All Forum Posts by: Chauncy Gray

@Caleb Heimsoth

Hello Caleb, there is nothing to feel bad about.

@Judy Murphy

Hello!

I'm loving those numbers. I have heard about prepaid penalties for other loans, but I was not sure about mortgages. I see that is not the case here. I do see now that taking out a 30-year mortgage and structuring it your way to minimize some of the compounding interest is very beneficial. 

Hello,

@Joe Villeneuve 

I took the time to analyze the statement/claim because what I cared about was knowing exactly how the numbers prove the statement to be either true or false. I care because I want to know exactly as to how all of the numbers will play out before I make a decision. I love doing my own research. I seek to understand everything in terms of numbers, and I want to see how I can structure things. 

Thankfully, it wasn't anything like that.

Hello Frank,

I was trying to express that, from my perspective, that banks may not be cunning in the way that they are lying/trying to trick potential borrowers, but cunning in a way they are not fully educating the borrowers when it comes to understanding the numbers. The banks are not obligated to, but they know that most people who walk to their desks asking for mortgages have not received enough financial education to understand everything that is going on (especially with the numbers). It's easy to think of taking a loan and paying 5% interest is not much at all, but over 30 years, it comes out to be nearly double of the loan value. I am not saying that it's wrong, as every investor has his own or her own strategy, but I am trying to see from another perspective as to why an investor would want to pay more interest on an investment. I could see brand new investors doing this for house hacking, similar to what you mentioned. 

I have heard of some investors taking out a 30-year mortgage but structuring it to pay it off in 15 to 18 years, but somehow still calling it a 30-year mortgage. I'm not sure as to what all of the steps are needed to achieve that, but I am aware that not everyone wants to wait the whole term to pay everything off. What I am trying to understand is, what would be the gain of waiting so long? I am only seeing it as more interest that must be paid off in the future. House hacking is how I want to start, but I am trying to weigh everything out. 

In terms of the amortization schedule, I performed a manual calculation to find the monthly payments, and I used excel's PMT function to also find the monthly payments. For the manual calculation, I calculated the present value factor and I calculated the present value annuity factor. I divided the present value of the annuity by the present value annuity factor, which gave me the monthly payments. I made sure that my calculations were correct by matching it with the value generated by excel's PMT function. 

Essentially, I took the future payments for all months and I discounted them to its present value. 

For this schedule, I did not account for inflation. I am not sure as to how I would account for inflation in the schedule. 

Regarding the meeting, it was a local real estate and wealth creation training event. The presenter was not trying to sell anything by saying this, but rather he was expressing the frustration of how banks are potentially taking advantage of potential borrowers, who would otherwise not ask for a 30-year mortgage if they were aware that they would owe the bank nearly double in a 30-year span. 

Hello Everyone,

I was at a local real estate investor group meeting last night, and I was told something that I could not believe at first. I was told that amortizations are never good, especially for 30-year mortgages. The presenter told us that we are being told by the bank that we are paying, for example, a "5%" (or any "low") fixed interest rate on a 30-year mortgage, but what the bank is not telling us is how much we are actually paying altogether. The presenter continued and said that those who are on 30-year mortgages are paying 60%-100% interest (or 160% - 200% of the loan value), not the traditional "5%" that we are applying for. I just could not believe it, until tonight, where I built an amortization schedule and I ran a scenario. 

I created an amortization schedule for a $484,000 loan on a 5% interest rate. Upon completing the schedule, I took the total amount of the simple interest for all 360 periods and the principal for all 360 periods. I totaled each separately, and then I added them together. 

Simple Interest - $451,358

Principal - $484,000

Simple Interest + Principal = $935,358

If I did this correctly, the borrower is paying back nearly double of what he or she borrowed (over 193%) at the last period. I find this ratio to be the same for any 30-year mortgage, and I also found the ratio to be smaller for loans with shorter terms. 

With the way the amortization schedule is structured, 5% is being applied, but it's the interest that's deducted first before the principle, as with any other schedule. The simple interest and principal still add to the monthly payment, but the banks are making more money (a lot more I guess) by deducting the interest first. I don't find the banks to be lying, but I rather find them to be a bit cunning...

Am I missing anything here? I added the link to the spreadsheet that I generated, if anyone wants to review it:

https://docs.google.com/spread...

Why should real estate investors take out 30-year mortgages if the investor has to pay back nearly double to the bank, even if the investor makes profit off of the property?

Hello Mac,

I just wanted to say thank-you so much for sharing this with me! I had no idea about manual underwriting. I had no idea that my bank does manual underwriting for loans, including the VA loans. I've only seen the bank advertise its promotions and credit card offers, lol.

V/R,

Chauncy

Hello Alexander,

I pass on the BMW, haha. 

Thank-you for shedding some light on some things, I appreciate it. 

I have used Credit Karma once before, so I will keep it as a source of reference. I do have an account with Experian, so I receive emails from the bureau every now and then. 

I have learned as to how much an investor has access to, for simply  maintaining a good/great credit history, by using the tradelines and credit cards. I will do more research and see as to what the best options are. 

Back in college, I took out a consumer loan and used a portion of it for opening a Roth IRA account. The military institution I was in provided the opportunity for students to take out a loan from its associated bank, Navy Federal. It was a great deal, the interest rate was only 0.5%. It was easy back then, because everyone paid off their loan balance through military service.

Of course, that was back then, things are different now, as I am out of the service. I know how much I want to use (around 16.67% of the loan), but I want to at to at least get an idea as to what I can do. The worst the bank can say is no (with a slight drop in my credit score I suppose).

V/R,

Chauncy

Hello Everyone,

I recently applied for a VA Loan through a mortgage banker. After the mortgage banker pulled my credit history, I was told that I "don't have any credit history, and therefore no credit score".

The mortgage banker said that I should open couple of tradelines, and that it will take 6 months for the credit bureaus to report credit scores from the day the creditors start reporting. It was recommended that I go to Citi Cards and Discovery and apply for a $200 secured credit card, (and possibly apply for Costco after doing this). I was also told to never go over 50% balance, otherwise I would receive a low score.

I don't feel comfortable doing this, because I do not feel this to be sound advice. I have a credit history because I took out a consumer loan, and I also did an auto loan. I paid everything on time, never defaulting, going up to 2014. I have not done anything since 2014 that would lower or raise my credit score. I have some questions to share: 

1.  The assumption is that the credit score that I had from 2014 fell to zero since I have no recent credit history. Although I may have not have done anything from the past 6 months or so, do the major credit bureaus suddenly drop my score to zero? Can anyone provide direction as to where exactly I can find out what the credit bureaus actually do with one's credit score in a situation like this?

2. Can one still have a credit score, although with no recent credit history? I would assume so, but I truly do not know. This pretty much ties in with #1. 

3. I received an email from Experian saying to review my credit report and my FICO score. I received this email on the same day that the mortgage banker made the inquiry on my credit history. If I do not have a credit score due to having no recent credit history (no score shown on the pulled report), then why would Experian send an email telling me to review my credit report along with my FICO score? 

4. In the near future, I plan to apply for a consumer loan, and use some of it for opening an index fund and for opening an SDIRA account. If I were to be approved for the loan and I start paying it off (on time), wouldn't this suffice for raising my credit score? 

5. If the situation above were to happen, would I have to wait for 6 months, or would I be able to receive a credit score before then?

I feel that opening tradelines and applying for credit cards does not align with with what I am trying to accomplish, can anyone provide any recommendations?

V/R,

Chauncy

Hello Dion,

@Dion Martorella

That's really nice! Thanks for sharing!