vania-janet/multiturn-rag-retrieval-data huggingface dataset:
"The main disadvantage is that interest rates are higher for the interest-only loan. It's higher risk to the bank, since the principal outstanding is higher for longer.  According to the New York Times, ""Interest rates are usually an eighth- to a half-percentage point higher than on fully amortized jumbo loans."" They're also tougher to qualify for, and fewer lenders offer them, again due to the risk to the bank. Since you can always put extra towards the principal, strictly speaking, these are the only  downsides. The upside, of course, is that you can make a lower payment each month. The question is what are you doing with this? If this is the only way you can afford the payments, there's a good chance the house is too expensive for you. You're not building equity in the home, and you have the risk of being underwater if the house price goes down. If you're using the money for other things, or you have variable income, it might be a different story. For the former, reinvesting in a business you own might be a reason, if you're cognizant of the risks. For the latter, salespeople on commission, or financial industry types who get most of their income in bonuses, can benefit from the flexibility."
, it means that you're probably not ready to worry about some of the things other posters have talked about, such as Cost of Capital and ROI. So keep reading blog posts and articles online (there's no shortage of them), and keep developing your understanding of the options available to you and their pros and cons, and wait to tackle the full suite of investment options till you fully understand them. However, there's still the question of what to do between now and then. Paying the mortgage down isn't an unreasonable thing for you to do for now, since it's a guaranteed rate of return that also provides some degree of emotional payoff. But I'd say the higher priority should be getting money into a tax-advantaged retirement account (a 401(k)/403(b)/IRA), because the tax-advantaged growth of those accounts makes their long-term return far greater than whatever you're paying on your mortgage, and they provide more benefit (tax-advantaged growth) the earlier you invest in them, so doing that now instead of paying off the house quicker is probably going to be better for you financially, even if it doesn't provide the emotional payoff. If your employer will match your contributions into that account, then it's a no-brainer, but it's probably still a better idea than the mortgage unless the emotional payoff is very very important to you or unless you're nearing retirement age (so the tax-free growth period is small). If you're not sure what to invest in, just choose something that's broad-market and low-cost (total-market index funds are a great choice), and you can diversify into other things as you gain more savvy as an investor; what matters more is that you start investing in something now, not exactly what it is. Disclaimer: I'm not a personal advisor, and this does not constitute investing advice. Understand your choices and make your own decisions."
The fact that you want to look for a home within the next 2 years (and the lack of 401(k) match) leads me to suggest saving for the house as top priority. A VA loan for that purchase. The VA loan has a very low up front fee, but a new home is always going to come with expenses that can add up. Better to have as much liquidity as you can. If you have a lot of cash after the move in and furnishings, it won't be tough to choose a high savings rate to jump start the retirement plan. Thank you for your service.
The value of debt is that it allows you to profit from the return of equity beyond the amount of actual net equity you own. Of course, this only works if the cost of borrowing is less than your return on equity. Market timing matters a great deal but isn't accounted for in this view. For my answer I would like to hand-wave away market timing considerations. One plausible justification is that you could default on your current home and then immediately go buy one of equal value. If you buy a new home of a lesser value (due to lack of funds) and then prices appreciate, then you missed some opportunity cost but probably not $100k worth of it. Moving on, here are some helpful assumptions I'll make. I'll ignore performance of your portfolio after retirement and only seek to optimize F, which will be your net worth upon retirement. In either case, your current net worth is earning the R2 rate. We can convert this for both your current net worth and future savings using conversion formulas. Present to future value F = P (1+R2)^x Annual to future value F = S ( (1+R2)^x - 1 ) / R2 Adding these together is sufficient to obtain F in the case that you have no borrowing power. The case where you do not default and maintain your credit score is different due to an initial $100k penalty and the amortized value of borrowing power. In a completely theoretical sense, you get an effective (R2-R1) yield on all borrowed money. The future value will be the following: F = A1 (1+R2-R1)^x One step is missing, however, which is to convert this value (the value of having a good credit score) into present value to compare to value of your defaulting. P of borrowing power = F / (1+R2)^x = A1 { (1+R2-R1)/(1+R2) }^x Now, let's put some specific values in. Say that you can borrow $300k with your good credit history and this applies for the next 25 years, after which you retire. The borrowing rate is 7% and the time-value of money to you is 10%.
Risk.  That's it.  No guarantees on the fund performance, while the mortgage has a guaranteed return of -3%.  I'm doing this very thing.  Money is cheap, I think it's wise to take advantage of it, assuming your exercise proper risk management.
