Hypothetical money question

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  • phylodog

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    Mar 7, 2008
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    This is an exercise in satisfying my curiosity more than anything but it could turn in to something more.

    Background / Preface: I don't know jack about money. I've spent the majority of the past 20+ years paying child support and then paying for an engineering degree from Purdue for my son so investments and smart money moves are like a foreign language to me. That said, I've never paid a bill late in my life, my credit score average (among the big 3) is 790+ and my current debt to income ratio is around 16%.

    I have an opportunity to borrow up to $15,000 for 18 months at 0% interest. There will be a 3% transaction fee should I decide to take advantage of this free money. My question is two fold.....

    1. Is there money to be made here by taking the loan and investing?

    2. We have been searching for a new home for the past year. If we find what we're looking for I am prepared to make two mortgage payment for a couple of months if required to buy the new & sell the old but this will require a new mortgage which currently should not be a problem but if I were to take advantage of this offer I'm certain it would impact my credit score potentially negatively impacting my ability to qualify for a second mortgage(?).

    Please discuss......
     

    T.Lex

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    Mar 30, 2011
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    Purely IMHO, not legal or financial advice.

    1. That's not enough money to make the margin (the difference between what you make off the money and what you pay to get it) worthwhile. You'll tie up the money for that period of time, with the possible hit to your credit worthiness, for...$300? Maybe? I think for a 1 year CD, you might get 2 - 2.5%? Anything riskier than that and... well... you might end up losing money. Those kinds of margin plays (again, IMHO) are worth it if you have more zeros to play with.

    2. The house is probably a better investment (although I've seen some rationales that would argue it isn't).

    Really, you should talk to a personal financial person. A legitimate one. Someone who can take a look at the whole picture. You may have areas where it would make sense to do the interest free $15k to get liquidity or out of something else. A professional can help make that assessment.
     

    BehindBlueI's

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    1. That's not enough money to make the margin (the difference between what you make off the money and what you pay to get it) worthwhile. You'll tie up the money for that period of time, with the possible hit to your credit worthiness, for...$300? Maybe? I think for a 1 year CD, you might get 2 - 2.5%? Anything riskier than that and... well... you might end up losing money. Those kinds of margin plays (again, IMHO) are worth it if you have more zeros to play with.

    Strongly agree. If it were a true 0%, fine. The transaction fee kills it. There's nothing out there that's stable enough to risk money you're borrowing that will pay enough above 3% to matter.

    Take $3, buy a used copy and read this: https://www.amazon.com/dp/B004EBT7I2/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1

    It's an easy to read book that will help you gain a lot of personal finance literacy quickly, without any sorts of schemes, all-or-nothing commandments, etc.
     

    Trigger Time

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    Aug 26, 2011
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    You'll loose more in the brokerage fees you pay to invest that than the return you'll potentialy get in a year depending on which type of investment. (I'm assuming youd want minimal risk?) Plus the 3% feee.
    Could you take 15k and flip it in other ways and make more? Yeah easy but then you have income tax issues and things to worry about.
    Not worth it if you dont need it.
    Good luck with the new home

    Edit: you mentioned college, if you still are paying college for your son one way I could possibly see an investment paying off is a 529 because of lack of taxes if used for his education. However the 3% fee yiu mentioned and the brokerage fees would still potentialy be more than your 1 year gains unless you put it in a higher risk fund. But there are no guarantees you wont lose. Best not to play with needed money for short term investments
     
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    GodFearinGunTotin

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    Appreciate it fellas, didn't figure it was possible but you never know till you ask.

    We learned the hard way, when we were much younger and dumber, if it seems too good to be true it probably is. Generally speaking, nobody is going to loan you money if they could make more money investing it some other way. They're not making you this deal because they're feeling magnanimous.
     

    Leadeye

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    Unless you've got a short term deal in the works for the 15gs I would pass. That said, when I had been married 2 years and had a new baby I borrowed 5K on a 90 day note to buy guns. Wife didn't speak to me for a while but I was able to retire the note on time, keep some of the guns and some cash. Wife never argued with me again on a gun deal, so taking big risks is sometimes worth the reward.:)
     

    Ericpwp

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    Jan 14, 2011
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    Sounds like a credit card check. I've used them to pay down debt. Once to get my car loan paid, and once to get out of PMI on my mortgage. Other than that I never thought it was a good idea to try to speculate with them.
    Imagine your investment getting cut in half, or going to zero. Pretend you bought Bitcoin at the high with it, and see where you are now. Can you take that kind of hit?
     

    nra4ever

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    You only lose money on bitcoin if you sell. As long as you hold you will be fine. Once it passes $100k per bitcoin still continue to hold.
     

    JettaKnight

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    Oct 13, 2010
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    2. We have been searching for a new home for the past year. If we find what we're looking for I am prepared to make two mortgage payment for a couple of months if required to buy the new & sell the old but this will require a new mortgage which currently should not be a problem but if I were to take advantage of this offer I'm certain it would impact my credit score potentially negatively impacting my ability to qualify for a second mortgage(?).

    Please discuss......
    Been there, done that. - two mortgages that is. Honestly, it's a helluva lot less stressful if you can overlap the two for two months.

    I just posted a few days ago in Longbow's thread that I bought our house with 3% down payment on a 15 year fixed, then after I sold the old, rolled that money into the new mortgage, effective turning it into a 12 year loan.

    Within a year or so, my credit score was back to >840.


    As to the money, let's see, 18 months, 3%, that's... ~2% APR, right? Which is pretty good, as I looked and my CU is ~10% for that.

    Can you confidently use that money to exceed that? Any investments like stocks, bonds, Bticoin, etc. are all things that you can't be confident of. A 30 mo. CD is about the only sure thing, and you'll lose money on that.


    Are the two things related?

    If you're looking to buy a house, why take on more debt now by taking this loan? I'm assuming the loan is some unsecured thing... maybe CC check. If you need to get to that magic 20% for the new loan, it might we worth it to avoid PMI (gotta work the numbers on this). That, or maybe using the money to fix up the old home is the only thing I can think of... and those are dubious.
     

    JettaKnight

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    You only lose money on bitcoin if you sell. As long as you hold you will be fine. Once it passes $100k per bitcoin still continue to hold.

    With your first post, I thought you were kidding... with the second post I think you're foolish. The OP is asking about a short term loan and you offer up a risky speculation followed by advice to buy and hold.
     

    nra4ever

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    Bitcoin is not risky. Most people don’t understand what bitcoin is. Once you realize what it is it may be too late to make a killing. People please buy that bitcoin or don’t and live with regret later.
     

    CampingJosh

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    Bitcoin is not risky. Most people don’t understand what bitcoin is. Once you realize what it is it may be too late to make a killing. People please buy that bitcoin or don’t and live with regret later.

    I understand bitcoin. All investments contain some risk. Saying anything otherwise is naive.
     
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