's why they call it leveraging.


You are currently paying $833/mo on your loans. You're estimating the mortgage payment would be $253/mo. That's a difference of $580/mo multiplied by 24 months = $13,920. So if you intend on saving $43,000, you must contemplate saving an additional $29,000 from other sources during the 2 years, which is over $1200/mo.

Your car loan is $15,500. All I'm saying is to apply that $1200/mo first to the car loan. You should have that paid off within 1 year. That will reduce your monthly payments from $833 to $542. You can then use both the $491 regular payment on your car loan, plus the $1200 'other' savings money to pay down the personal loan, a total of ~$1700/month. That should pay off the remaining balance on the installment loan pretty quickly! (less than 2 years maybe?)

Also the installment loan is secured with my home property with a 5.8% interest. The car loan is around 5% as well.

As of this week, a 30 year fixed mortgage is 5.26%, so there is very little difference in interest rates among the various loans, and on a mortgage you would have to absorb closing costs and fees.

You might be trying to find a way to justify a decision you're already determined to make, but IMHO, the reasons you have given are just not good enough to gamble away your home.

Read the post below and you will see that I know of what I speak:

http://boards.fool.com/Message.asp?mid=22786802

2old


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Author: imsaving Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47532 of 74759
Subject: Re: Real-Estate Leveraging Date: 9/2/2005 8:30 AM
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I see your side of this as well. Thanks for the article that was interesting. Also, I figure that if I'm unable to make a $253.00 mortgage payment (in the end) I would need to be shot. But I guess anything can happen.

imsaving

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