This is absolutely the new “corner office” set up (at least in big banking). If you can swing enough trust to get on a semi-regular or fully remote schedule, it’s the bees knees
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it really is. it’s noon around here, got cnbc on, contantly flipping through my ipad, a beer out and music on. only problem is what’s for lunch (currently shopping doordash)
Same here. Ain’t it nice?
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Dave,
OK, here’s the numbers for our debate about moving to a bigger, more expensive neighborhood from our current home. The commute to work/school would reduce from 20 minutes to 5-10 minutes. It’s a nicer area, where homes will keep their value or continue to increase. Great school, closer to the beach, closer to downtown SD, family friendly, more storage, extra bathroom, 3rd garage, etc. There will be more ‘Joneses’ in the new neighborhood though, and I would imagine life will overall become more expensive.
Age: 41
San Diego Area
W2 Income: $180K+ this year (stable job for almost 20 years, some room for salary increases)
Retirement Accounts: $1M+
6+ mo emergency funds
Credit Score 820+
No debt
Current home: Value: $550K, Loan: $150K, 8 years left @ 2.875%, PITI ~10% of income
Assuming we sold the house, we could put all proceeds (after sale) down, let’s say $350K down payment.
New house would be 900K.
New 30yr loan $550K @ 4.25% (no CC) = $2705 + T&I = ~$3820/mo
3820 / 15000 = ~25% of gross income to housing PITI. Probably closer to 35-40% of net income. Some savings would be cut to pay the extra mortgage costs.
This 900$K is just the average house, many houses are $1M-$1.5M and up. Lots of nice neighborhoods and many very expensive homes. And houses are not listed very long. There are lots of buyers looking for good houses.
So we are trying to decide whether to stay or go.
-Pak
Some of your mortgage payment is savings though (adding to your home equity, just not the interest portion). And while you might think it’s nice to save in a 401k or the like for the tax deduction, remember that when you sell the new house eventually, you get the first $250-500k of gains tax free which makes your house kinda like a big Roth.
There are a lot of other factors in a move, but cutting 30min a day off your commute is pretty good. Adds up to more family time, more fun time, less stress. When I had to pick, I paid up for that in housing costs and did not regret it.
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Pak, a couple of thoughts:
-your well-funded retirement accounts and good emergency funds reduce the risk of an obligation like this. (Nicely done btw.)
-With that good credit and huge down payment and correspondingly low LTV requirement, you will get the best deals possible on mortgages. You can also likely squeeze into super-confirming vs jumbo, which may help further on the rates.
-Do you need to pay up for a 30 year fixed? Most people who do don’t keep the mortgage long enough to justify the premium over some excellent hybrid products like 5/5, 5/1, etc.
-Agree completely with Xerty that paying up for a shorter commute is generally a great trade, provided you can afford it (which you can).
FWIW I think I’d likely do it, were I in your position.
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The other upshot is the interest rate deduction.
Dave,
Thanks for the words. Always had a decent paying job, maxed out 401K, IRAs, etc. Continue to DCA during the 2007 bear market and now enjoy the appreciation that’s come over the last several years.
I’ve lived in the same house I purchased 15 years ago. Always had the noCC 30-years fixed, refinancing probably 5 times. On the last refi I changed to a noCC 15yr fixed with the 2.875% interest rate.
I’ve debated an ARM but have never moved forward with it. This might be a good time to jump into a 5/5, 5/1 like you suggested, but this next house will be something we want to stay in for a long time, thus paying more for the nicer neighborhood, commute, etc. And if rates really are climbing, ARM might not be a good play. But again, who knows the future.
The SD housing market continues to rise. I’m sort of waiting for another correction with house pricing going negative a bit, but who knows. And the houses that are coming up are usually selling pretty quick. We’ve watched many ‘potentials’ come and go because we didn’t act quickly. The $900K house is gone, but there’s a nice $950K house available. Ugh. Price creep.
I’ll return the numbers, factoring in the additional interest rate deductions, and figure out where the extra PITI will have to come from.
Good point, I do need to account for that in my calculations.
Your proven ability to refinance 5 times in an argument for ARMing. Effectively you’re refinancing every few years anyway…why not enjoy the substantially lower first 3 to 5 years an ARM would afford?
Sure, there’s a risk you keep the same house for many years AND rates never drop enough to refi AND rates rise enough to park an ARM’s adjusted rate well above a 30-year fixed. But if any of those don’t remain true, you’re better off. Does that make sense?
Certainly over the past 15+ years , it would have been cheaper to use a ARM or heloc to finance RE as compared to a fixed rate mortgage
But there’s always the possibility for 7.5% mortgage rates like in 2000, or 18% mortgage rates like in 1980.
The key when choosing an ARM is a low lifetime cap (some are capped at 5% above start , others like some helocs can go up to 20%+) as well as low incremental adjustment caps
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I am generally a huge proponent of the 5/5 ARM. People need to check, but every 5/5 ARM that I’ve ever looked at came with a 2% rate adjustment cap, and a 5% lifetime cap. In other words, if your initial rate is 3%, the absolute highest that it can be in 5 years is 5% (2% adjustment cap) and 7% in 10 years.
