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Posted by AB on September 24, 2006, 2:47 pm
Here is my current situation:
28, 27 Married couple, no children.
Combined monthly income: 7300
Combined Mortgage (1st and Heloc): 3000
Monthly bills: 1850-2100 (includes school load payment, utilities, food,
property taxes)
Car payment: 400 (two more years)
Combined savings: 8000
Current Stock Holdings: 2000 (mostly Google)
I am a computer programmer and my wife is a graphic artist/marketing
coordinator.
Within about two years we are planning on having children. With that my
wife will be out of work for at least a few years but may continue to do
some freelance design work from home. Until then I would like to give
myself as much cushion as possible.
My current home loan allows for several payment options which include:
Min Payment: 1300
Interest Only: 2600
30 year amortized: 2850
and 15 year amortizes: 3830
What is my best option here? I have been making Interest only payments on
this load since its inception in June 04. Am I better off letting my loan
increase as I save and invest an additional 1300 a month? Would the
question be whether I can invest that 1300 a month to get a better yield
than the increase in principal to my loan when I only pay the minimum?
I could afford the 30 year amortized... an extra $250, but is that really a
better solution?
I really appreciate any help you can offer.
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Posted by joetaxpayer on September 24, 2006, 3:23 pm
AB wrote:
> Here is my current situation:
> 28, 27 Married couple, no children.
> Combined monthly income: 7300
> Combined Mortgage (1st and Heloc): 3000
> Monthly bills: 1850-2100 (includes school load payment, utilities, food,
> property taxes)
> Car payment: 400 (two more years)
> Combined savings: 8000
> Current Stock Holdings: 2000 (mostly Google)
> I am a computer programmer and my wife is a graphic artist/marketing
> coordinator.
>
> My current home loan allows for several payment options which include:
> Min Payment: 1300
> Interest Only: 2600
> 30 year amortized: 2850
> and 15 year amortizes: 3830
>
Your mortgages and expenses add to $5500/month. Does your wife make 1/3
of the $7300/mo income? If she makes much more than 1/3 of it, you will
head toward a negative cash flow when she quits.
No one here can predict what the stock market will do short term, only
that it will fluctuate. What an individual stock will do is even more
risky. I'd have a goal to increase the liquid cash available until you
have at least three months' expenses in an emergency fund.
Also, I'd stick with the 30 year amortization on the first mortgage,
unless you have plans to move short term. Eventually the interest only
option will go away and the note will require amortizing for the
remaining term. The min payment will let your principal rise $1300/mo,
which really scares me. If I read the numbers above correctly, you can
save over $1,800/mo until you have the first child. You should do your
best to save during that time.
If either employer offers matching on the 401k, you should participate
to that level.
JOE
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Posted by Mark Bole on September 24, 2006, 4:40 pm
joetaxpayer wrote:
> AB wrote:
>
>> Here is my current situation:
>
> Your mortgages and expenses add to $5500/month. Does your wife make 1/3
> of the $7300/mo income? If she makes much more than 1/3 of it, you will
> head toward a negative cash flow when she quits.
<snip>
Cash flow: this is the crux of your concern for at least the next few
years or until your youngest kid is 3-4 years old and ready for daycare.
0) pay any credit cards in full each month. If you can't, you're
spending too much.
1) pay off as much of the HELOC as fast as you can, and then count on
that as a big part of your "emergency fund" (meaning don't run up the
balance again unless it's an emergency). If there is any cash left
after this, then pay off car loan, student loan (in that order).
2) continue interest-only on the first mortgage as long as you can, so
you can do item #1, but at the same time you avoid additional borrowing
(negative amortization).
3) stick with the car(s) you have, which should be easy with only one
commuting spouse in the future. In your situation try to get a good ten
years out of any car before you think of replacing it.
4) sell the Google stock if there is a loss or as soon as gain becomes
long-term (one year) and use it also for item (1).
5) make sure you are getting tax deductions for student loan interest,
try to have kids near the end of the year to maximize the ratio of tax
benefit to personal expenses.
-Mark Bole
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Posted by Elle on September 24, 2006, 5:20 pm
> My current home loan allows for several payment options
> which include:
> Min Payment: 1300
> Interest Only: 2600
> 30 year amortized: 2850
> and 15 year amortizes: 3830
>
> What is my best option here?
I am curious as all get-out to know whether the interest
rate on this incredibly creative mortgage loan is fixed or
adjustable. Any extra fees when you change payment plans?
Holding "mostly Google" stock indicates a lack of stock
diversification, which means high risk for both short and
long terms. You need to become familiar with asset
allocation at some point. You want to start thinking about
your financial goals. E.g. pay off the house? Save for when
one of you does not work? Pay off other loans? Save for
retirement? Identify your short term payments and savings
plans by using long term goals. I echo what Joe said,
otherwise. I am especially interested in whether you have a
401(k) plan with matching, and if not whether you have
started a Roth IRA.
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Posted by dapperdobbs on September 24, 2006, 6:45 pm
AB wrote:
> Combined Mortgage (1st and Heloc): 3000
> Car payment: 400 (two more years)
> Would the question be whether I can invest that 1300 a month to get a better
yield
> than the increase in principal to my loan when I only pay the minimum?
Banks have to have a positive spread between their return on funds
(loan rate) and their cost of funds. You have to do better than they do
to make it worth your while to borrow their money. (Wanna play???)
If I read you correctly, you have a sizeable HELOC balance. Assuming a
6% rate, that $4,800 a year is on an 80k balance, which you can and
should pay off within three years. You're a computer programmer - run
the numbers.
> I could afford the 30 year amortized... an extra $250, but is that really a
> better solution?
It is best to pay off the highest after-tax cost loans first.
Focus on what you are best at - your job and salary. In three years
your surplus combined income should be about $2400/mo. and at that
point you should have read a few books on investing, such as Benjamin
Graham's _Security Analysis_.
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