Thanks for your service. I would avoid personal investment opportunities at this point. Reason being that you can't personally oversee them if you are deployed overseas. This would rule out rentals and small businesses. Revisit those possibilities if you get married or leave the service. If you have a definite time when you would like to purchase a car, you could buy a six or twelve month CD with the funds that you need for that. That will slightly bump up your returns without taking much risk. If you don't really need to buy the car, you could invest that money in stocks. Then if the stock market tanks, you wait until it recovers (note that that can be five to ten years) or until you build up your savings again. That increases your reward at a significant increase in your risk. The risk being that you might not be able to buy a car for several more years. Build an emergency fund. I would recommend six months of income. Reason being that your current circumstances are likely to change in an emergency. If you leave the service, your expenses increase a lot. If nothing else, the army stops providing room for you. That takes your expenses from trivial to a third of your income. So basing your emergency fund on expenses is likely to leave you short of what you need if your emergency leaves you out of the service. Army pay seems like a lot because room (and board when deployed) are provided. Without that, it's actually not that much. It's your low expenses that make you feel flush, not your income. If you made the same pay in civilian life, you'd likely feel rather poor. $30,000 sounds like a lot of money, but it really isn't. The median household income is a little over $50,000, so the median emergency fund should be something like $25,000 on the income standard. On the expenses standard, the emergency fund should be at least $15,000. The $15,000 remainder would buy a cheap new car or a good used car. The $5000 remainder from the income standard would give you a decent used car.
The answer can depend greatly on whether the interest on a mortgage for the house you live in is tax deductible in the country you are in (I assume the mortgage is on the house you live in and not an investment property). It will also depend on the difference between the mortgage interest rate and the return of the unit trust, your income and your tax rates. In essence you would need to do a cost-benefit analysis to figure out which option would provide the bigest financial benefit, considering the different rates, your income and your tax rates. Basically, if you can get a better return from the unit trust than the mortgage interest rate and you can claim a tax deduction for the mortgage interest payments, then you may be better off investing in the unit trust rather than putting extra repayments into the mortgage.
"You've laid out several workable options.  You might try going to mortgage broker and looking at what offers you get each way.  I can say that it sounds like your partner will have a difficult time qualifying for a mortgage.  That puts you on the first and third options. Forget about ""building equity.""  You cannot rely on the house you're living in to provide a return on investment.  Housing is an expense, even if you own it outright.  Keep that in mind when you consider taking from the stream of money contributing to your retirement. This link is to a blog which really clarifies the ""rent vs. own, which is better?"" question.  The answer is, it depends on the individual and the location, and the blogger in the link explains how to answer that question for your situation.  One of the key advantages of ownership is that it gives you freedom to modify the interior, exterior, and grounds (limited by local building codes of course.)"
Military Real Estate is your source for relocation information, rental information and home purchase information for properties located around the many military bases nationwide. Our partners have realtors and property managers with experience working directly with military members, as well as expertise in the VA loan process.
This approach has backfired for thousands of people who are underwater on their homes. This problem is often compounded by job loss forcing you to move, or increasing your commute, making your home less desirable for you. Some people will tell you to maintain the mortgage for the tax credit. This fails a basic math test since you only get about a quarter of the money (depending on your tax rate) that you are paying in interest back from the government. The rest of the money goes to bank at no gain to you. This approach is basically a taxpayer subsidized decrease of your 4% interest payment to a 3% interest payment (assuming you have ~ $5000 in other deductions), and only pays off if you can successfully invest the money at a rate somewhat greater than 3%.
Your math is not wrong. That's why banks want these points. They did the same math too. There may be some immediate tax advantages for points though, in that case you can get return of your tax rate for the year of the points (which may make it worth it, if you don't want to keep the mortgage for more than, say, 10 years). Check here for details.
"There are a few of ways to do this: Ask the seller if they will hold a Vendor Take-Back Mortgage or VTB. They essentially hold a second mortgage on the property for a shorter amortization (1 - 5 years) with a higher interest rate than the bank-held mortgage. The upside for the seller is he makes a little money on the second mortgage. The downsides for the seller are that he doesn't get the entire purchase price of the property up-front, and that if the buyer goes bankrupt, the vendor will be second in line behind the bank to get any money from the property when it's sold for amounts owing. Look for a seller that is willing to put together a lease-to-own deal. The buyer and seller agree to a purchase price set 5 years in the future. A monthly rent is calculated such that paying it for 5 years equals a 20% down payment. At the 5 year mark you decide if you want to buy or not. If you do not, the deal is nulled. If you do, the rent you paid is counted as the down payment for the property and the sale moves forward. Find a private lender for the down payment. This is known as a ""hard money"" lender for a reason: they know you can't get it anywhere else. Expect to pay higher rates than a VTB. Ask your mortgage broker and your real estate agent about these options."
