Rand Paul Outlines Plan for 14.5% Federal Flat Tax

[shock]

Rand Pauls one brilliant shining flaw- he's a pacifist.

[SHOCKvalue]

If you locked in a 30 year fixed 15 years ago, you SERIOUSLY need to have someone teach you how to run some scenarios. And quickly.

Yeah, he would have been better off than those "smart" folks who refinance for rate every 5 years (no money out), but who restart the 30 year clock every time they do it. Thirty years after buying the home they have an awesome rate, but it still won't be paid off for another 25 years.

I realize you might not be referring to that logic, but believe me when I tell you that is how it works with the majority. I see it every day of the week.

[wu_shizzle]

Rand Pauls one brilliant shining flaw- he's a pacifist.

Compared to the Pro-War Democrats and Neo-Con Republicans, I can see why you might get that impression.

[Play Angry]

Yeah, he would have been better off than those "smart" folks who refinance for rate every 5 years (no money out), but who restart the 30 year clock every time they do it. Thirty years after buying the home they have an awesome rate, but it still won't be paid off for another 25 years.

I realize you might not be referring to that logic, but believe me when I tell you that is how it works with the majority. I see it every day of the week.

I agree with your point, but he did say he was looking at refi'ing into a 15 year (same remaining term as his existing mortgage) and possibly pulling out equity to pay other debt he's holding at a higher interest rate.

Basically he'll keep the same final payoff date and cut his interest rate from 7-9% (if taken out circa 2000) and lower it to 3-4%. Pretty solid deal.

[JJClamdip]

Sounds great but impossible to do.

The republicans say one thing to pander to their base, the democrats say another thing and pander to their base.

But not a f u c k I n g thing gets done.

There is no difference in the two parties.

[Kung Wu]

Yeah, he would have been better off than those "smart" folks who refinance for rate every 5 years (no money out), but who restart the 30 year clock every time they do it. Thirty years after buying the home they have an awesome rate, but it still won't be paid off for another 25 years.

I realize you might not be referring to that logic, but believe me when I tell you that is how it works with the majority. I see it every day of the week.

I don't see why you would confuse someone that is missing out on a SERIOUS opportunity to make a substantial life adjustment, by throwing out what may or may not be a bad decision by somebody else?

I said he should educate himself, and quickly, and nothing more. I didn't say go out and do something that wouldn't make sense for him.

Here's something that does make sense: Let's say he bought a home for $165,000 back in June of 2000.

1) 15 years ago the national average interest rate was around 7% to 8%. Let's assume his rate is 7%:

- His payment on a $165,000 home is $1097.75.

- He would now have $42,868 in equity and a $122,131.13 payoff.

- His next payment would contribute about $385.32 dollars to principal.


2) Today a 15 year fixed is hovering around 3%. Let's call it 3.2%.

- Since $122,131.13 is his payoff, his payment would drop to $855.21!

- He would have the same amount of equity in his home.

- His payoff duration would be the same.

- His next payment would contribute $529.53 to principal! He would be building up equity WAY faster and giving $32,492.07 less to the bank over the next 15 years.

You can stop right there and see that he needs to educate himself very quickly. But there's more ...

c) He has the opportunity to take the difference in that refinance deal $1097.75 - $855.21 = $242.54 and put it in a Health Savings Account (HSA). And if he invested it in something yielding a reasonable 8%, that account will be worth $83,928.14 when his house is paid off.

So not only could he lower his monthly cash situation by $242, but he could also end up with a retirement account worth $85,000 compounding tax free (and worth a HECKUVA lot of money by the time he is 65, assuming he is young).

I don't think there's any scenario where he should remain uneducated on this. I think he should find someone to show him some basic calculations to run.

[ShockdaWorld]

Wow, thanks Kung. I think I just DID get educated. I realize that's probably an extremely bare bones look at it, and I need to learn more, but it certainly makes me understand the urgency with which I need to make these changes. It also made me think about some alternative options to go along with the refi. So, thank you.

[shocka khan]

If you get a financial calculator and teach yourself the basics of time-value of money you can run all kinds of hypothetical scenarios right at your kitchen table. TVM is not that hard to wrap your mind around.

Personally, I find it hilarious that higher education in our country forces oodles of liberal arts and humanities classes on every college graduate, but not a single requirement to understand how to balance one's checkbook or how amortization works. We stopped teaching common sense in higher education a long time ago, if it was ever there in the first place.

I'd rather use an excel spreadsheet. Or if you're really cheap, I believe that Google sheets is free.

And if you can't figure out how to do an amortization table in excel, google Chandoo. Chandoo's site has some great excel templates and tips.

[wufan]

The one thing that is missing above is the cost to refinance. You need to stay put for 3-5 years in order to make your money back. It's killing me to be holding a 30 year mortgage at 4.75% when I could easily have a 2.9% rate for 15 years, cutting my interest rate and term without increasing what I'm paying monthly (I pay an extra $250 a month towards principal). All that said, we plan on moving up in the next two years. I need more down payment (nothing down when I purchased in 2008) and to be assured of a job post acquisition that will be taking place this fall.

