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View Full Version : Maristar's conundrum thread made me think


milkmania
10-09-2007, 11:40 AM
ok, I used a CD to buy a house, say..... $67,000.00

I've paid $28,000.00 back into CD @ $350.00 a month payments.
Thereby creating equity.

how would it be possible to use that equity to continue making the payments?
in a sense, just keep rolling that $28,000 back into the payments, and have then only paid $28,000 for a $67,000 CD Loan.?

is it possible? is my question clear?

Maristar210
10-09-2007, 11:52 AM
is my question clear?

Uh .... No, sorry :o

milkmania
10-09-2007, 11:58 AM
I'd just be rolling the equity into the monthly payments, freeing up $350.00 a month from my budget.

but effectively I've only paid $28,000 (from my monthly budget thus far)



edit:

look at it like this....

I tell the bank to cash out the equity for that CD....$28,000
Create a new account, and use ONLY that new account to make the payments. ($350 a month)

Did I just get a $67,000 CD for $28,000 & interest?

Maristar210
10-09-2007, 12:00 PM
Doesn't add up Bri. What am I missing?

MYMC
10-09-2007, 12:02 PM
I'd just be rolling the equity into the monthly payments, freeing up $350.00 a month from my budget.

but effectively I've only paid $28,000 (from my monthly budget thus far)
Do you mean you take the $350 from the $28K each month? If so you can't make a call on this without interest rates and loan terms

milkmania
10-09-2007, 12:04 PM
Do you mean you take the $350 from the $28K each month? If so you can't make a call on this without interest rates and loan terms
but, I pay back 2% over what the CD is earning

Say the CD is earning 3%, I pay back 5% (example)
and the loan terms are minimal.

and the $28,000 is earning interest

also, edited earlier post

MYMC
10-09-2007, 12:12 PM
but, I pay back 2% over what the CD is earning

Say the CD is earning 3%, I pay back 5% (example)
and the loan terms are minimal.

and the $28,000 is earning interest

also, edited earlier post
Well yes then sure, but it is not without risk. You'll need a risk instrument to earn enough interest to make it work with $28K...so the possibility exists that the instrument loses value and then you're back in the hole...even further. You could lose the $28K and still owe the CD.

Also don't forget the gains tax on the earnings when doing the math.

milkmania
10-09-2007, 12:21 PM
Well yes then sure, but it is not without risk. You'll need a risk instrument to earn enough interest to make it work with $28K...so the possibility exists that the instrument loses value and then you're back in the hole...even further. You could lose the $28K and still owe the CD.

Also don't forget the gains tax on the earnings when doing the math.

on the phone with loan officer now, thanks:)

wgwollet
10-09-2007, 12:25 PM
What is the interest on CD's now?

MYMC
10-09-2007, 12:28 PM
5% give or take...
http://www.bankrate.com/gookeyword/rate/high_ratehome.asp?params=US,416&product=15&pop=nopop&ec_id=GOOG_ag_cd_rates_ky_Broad_k_interest_rates_c d

uncleboo
10-09-2007, 06:30 PM
Put the money in a money market---you will still get roughly the same rate without restrictions on when you can pull the principal out. I advise all of my clients to have a money market account in place of a traditional savings account. They pay much higher rates of return and you don't have to "lock" your money up for a specific term as you would in a CD. There are plenty out there that don't have any fees associated with them, free checks to access the money (if needed), and very competitive rates. The main drawback is a fluctuating interest rate--your return will be subject to the Fed. funds rate. However, that is a small drawback for complete liquidity. If rates drop several points over the next few years, you can always pull the money out and put it in something else--treasuries, a CD, etc. Inflation is at 3% so I want my money earning a higher return than that--otherwise, I am losing purchasing power over time. We call CD's: Certificates of Depreciation. 8p

bcampbe7
10-09-2007, 06:38 PM
Put the money in a money market---you will still get roughly the same rate without restrictions on when you can pull the principal out. I advise all of my clients to have a money market account in place of a traditional savings account. They pay much higher rates of return and you don't have to "lock" your money up for a specific term as you would in a CD. There are plenty out there that don't have any fees associated with them, free checks to access the money (if needed), and very competitive rates. The main drawback is a fluctuating interest rate--your return will be subject to the Fed. funds rate. However, that is a small drawback for complete liquidity. If rates drop several points over the next few years, you can always pull the money out and put it in something else--treasuries, a CD, etc. Inflation is at 3% so I want my money earning a higher return than that--otherwise, I am losing purchasing power over time. We call CD's: Certificates of Depreciation. 8p

I was wondering when you were going to reply to these threads! :D