I like this option, rather than exposing all 600k to market risk, I'd think of paying off the mortgage as a way to diversify my portfolio. Expose 400k to market risk, and get a guaranteed 3.75% return on that 200k (in essence). Then you can invest the money you were putting towards your mortgage each month.  The potential disadvantage, is that the extra 200k investment could earn significantly more than 3.75%, and you'd lose out on some money. Historically, the market beats 3.75%, and you'd come out ahead investing everything. There's no guarantee. You also don't have to keep your money invested, you can change your position down the road and pay off the house. I feel best about a paid off house, but I know that my sense of security carries opportunity cost. Up to you to decide how much risk you're willing to accept. Also, if you don't have an emergency fund, I'd set up that first and then go from there with investing/paying off house.
"A primary residence can be an admirable investment/retirement vehicle for a number of reasons. The tax savings on the mortgage are negligible compared to these.  A $200,000 mortgage might result in a $2000 annual savings on your taxes -- but a $350,000 house might easily appreciate $20,000 (tax free!) in a good year. Some reasons to not buy a larger house. Getting into or out of a house is tremendously expensive and inconvenient.  It can make some life-changes (including retirement) more difficult. There is no way to ""diversify"" a primary residence.  You have one investment and you are a hostage to its fortunes.  The shopping center down the street goes defunct and its ruins becomes a magnet for criminals and derelicts?  Your next-door neighbor is a lunatic or a pyromaniac?  A big hurricane hits your county?  Ha-ha, now you're screwed.  As they say in the Army, BOHICA: bend over, here it comes again. Even if nothing bad happens, you are paying to ""enjoy"" a bigger house whether you enjoy it or not.  Eating spaghetti from paper plates, sitting on the floor of your enormous, empty dining room, may be romantic when you're 27.  When you're 57, it may be considerably less fun. Speaking for myself, both my salary and my investment income have varied wildly, and often discouragingly, over my life, but my habit of buying and renovating dilapidated homes in chic neighborhoods has brought me six figures a year, year after year after year. tl;dr the mortgage-interest deduction is the smallest of many reasons to invest in residential real-estate, but there are good reasons not to."
A second mortgage is a loan taken out on your house while you still have another mortgage secured by your house. They are a secured loan as they use the borrower’s home as security. Some advantages of Second Mortgages: Some important points to consider when you take a second mortgage If you stop making payments, your lender will be able to take your home through foreclosure, which can cause serious problems for you and your family. Second mortgages can be expensive. You’ll need to pay numerous costs for things like credit checks, appraisals, origination fees, and more. The mortgage rates are typically lower than credit card interest rates, but they’re often slightly higher than your first loan’s rate.
I think a simplified version of what you are asking is how much benefit you will receive from lower mortgage payments on your future $400k (roughly) home loan by having a higher credit score than now, and whether taking a car loan now will increase that benefit more than the value of the car loan. Since you already know the cost to you of the car loan, the other two thing you need to know in order to answer that question are: 1- the amount of increase a car loan gives your credit score, and 2- how much lower your mortgage interest rate will be with a higher credit score. Answering #1 seems like fuzzy credit magic to me that someone else may be able to answer, but #2 should be easy to determine by talking to a mortgage broker to see what rate you can get with your current credit score, and finding out how much higher it needs to be in order to get a better rate. Then you can take the difference in mortgage payments between the two rates and compare that to your car loan value.
Let's look at some of your options: In a savings account, your $40,000 might be earning maybe 0.5%, if you are lucky. In a year, you'll have earned $200. On the plus side, you'll have your $40,000 easily accessible to you to pay for moving, closing costs on your new house, etc. If you apply it to your mortgage, you are effectively saving the interest on the amount for the life of the loan. Let's say that the interest rate on your mortgage is 4%. If you were staying in the house long-term, this interest would be compounded, but since you are only going to be there for 1 year, this move will save you $1600 in interest this year, which means that when you sell the house and pay off this mortgage, you'll have $1600 extra in your pocket. You said that you don't like to dabble in stocks. I wouldn't recommend investing in individual stocks anyway. A stock mutual fund, however, is a great option for investing, but only as a long-term investment. You should be able to beat your 4% mortgage, but only over the long term. If you want to have the $40,000 available to you in a year, don't invest in a mutual fund now. I would lean toward option #2, applying the money to the mortgage. However, there are some other considerations: Do you have any other debts, maybe a car loan, student loan, or a credit card balance? If so, I would forget everything else and put everything toward one or more of these loans first. Do you have an emergency fund in place, or is this $40,000 all of the cash that you have available to you? One rule of thumb is that you have 3 to 6 months of expenses set aside in a safe, easily accessible account ready to go if something comes up. Are you saving for retirement? If you don't already have retirement savings in place and are adding to it regularly, some of this cash would be a great start to a Roth IRA or something like that, invested in a stock mutual fund.