In general, assuming a 1% spread between it and the 30 year fixed, and assuming the absolute worst case scenario for the mortgage rates, it would take 11+ years for the 30 year fixed to become more advantageous. Also keep in mind that an average 30 year fixed is only held for about 10 years, which doesn’t mean that people necessarily move in 10 years. Instead, people pay off their 30 year fixed for a huge number of reasons, as they refinance to take cash out, get divorced (and need to refi as a result), etc…
The 5/1 is a significantly less conservative choice than the 5/5. That’s because with a lot of 5/1’s, the first adjustment cap is 5% (not 2%) with a 5% lifetime adjustment cap. Even the 5/1’s with a 2% adjustment cap (and a 5% lifetime cap) still subject you to significantly greater interest rate volatility, as your initial 3% rate can become 5% in year 6, 7% in year 7, and 8% in year 8, which is as high as it can go (5% lifetime cap).
Having said all that, there have been quite a few times in the past where the spread between the 30 year fixed and the 5/5 has been much lower than 1%, which has made the 30 year fixed more attractive. In addition, if you like doing no closing cost refi’s, fixed rate mortgages tend to be more advantageous (particularly in states with fairly high closing costs), as it is generally not possible to obtain 5/5’s without closing costs (5/5’s tend to be primarily CU mortgages, and CU’s do not like doing no closing cost mortgages), and even when you can come close, the spread between them and the no closing cost 30 year fixed will, at least in my experience, almost always be much, much lower than 1%. Hence, the reason that although I’ve had a ton of ARM’s on our properties, our current mortgage on our house is a 30 year fixed at 3.25%, and the lender not only paid all our closing costs, but also paid about $1,500 towards our property taxes and insurance.
Where did you see this? I think it’s actually much shorter than this, thought I don’t have any other current data handy ATM.
Completely agree on the merits of the 5/5, it’s a great product.
Why? I admit, I hold one right now, but I did it because of the “new homeowner” (we rented prior to buying) status and special that NFCU had via closing cost credits. I think our total closing costs were somewhere around $1000-1500 on a $360k 100% financed loan. Granted, our rate ticked up a bit because of going with that product, but the different in interest over 5-10 years with a higher rate was less than the closing costs on the 30-year fixed. We only plan to be in this condo for about five years max; we’re at 2.5 right now.
[quote=“jaytrader, post:74, topic:78”]
Why? I admit, I hold one right now, but I did it because of the “new homeowner” (we rented prior to buying) status and special that NFCU had via closing cost credits… We only plan to be in this condo for about five years max; we’re at 2.5 right now.[/quote]
One reason is that several of the flagship CUs have been promoting this product, as happened in your case…making it a great deal.
Another is your second point. Like so many, you won’t be holding the loan long enough to have the 5/5 have more rate risk than a 30-year fixed. So you make out better even aside from the promos.
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[quote=“DaveHanson, post:73, topic:78”]
Where did you see this? I think it’s actually much shorter than this, thought I don’t have any other current data handy ATM.[/quote]Correct, it is presently much shorter (is presently around 5 years: https://personal.vanguard.com/pdf/s708.pdf), but depends in large part on the interest rate trajectory. We have had falling mortgage rates for quite a few years, so people have had a financial incentive to prepay their mortgages by refinancing. Once this trend is reversed, the prepayment rates will drop.
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[quote=“admiral, post:76, topic:78”]
Correct, it is presently much shorter (is presently around 5 years: https://personal.vanguard.com/pdf/s708.pdf),[/quote]
Thanks for posting, admiral. Note that this document itself is over 4 years old, and rates have both fallen and risen multiple times since then.
We’ve actually had them bounce around for awhile now. For purposes of whether it makes sense to refinance, volatility is a key consideration. I don’t suspect the average rate will be lower than now, but I do expect that with a recession overdue, asset prices overvalued, etc., we will see periods of lower rates in the not-too-distant future.
As as predicted, refinancing has indeed plunged as mortgage rates have gone up.
Are any members being substantially affected by this? We have a jumbo 3/1 ARM just entering its third year, so we’re watching closely.
it’s just crazy here Dave. My mom gets a low-income elderly property tax break but I’m not sure what to do with the house once she can no longer live alone. Even if I can rent it out, it won’t be a good payback vs selling it but once you sell it here, it’s game over and I won’t ever afford to buy at her location again (a few block from DT Bellevue).
I hear you ZenNuts.
What’s her house worth?
Were I in your position, I’d sell now if Mom is OK moving to a condo or something. Rents are softening (see this morning’s Times at https://www.seattletimes.com/business/real-estate/free-amazon-echo-2-months-free-rent-2500-gift-cards-seattle-apartment-glut-gives-renters-freebies/? ), while the housing market remains crazy good for sellers for now.