BMW 328 Diesel and Finances

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corvetteguy78

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Last payment on the 328 Diesel is this Friday. It's been a great car. This is the longest I have ever kept a car. 36 months. My wife has been driving it though pretty much since i picked up the 535. She got rid of her 2013 Nissan Rogue and picked up a 2017 Honda Civic EX(lowered her payments by $75 a month) in May and has been driving the BMW to keep the miles down on the Civic. I gotta say, these new Civics are really nice and surprising roomy. She absolutely loves it. Hell, i actually like it. I can't believe the amount of features it comes with.

Anyway, with the 328 gone i'll be pocketing $650 a month between payments and insurance. We also just paid off two loans equating to another $500 a month. Now is the hard part, trying not to spend it lol.

But now i am trying to figure out whats best to do with that extra $1225/month:

Beefing up our retirements
Making Extra Mortgage payments
Beefing up Savings

Gotta figure this out
 
1. 12 months of expenses in savings
2. fully fund retirement accounts, (this includes Roth)
3. pay off all debt
4. save additional 10% in taxable accounts
5. Pay off mortgage


I don't understand why people pay off mortgages on houses they aren't going to retire in. Over the last ten years it's been a good assumption that house values will rise on par with interest payments. So when you sell, often times you'll come out ahead or net zero. But 30 years of savings in some mutual funds will grow way faster.
 
are you saying it is silly to pay extra principal on a home that you're paying for monthly if you aren't going to live there for the rest of your life? i think i understand the logic, as i've been paying off extra on my mortgage but if there is not a good reason for it... i have been doing it and we are only going to be here another 4-5 years.
 
Yeah you're wasting your money. Odds are you'll get it back when you sell it but it's just a wash.

We're never moving. We put ourselves on a budget to have no mortgage by 50. Maybe buy a small summer cottage on a lake somewhere for weekends away but that's it.
 
A re-fi to a 15 year isn't always cheaper. You need to spread a significant rate reduction to make it work in your favor, or be just a few years in to your 30. Do the math before you commit. Considering rates are higher now, you're probably just better off paying extra towards principal AS IF you are on a 15 year. You don't want to re-start the amortization schedule.
Compare the 15 year and 30 year amort tables. If your rate spread is less than 1%, you're better off just staying with the 30 year and paying it off as if it was a 15 year.

You need to consider your tax brackets in this as well. Every year, your mortgage interest will be reduced, and hopefully your salaray will grow, putting you more and more towards paying taxes instead of yourself.


Plus, your finance rate of ~4% ish, is EASY to cover in the market. Meaning, you can earn a solid 5-10% in the market, tax free, in a roth ira, compounded.

Hell, put 1000 a month into 5% payers like F, VZ, T, etc in a cash account, pay the 15% short gains on it, and and use the dividend checks to cover the extra payments with net .85% gain to you for the hassle. (5-4-.15)

I max out my tax advantaged accounts except for my 401k. That's next on my list.
I do plan on staying in my house for the foreseeable future (5-10 years?) , so, I pay an extra $140 a month towards principal which puts me on about a 25 year plan for my 30 year. why 140? it's the rounded figure up to the nearest $500 mark. :) I don't re-start my amortization and if there's a bad month, or year, or whatever, i can take that extra payment out and still be 100% up to date with my payments without the higher risk of a 15 year.
Mind you, I already re-fi'ed back in 2012 but it came with significant rate cut (6 3/8 to 4.1) so even though the amort re-started, it still made sense.
 
We aren't moving out of this house unless life for some reason makes us. We bought this house to live in forever. My goal is to not have a mortgage as soon as possible but with having a current quality of life that we are used too. So, we qualify for 15 year refi at 3.12% with $200 out of pocket costs. We are currently at 4.25% and will complete year 5 out of a 30 year mortgage coming up in October 2017. The increase in our mortgage payment, worst case scenario if our house doesn't appraise, is an extra $300($40/m PMI), or around $260 if it does appraise.