A Mortgage Backed Security or MBS is the security.  It's not an entity, it's essentially a contract.  As an investment they function more or less the same way a bond does. There is nothing wrong with the concept behind a Mortgage Backed Security.  Functionally securities like these allows banks and other institutions to lend to high-risk borrowers.  You package small slices of a wide range of risk from a large number of mortgages and the investor sill receive something similar to the average of the rates being charged.  Essentially from a big pool of mortgages of varying risk you will create a different big pool of bonds that can be sold to investors based on some sort of expected return.  For a frame of reference on a much smaller scale look at peer to peer lending sites like LendingClub and Prosper.  The idea is lots of people of varying risk profiles make requests for loans of varying amounts.  You bring your $2,500 and invest $25 in to 100 different loans.  This way even if a few default you will still eek out a profit.  It also allows you to include riskier borrowers without materially impacting your expected return.
A: Rollover the cash from the previous account into the new one a low-cost IRA like Vanguard. This, and only this.  Because your mortgage is, less than 4%, while your retirement plan will earn 7% over the long term. I have no 'retirement' plans because Because you're 28. and essentially will be happy working until I die Unless circumstances change. but as far as I see it this is not such a bad deal because it is like paying taxes on income. (Principal says I will lose up to 30%) You're ignoring the 10% early withdrawal penalty. I am wise with my money for the most part Then don't piss away $3,000 just for a temporary feel good. I earn a high salary in a tech job.  As a result of being under 20%, I am paying mortgage insurance of about $300/mo. So -- after building up an Emergency Fund -- throw as much as possible of your high salary against your mortgage to get rid of the PMI.
I would recommend not paying it off early for 2 key reasons: If you are a resident of the U.S. you get tax deductibility of mortgage interest, which as pointed out in previous posts, reduces the effective interest rate on your mortgage, never in your life will you ever be allowed to obtain such high leverage at such a low rates. You can probably get higher returns with not much risk. @JoeTaxpayer mentioned various statistics regarding returns when investing in equities. Even though they are a decent bet over the long term, you can get an even better risk reward tradeoff by considering municipal bonds. If you are in the U.S. and invest in the municipal bonds of your state, the interest income will be both federal and state tax-free.  In other words, if you were making 3.5% investing in equities, your after tax returns would be significantly less depending on your tax bracket whereas investment-grade municipal bond ETFs will yield probably the same or higher and have no tax. They are also significantly less volatile. Even though they have default risk, the risk is small since most of these bonds are backed by future tax obligations, or other income streams derived from hard assets such as tolls or property. Furthermore, an ETF will have a portfolio of these bonds which will also dampen the impact of any individual defaults. In essence, you are getting paid this spread for simply having access to credit, take advantage of it while you can.
"Because ""my accountant said I'm in the 28% bracket and need more write-offs."" When I hear someone say this I tell them to get a new accountant/advisor/tax guy.  The benefit, if any, is the fact that if, and only if, (a hat tip to @staticx) you are already itemizing your deductions.  It means that for me, my 3.5% mortgage is really costing me 2.625%.  The only effect of this is the when I line up my debts, the mortgage might fall to a lower priority for payback. This is where there's a balance between the choice of a robust emergency fund, earning close to 0% today, or using those funds to pay the mortgage at an accelerated rate.  If the sentiment expressed by the question implies that one should carry a mortgage, needed or not, it really comes down the a question of risk over the long term. I don't suggest that people take a mortgage today to invest in the market. A zero return as we just saw in the '00s will show you that the 10% market return is an average over the very long term. FWIW, the '96-'05 period returned 9.08%, and '06-'13 (2 years short of the 10) 7.26%. Few have the discipline to patiently wait out the dips and see the returns I quoted.  That said, the fact that the interest is deductible is a small factor given the low rates we are currently enjoying.  Each of the points above can be expanded into its own answer. A great question with not-so-simple answers."