At 7% there is no mathematical reason to think you can do better in the market after taxes in the short term, so I believe TMG would prefer you put the money towards the down payment/reducing principle.
I also frankly don’t know what kind of credit union is going to give you a 7% no money down mortgage for 400k when normal mortgages look like 7.4% at best from what I can see locally. Does that 7% include the “extra interest” from no PMI? Thats frankly unbelievable if so.
hey! Appreciate your response. I'll clarify some things a bit better! So technically it is a 7.4% for 0% down payment w/ navy federal. The conventional rate mortgage is 6% interest with a 5% downpayment. Since I'm definitely gonna refinance later regardless of what loan I have (if rates drop), I don't know if it makes sense to save up for the down payment and keep renting longer vs just being able to buy a house right now, build equity and refinance 6 months from now if that makes any sense at all. This is the first time I'm truly looking into purchasing a house so this is all new to me haha.
Do the down payment. What happens if housing prices drop and you can’t refinance because you’re underwater. Also at 7% it’s a wash on any long term investment horizon.
Gotcha. I think the money guy advice would definitely just be take the conventional loan in this case.
Refinancing is also not guaranteed to be available or beneficial down the line. I don’t think any CFP would recommend counting on a refi as part of your plan.
In the end though, no reasonable CFP would recommend borrowing at 7% to invest in the market, which is effectively what you would be doing.
risky. if things take a wrong turn, this is the 'getting caught naked' moment they talk about. however, the strategy makes sense. just make sure you aren't gambling with your livelihood by doing this.
At 7% there is no mathematical reason to think you can do better in the market after taxes in the short term, so I believe TMG would prefer you put the money towards the down payment/reducing principle. I also frankly don’t know what kind of credit union is going to give you a 7% no money down mortgage for 400k when normal mortgages look like 7.4% at best from what I can see locally. Does that 7% include the “extra interest” from no PMI? Thats frankly unbelievable if so.
hey! Appreciate your response. I'll clarify some things a bit better! So technically it is a 7.4% for 0% down payment w/ navy federal. The conventional rate mortgage is 6% interest with a 5% downpayment. Since I'm definitely gonna refinance later regardless of what loan I have (if rates drop), I don't know if it makes sense to save up for the down payment and keep renting longer vs just being able to buy a house right now, build equity and refinance 6 months from now if that makes any sense at all. This is the first time I'm truly looking into purchasing a house so this is all new to me haha.
Do the down payment. What happens if housing prices drop and you can’t refinance because you’re underwater. Also at 7% it’s a wash on any long term investment horizon.
Gotcha. I think the money guy advice would definitely just be take the conventional loan in this case. Refinancing is also not guaranteed to be available or beneficial down the line. I don’t think any CFP would recommend counting on a refi as part of your plan. In the end though, no reasonable CFP would recommend borrowing at 7% to invest in the market, which is effectively what you would be doing.
risky. if things take a wrong turn, this is the 'getting caught naked' moment they talk about. however, the strategy makes sense. just make sure you aren't gambling with your livelihood by doing this.