My mortgage would be paid off when I am 55, leaving some good options for us in terms of buying a vacation home around that time or in retirement or even giving us an opportunity for an early retirement, living off our investments and my pension, and deferring collecting social security for a few years until we need it.

I think this is the way we are going to go.
 
are you saying it is silly to pay extra principal on a home that you're paying for monthly if you aren't going to live there for the rest of your life? i think i understand the logic, as i've been paying off extra on my mortgage but if there is not a good reason for it... i have been doing it and we are only going to be here another 4-5 years.

If you are paying pmi, the sooner you get to 78% you can drop the pmi.
 
Just putting it out there but that Corvette Grand Sport is pretty sexy....
 
Delaying SS sounds good on paper. Put it in a spreadsheet. my break even age, assuming 0% return is 88. At a measly 2% return (stuffing the money from SS into a CD at 63), my break even age is 97.
I'm pretty sure I will beat 2%.
Ask yourself, why the gov't wants you to delay taking it.....
the 8% raise sounds good... but excel will tell you something else.

a full 1% might be worth the re-fi. Any less than that, and i would really study the 2 amortization schedules and see where you are 5 years in vs starting over on a 15 year. It's possible you are already putting more towards premium than interest than the 15 year would, and if you simply add on that extra $300 a month to your payment, you'll come in at 15 years paid off just the same without the risk of having a higher payment if times get tough

PMI is a bitch to get rid of.
 
There is no guarantee you will live to be any certain age; use your social security as soon as you can, if you need it. A lot of people die without using any of the ss they paid for all throughout their working lives.
 
are you saying it is silly to pay extra principal on a home that you're paying for monthly if you aren't going to live there for the rest of your life? i think i understand the logic, as i've been paying off extra on my mortgage but if there is not a good reason for it... i have been doing it and we are only going to be here another 4-5 years.

We aren't moving out of this house unless life for some reason makes us. We bought this house to live in forever. My goal is to not have a mortgage as soon as possible but with having a current quality of life that we are used too. So, we qualify for 15 year refi at 3.12% with $200 out of pocket costs. We are currently at 4.25% and will complete year 5 out of a 30 year mortgage coming up in October 2017. The increase in our mortgage payment, worst case scenario if our house doesn't appraise, is an extra $300($40/m PMI), or around $260 if it does appraise.

My mortgage would be paid off when I am 55, leaving some good options for us in terms of buying a vacation home around that time or in retirement or even giving us an opportunity for an early retirement, living off our investments and my pension, and deferring collecting social security for a few years until we need it.

I think this is the way we are going to go.

Think about it for a minute though, run the numbers on the various tools. I'll see if i can find my spreadsheet to help.

Take all that money you would be paying towards extra payements, calculate the compound rate of return of something small like 4-6%. Run that from your age to retirement age. If the amount of interest paid on the loan is less than the gains on the fund, you're wasting money for no reason. Plus, you lose liquid assets that are also taxed on the home sale.

Here's a basic run i did in excel: (note: i would need to know the actual loan amount, interest rate, and how much the extra payments are to be perfect. I'd be happy to run them in my spreadsheet.
2017-08-02 11_20_27-Book1 - Excel.png
 
Basically from an investment standpoint, if you can calculate your personal WACC, if the payments don't grow your net worth at a higher rate than you can get in the market or other investments, its a poor choice. Because of culture, people throw money at homes when in reality they'd be better off taking advantage of other opportunities.
 
Basically from an investment standpoint, if you can calculate your personal WACC, if the payments don't grow your net worth at a higher rate than you can get in the market or other investments, its a poor choice. Because of culture, people throw money at homes when in reality they'd be better off taking advantage of other opportunities.

Exactly. When home ownership is profitable, why pay money towards it?

If I told you that you could invest in 2% rate of return over 20 years or 6% over 30 years, it's a no-brainer.
 
On the contrast, if it's 2007/2008 all over again, it could be more wise to put the money in to a long term house, as 2% is better than -30% :D
 
Unfortunately home prices tend to follow the overall economy, so that might be debt payment that would have been better reserved in conservative investments (ie bonds).
 
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