Replies to post #72245 on Zeev's Turnips Patch-No Politics (ZEEV)

[leon]

Ken2, to me the slightly higher rate is a small price to pay for the additional flexibility and peace of mind it offers. as to your interest only loan, are you sure there is not a balloon payment due at some point? Can you just convert for a modest fee? also, i assume there are no pre-payment penalties? one final thought that you've touched on but may want to revisit is the future direction of rates. while obviously none of us know for sure, we can view the probabilities from a risk/reward standpoint. in other words which vehicle, variable or fixed, offers the biggest reward relative to risk or vice-versa. to me the evidence is pretty clear but, that as well as my other opinions, are just that. good luck whichever way you go. LEON

[Larry Brubaker]

Right now at 4.25, the prime rate looks quite tempting. I was recently looking at the fluctuations in the prime rate because I was considering a home equity line of credit with a variable interest rate at prime. What struck me is the volatility in the prime rate. As recently as Dec, 2000, it was at 9.5%.

http://research.stlouisfed.org/fred/data/irates/mprime

Far more volatile than the 30-year bond, which was at 5.5% in Dec, 2000.

http://research.stlouisfed.org/fred/data/irates/gs30

I'd hate to get stuck with a big balance when interest rates start heading back up. And at the rate G.W. Bush is borrowing money, it seems like a good bet rates will start back up.

[Train Guy]

Um, why would you want to pay it off? If you can qualify for a conforming loan, you can easily get under 6%, and by the time your uncle rebates some of the interest payment, the effective rate is easily in the 4%, if not 3%. And if we get some inflation going, the effective rate will certainly be in the 3% and possibly could slip in the 2%. With money that cheap, why would you ever want to give it back? But with say an effective rate of 3%, wouldn't you want to get your hands on the absolutely most money you can and lock it in at that rate for the longest you could. Can't you with a little smarts get better than 3-4%. And if in a few years rates stop being artificially held down and go back up to 7-8%, you can prop your feet up and come out ahead. Pay it off?? Why would you want to pay off a free money machine.

I just did a refi, and since I don't "work", did a total no doc, just sign here, and was able to get 6.25%. With my generous uncle, the effective rate is in the 4%, and with it that cheap, I got as much as I could for as long as I could. Pay it back. Why? If I'm not making 3-4% a month in the markets, I'm doing something wrong. Shish, you're worried about .5%. With money this cheap, who cares. You want as much as you can get, for as long as possible. Now if you weren't thinking of maxing how much you could get because you didn't "need" it, you can give any extra to me. I'm sure I can think of something to do with it. <g>