[Kung Wu]

Wow, thanks Kung. I think I just DID get educated. I realize that's probably an extremely bare bones look at it, and I need to learn more, but it certainly makes me understand the urgency with which I need to make these changes. It also made me think about some alternative options to go along with the refi. So, thank you.

I didn't mean to derail this thread with mortgage stuff, but you have a real opportunity to make a substantial leap ahead in your finances and I felt like it's worth the discussion. There are a lot of business savvy people on here that may have other ideas for ya (including @SHOCKvalue: -- he seems to be no slouch), but in a nutshell you really need to dig in and probably ought to make an adjustment.

And my example was really not that bare bones. It's no more difficult than running through that exercise, with different terms (rate, duration, amount to borrow).

www.bankrate.com has a very easy to use mortgage calculator that you can click on right from their home page (or the link I just provided). You put in the mortgage amount (the remaining amount you owe on your house), the duration of the mortgage, and whatever the best rate you can find is (use the national average right off the table on their home page). And it spits out the monthly payment.

You should also enter your original loan terms (30 years at whatever rate), and enter the original date and that same page will calculate your amortization table. When you click on that you can see what portion of your money is going to principal (equity in your home) vs interest payments (paying off your bank's CEO's private jet). Compare that with the refinanced mortgage to get a sense of how much money you will be saving and not feeding Mr. CEO's kids caviar.

So it's really not any more difficult than just playing with that, and as @shocka khan: said, a spreadsheet. Don't hesitate to call a few banks and ask for the current rate on a 15 year fixed so you have real numbers to play with. Also, note that there can be a pretty wide discrepancy between banks on rates, so make sure you shop around and don't assume the current bank you are with is going to give you the best rate (or even a good one). Capital Federal [www.capfed.com] seems to always be very competitive, but I am not endorsing them over any other.

The sooner the better because a) you may be throwing a couple hundred dollars away each month, b) you are losing out on tax free compounding if you decide to invest that $200 savings in an HSA or IRA, and c) rates could go up one of these quarters and you would miss out on this opportunity altogether.

[Kung Wu]

The one thing that is missing above is the cost to refinance. You need to stay put for 3-5 years in order to make your money back. It's killing me to be holding a 30 year mortgage at 4.75% when I could easily have a 2.9% rate for 15 years, cutting my interest rate and term without increasing what I'm paying monthly (I pay an extra $250 a month towards principal). All that said, we plan on moving up in the next two years. I need more down payment (nothing down when I purchased in 2008) and to be assured of a job post acquisition that will be taking place this fall.

True, but honestly he's so far past that concern that it's not even a consideration in his particular situation. All he needs to do is take the amount left on his home and add, say, $4000 to it, when calculating the 15 year refinance mortgage. So if he owes $120,000 on his home currently, he should just use $124,000 for the borrowed amount on the 15 year fixed terms. He won't _need_ to come up with cash, but of course you are paying the bank more in interest if you don't. As an example, if I add $4k to the $122,131.13 to make the loan $126,131.13 (so that the loan itself is covering the costs of refinancing), then his payment is $883.22 instead of $855.21. He still comes out waaay ahead, even if he doesn't have any cash to do the refinance with.

[ShockdaWorld]

I think I was probably the one that originally derailed the thread, but I really do appreciate all of the advice and thoughts you've all provided to help get me going in the right direction. When this is all said and done, I'm gonna owe you guys a round of beers or a round of golf or something.

[Kung Wu]

I think I was probably the one that originally derailed the thread, but I really do appreciate all of the advice and thoughts you've all provided to help get me going in the right direction.

Meh, I enjoy spending my time helping a young Shocker crunch some numbers a 1000x more than whining about why gutless politicians won't pass a fair/flat tax for the 20th time.

[shockmonster]

Rand Pauls one brilliant shining flaw- he's a pacifist.

Isolationist is a better word for it. Tries to say he's changing to get elected but he really is isolationist. Can be just as dangerous as a Hawk. Just look at what happened in WWII. Kept on giving Hitler what he wanted to avoid conflict and he took more. Afraid Obama and Kerry may be going that route with Russia and Iran.

[MoValley John]

Isolationist is a better word for it. Tries to say he's changing to get elected but he really is isolationist. Can be just as dangerous as a Hawk. Just look at what happened in WWII. Kept on giving Hitler what he wanted to avoid conflict and he took more. Afraid Obama and Kerry may be going that route with Russia and Iran.

WWII was Germany's fault. After Germany, you can blame France. Following WWI, every country had their demands, but it was France that was greedy and demanded extreme war reparations. France was going to profit off of the war. These reparations crushed Germany economically and fanned the flames of hatred and resentment. Blame Germany, then blame France.