Buying fixed income when you have a mortgage at a higher rate?
- Thread starter RGLD
- Start date
This plus the preferential tax treatment on treasuries. Or the possibility of doing it in an IRA.
Then there's also the possibility to sell the securities if interest rates drop. If you had an ARM and a long duration security that could lead to a cool situation.
Even if both rates were fixed and rates drop, if believe if works out in your favor because you can essentially do the equivalent of pulling interest payments forward by selling the security.
Say you bought something that pays you 10000 in 30 years based on a 5% rate. That would cost around 2313 to buy.
If rates drop to 2.5% instantly, that security is worth about 4767.
So if you had a 30 year mortgage balance of 2313 and instead of paying it off you bought the bond it seems like you could come out way ahead if interest rates drop.
You can sell the bond, pay off the principal before accruing more interest and pocket the extra. If rates don't go down, then you're earning interest at the same rate you're paying it.
I'm not a bond expert, but it's an interesting thought exercise. Maybe someone will chime in with an obvious mistake I've made.
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THAT;
+ I like a debt free home. And not being concerned with future tax law changes on my home-RE. I like tax free Roth also. They bought his bank+ called all his RE loans + bankrupted Dave Ramsey.
100% of foreclosures are caused by debt. But I like my RE +too many ways to get rooked by a bank or mortgage co.
IF you hate a debt free home, you could always get back in debt-risk LOL
So since you didn't make your mortgage payment the bank repossesses the thing you have the mortgage on. Usually your house.
Bad plan.
Wtf are you talking about?
Nobody's talking about not paying their monthly payment. The whole question is: Assuming you had enough cash to pay off you mortgage outright, are the possible advantages to buying fixed income securities?
If you bought something marketable like a UST and rates drop it instantly becomes worth more.
Yes you still have a mortgage to pay, but you sell the security for a profit, pay off your mortgage early and come out ahead.
If you bought a stack of $10000 bonds with different maturities you could structure them to pay out essentially as needed to make your payments.
If interestrates go up, you can just hold them to their various maturities and pay your mortgage over time. You roughly break even vs paying it off immediately.
If interest rates go down, you come out ahead by selling all the securities at their new increased value. Then pay off the principal.
That comes with some pretty big ifs, and I assume your scenario is a fixed-rate mortgage.
In the end it would come down to the specifics of the scenarios' loan balances.
Will the cash coming out of the UST be paid on a monthly basis and would it match or beat the monthly mortgage interest? Lots of maths to fiddle with.
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GOOD warning+ partly depends on which lender
Some people dont mind renting.I like paid for RE, now.Bloomberg noted 6,000 VA borrowers may lose home..........NOV 8,2023
NOT that VA lenders, ever gave much of a good deal.
WHO would have thought the character, collateral+ capacity to pay of gov would be an issue?? LOL.
WELL @ least Moody's did not give an honest downgrade, just another warning.
JPM not wanting to handle redemption of US savings bonds. Really ??Not to worry, that's just one bank.
Good thing for USa, we're slightly better or more than chicoms lenders or evil empire russia bond crooks.