Conference nyoss1::market_investing

    There are two came to my mind first...
    
    1.  The pro is that you'll be able to deduct the interest you pay on 
        the loan.
    
    2.  The con is that you may still be paying your loan loooong after
        your car is gone.
    
    With the current tax situation, I'd prefer to buy a car with the kind
    of cash you have. If you have to take a loan on it (even with the 2nd
    mortgage method), pay the loan off as quickly as possible.

      Don't forget -- Mortgage interest on a primary or second residence
      is deductible only to the extent that the total  mortgage  amounts
      don't  exceed  your cost basis -- what you paid for the house plus
      any capital improvements.

      Also, some of the deals that car dealers are offering today may be
      better than a second mortgage even if the second mortgage  is  tax
      deductible.   Compare  carefully  the car loan rate and the second
      mortgage rate.

    If something were to happen where you are forced to default on the loan
    do you want to lose the vehicle or your house???

	Re: .0

	Let me offer another way of looking at this -- what method of buying
"today's car" puts you into the best position X number of years from now when
you need to buy the _next_ car?

	The biggest problems that I see from the home equity approach is not
only what was mentioned in reply 1 (namely that the car will die long before
the loan is paid off), but that since you're spreading out the payments and
lowering "today's" monthly pain, you might end up spending even more on this
car (following the "oh, its only another $20/month and I can afford that" style
of philosophy...) and further complicate the issue when you have to get the
next car since your outstanding loan balance is that much greater.  As other
alternatives, I'd recommend them in this priority ordering:

	1) Best off, pay cash for the car -- even if it means gettting a much
smaller and/or used car.  Then, pretend that you really took out a "fancy car"
level loan and make the monthly payments into a separate bank account.  (Take
that phrase "separate bank account" loosely -- it could be just a different
line item in your balance sheet and be money co-mingled with other line items
in a stock fund.  I don't really care, as long as it is money identified as
being for your next car.)  Once you've achieved this, you are now ahead of
the interest game since you're getting interest money coming in to _help_ you
buy the next car instead of paying interest out on the last car which hurts
you.

	2) Next, I'd take a conventional car loan for, say, 3 years instead
of the typical 4 or even 5/6 that are being offered these days.  I'd plan on
holding onto the car for longer than the life of the loan, however, and once
the loan was paid off, keep paying myself the same loan money to help get into
the first suggestion for the next car.

	3) Regular 4 year loan...

	N) (where N is much greater than 4)  Take out a long-term loan against
my house to pay for a short-life item.

								-craig

Re: .2 and .4

>     2.  The con is that you may still be paying your loan loooong after
>         your car is gone.

That assumes that you make the minimum payment.  I suspect that you'll
find some do make just the minimum while some make more than the
minimum.

If you take the numbers the DCU has been putting out, the approach with
the best after tax results would be to:

	1.  take the rebate from the dealer,
	2.  pay the dealer with a home equity loan,
	3.  determined the most appropriate repayment length
	    (generally 24-60 months) and pay off the home equity loan over 
	    that period.

    
    
    Re:  .5
    
    You mentioned home equity loan.  Is it the same as a 2nd mortgage?
    If there is a different, please explain further.
    
    Thanks,
    
    Phil D.
    
    

	Re: .5

>That assumes that you make the minimum payment.  I suspect that you'll
>find some do make just the minimum while some make more than the
>minimum.

	Yes, granted, I was making this presumption to simplify the note.  I
think even in this new "debt awareness" age, most people still do make just
the minimum payments on loans.  I didn't really want to get into this
discussion, however, since personally I think the main option (and thus what
people should be aiming for) is to build a sufficient cash-base so that the
issue of whether to pay extra on loans or not is moot since they won't need
the loan.

							-craig 

    re: .5
    
    I have to disagree with DCU a little bit and agree with Craig. I think
    the best deal to buy a car is to pay cash. If you have $20K, buy a $20K
    car. If you have $5K, buy a $5K car. In some cases, you can pay cash
    and still get the dealer rebate. But of course, if you do this, DCU is
    totally out of the picture. (I think this is why they are not
    recommending it.  :-))  If you HAVE TO buy a $20K car and you only got
    $5K, then taking out a deductable loan is the 2nd best choice. But, the
    key is to pay the loan off before the car goes. If you don't think you
    have the control and can only make the minimum payment, then I would
    recommend to just take out a regular car loan and bite the bullet.
    
    Mike

An elderly relative is planning to use a home equity loan to pay
off her 30-year, fixed-rate mortgage (she has about $13,000 
left at 8.75%).  Her savings bank is offering her a 7.5%, 15-year,
*fixed rate* line of credit.  They will pay off her existing 
mortgage and set up her line of credit, deducting the PI payment
of $129.00 from her account every month.  She can prepay the
entire amount whenever she wants with no penalties.  There is
no cost at all to her for setting up this loan.  There is no 
property tax or hazard insurance accounts required and they
only do a "drive-by" appraisal.  All very painless.

She asked my advice.  As far as I can see, there is no reason
why she shouldn't do this.  Am I missing something?  Also, what
really is the difference between a first mortgage and a "first" 
equity loan since both are secured by your property?

Thanks!

Diana

> An elderly relative is planning to use a home equity loan to pay
> off her 30-year, fixed-rate mortgage (she has about $13,000
> left at 8.75%).

How large are her current payments? Of each, how much goes to principal
and how much to interest? How many payments remaining?

> Her savings bank is offering her a 7.5%, 15-year,
> *fixed rate* line of credit.  They will pay off her existing
> mortgage and set up her line of credit, deducting the PI payment
> of $129.00 from her account every month.  She can prepay the
> entire amount whenever she wants with no penalties.

Of each payment, how much goes to principal, how much to interest?
How much interest will be paid into this loan during the same period
in which the existing loan would be paid off? (Compare to the amount
of interest to be paid over the remaining payments on the existing
mortgage.)

Finally, a line of credit is not the same as a mortgage: verify that
the entire balance will have been repaid after 15 years. Many (e.g.,
mine) lines of credit require a minimum monthly payment which will
*not* pay off the entire loan over the lifetime of the credit loan:
at the end of the specified term, the remaining balance is converted
to (in my case) a second mortgage at whatever is the then-going rate
for a second mortgage.

Unless she really needs to lower her monthly payments to make ends
meet, or unless she has a "long" way to go to pay off the existing
mortgage, it seems like this could be a neat money-maker for the bank
rather than a money-saver for her (see above considerations). Bottom
line: check the numbers.

Re:

>Of each payment, how much goes to principal, how much 
>to interest?

I just assumed that they ran a standard amortization to come up
with the $129.00 figure.  And, that in 15 years the loan would be
paid off....   

I better ask the bank.

Thanks.

Diana

>>Of each payment, how much goes to principal, how much 
>>to interest?
>
>I just assumed that they ran a standard amortization to come up
>with the $129.00 figure.  And, that in 15 years the loan would be
>paid off....   

      On  our  DECU 2nd mortgage line-of-credit the minimum payment each
      month is based on .015 times the balance at the end of  the  prior
      month.   
      
      The  amount  that  goes  to  interest is based on interest accrued
      daily at the current rate  from  the  actual  date  of  the  prior
      payment  to  the  actual  date  of this payment.  Note that actual
      dates, not the "due date", are used, which differs  from  standard
      1st mortgages.
      
      The remaining portion of the payment goes to pricipal.
      
      In other words, there are a lot of variables.  ASK!

Hmmm.... My mortgage calculator says the monthly payment should be $120.51
for $13,000/7.5%/15yr.  $129 should indicate an amount of ~$13,900.

It would seem that there is some missing information?

But is also seems that the $129 IS an amount that will pay of the loan
over 15 years.

There are many reasons for refinancing. Since the objective was not
stated, let me offer the following facts based on the following 
assumptions:

1. there is indeed no costs involved in refinancing,

2. there is no prepayment penalty.

3. any extra payments will accrue to the principal and not
   prepayment of interest, property tax or insurance.

4. the desired number of payments are the same.

Under these assumptions you can, yourself, set up the payment schedule
so that the new mortgage is paid off in the same number of months as the
old mortgage.  Refinancing will save your relative a some money.  For
example if the total number of payments remaining is 5 years (60
payments), the total payments is $17,335.28 @ 8.75%.  It's $16,831.88 at
7.5%.  The above assumes a balance of $14,000.  Since the principal
repaid is the same, the difference is due to interest.  Interest saved
over 5 years is $503.40 or about $8 per month.  (This is pre-tax.  You
need to factor in the effects of tax savings.)

So is $503 worth the it? Has the current mortgage servicing company been
providing good service? Does the new institution have a good reputation?
Are you able to tap the credit line if more funds are needed in the
future?


Gim