How long to pay back 150G?

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r6_philly
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Re: How long to pay back 150G?

Postby r6_philly » Tue Jan 18, 2011 5:30 pm

nealric wrote:
The value of a 40+ year tax deferment is pretty darn high.

I recognize that NY taxes + real estate is quite expensive compared to the rest of the country. But a huge percentage of biglaw jobs are in NYC.

Also, don't forget that you will pay property taxes if you buy a home.


It depends on what your income will be in 40 years, but I guess it wouldn't matter if you are making that kind of money at retirement...

$2000 would be able to buy you a above median single around here including property tax. Since you don't have kids, you get to deduct almost all of that ($20-24k) instead of standard deduction which is about what 7-8k for 2? So the income tax on the 15k deduction translate to another 3-400 a month saving at least? It's definitely better to buy if rent/mortgage payment is roughly equal if you are high income.

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nealric
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Re: How long to pay back 150G?

Postby nealric » Tue Jan 18, 2011 5:32 pm


$2000 would be able to buy you a above median single around here including property tax. Since you don't have kids, you get to deduct almost all of that ($20-24k) instead of standard deduction which is about what 7-8k for 2? So the income tax on the 15k deduction translate to another 3-400 a month saving at least? It's definitely better to buy if rent/mortgage payment is roughly equal if you are high income.



You get to deduct home mortgage INTEREST. Not home mortgage payments.

r6_philly
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Re: How long to pay back 150G?

Postby r6_philly » Tue Jan 18, 2011 5:34 pm

nealric wrote:

$2000 would be able to buy you a above median single around here including property tax. Since you don't have kids, you get to deduct almost all of that ($20-24k) instead of standard deduction which is about what 7-8k for 2? So the income tax on the 15k deduction translate to another 3-400 a month saving at least? It's definitely better to buy if rent/mortgage payment is roughly equal if you are high income.



You get to deduct home mortgage INTEREST. Not home mortgage payments.


You get to deduct mortgage interest + property tax, which makes up 90% of your payment in the first few years.

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nealric
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Re: How long to pay back 150G?

Postby nealric » Tue Jan 18, 2011 5:40 pm

You get to deduct mortgage interest + property tax, which makes up 90% of your payment in the first few years.


Interest in the first year would be more like 55% on a 15-year at 5% interest. With the housing meltdown barely in the rear view mirror, I could never bring myself do a 30 year mortgage. But we digress.

rose711
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Re: How long to pay back 150G?

Postby rose711 » Tue Jan 18, 2011 5:43 pm

I'm not sure if this is getting off-topic on how long it will take to pay back the money, but, I don't know if you can get a mortgage in this economy if you owe $150,000 in unsecured debt? And if you do want to buy, holy cow, the real estate market is still a mess. There is no guarantee that you will be able to get out of a house payment or sell. And most co-ops or condos in NYC don't allow rentals. At least in a rental you can move out and not have to keep paying should you lose your job or want to move. I think the worst possible move would be to take on more debt. Also, buying an apartment in NYC entails monthly co-op or condo fees on top of your mortgage payment.

I do think that 2,000 - 3,000 is theoretically possible, but difficult, and I think that some people will be that disciplined and others simply can't. Things come up and you need to look good for work so the clothing expenses will be high.

Again, these numbers show how hard it is to pay back $150,000!
Last edited by rose711 on Tue Jan 18, 2011 5:46 pm, edited 1 time in total.

r6_philly
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Re: How long to pay back 150G?

Postby r6_philly » Tue Jan 18, 2011 5:46 pm

nealric wrote:
You get to deduct mortgage interest + property tax, which makes up 90% of your payment in the first few years.


Interest in the first year would be more like 55% on a 15-year at 5% interest. With the housing meltdown barely in the rear view mirror, I could never bring myself do a 30 year mortgage. But we digress.


It's the cheapest debt you can get into because (if) you can benefit tax wise. You can't do anything with the rent payments, but I suppose you can't buy a hallway with the rent payment lol

But I was really referring to combined housing payment because factor in the real estate taxes much higher percentage of your housing payment would be deductible even if at 55% interest 45% principle. But I gather we approach finance differently.

r6_philly
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Re: How long to pay back 150G?

Postby r6_philly » Tue Jan 18, 2011 5:48 pm

rose711 wrote: Again, these numbers show how hard it is to pay back $150,000!


I live just fine with a family of 4 with a 150k+ mortgage (cheap! I know) at 60-70k. I can continue to manage that and use the rest to payment the loan, which is why I am very comfortable taking this on.

You can still get mortgage if you can prove consistent income and have a good credit history, but I guess I am taking that for granted.

westbayguy
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Re: How long to pay back 150G?

Postby westbayguy » Tue Jan 18, 2011 5:51 pm

Keep in mind that the sacred home mortgage interst deduciton is in play as part of budget reform. It very well may not remain in its present from for much longer. And state taxes are a AMT entry, so as your income goes up , the tax benefit goes down. (And Real Estate taxes are really high in some eastern states (NY and CT come to mind). While owning may very well make sense iver renting, you need to think it all the way through.

r6_philly
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Re: How long to pay back 150G?

Postby r6_philly » Tue Jan 18, 2011 5:53 pm

westbayguy wrote:Keep in mind that the sacred home mortgage interst deduciton is in play as part of budget reform. It very well may not remain in its present from for much longer. And state taxes are a AMT entry, so as your income goes up , the tax benefit goes down. (And Real Estate taxes are really high in some eastern states (NY and CT come to mind). While owning may very well make sense iver renting, you need to think it all the way through.


If I can make it into AMT territory with 1 income I will not have to think it through ;)

I wouldn't buy in NY. But I wouldn't live in NY, so read my thought with that in mind. I can get everything I want in a house for around $750-900k, I should still enjoy most of the present tax benefits.

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nealric
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Re: How long to pay back 150G?

Postby nealric » Tue Jan 18, 2011 5:57 pm

You can still get mortgage if you can prove consistent income and have a good credit history, but I guess I am taking that for granted.


You can, but a few points:

#1. Things are different in NYC with regard to rent vs buy. Because real estate has increased so steeply over the years, renting has gotten out of whack with buying. You generally have to get a larger payment than renting to get the save living space.

#2. You need a downpayment.

#3. Student loans mess up your credit even if you don't default or miss a payment. My credit score dropped over 100 points over the course of law school simply because of the fact that I owe for school. It's now low enough that I would have trouble qualifying for a mortgage ITE. And I pay my credit cards in full each month- always have.

#4. You are forgetting home maintenance costs.

#5. You can't count on keeping that biglaw job. With an apartment, you can easily move somewhere cheaper if you end up having to work for less money. With a home, you may be stuck for a long time until you can sell.

r6_philly
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Re: How long to pay back 150G?

Postby r6_philly » Tue Jan 18, 2011 6:04 pm

nealric wrote:
You can still get mortgage if you can prove consistent income and have a good credit history, but I guess I am taking that for granted.


You can, but a few points:

#1. Things are different in NYC with regard to rent vs buy. Because real estate has increased so steeply over the years, renting has gotten out of whack with buying. You generally have to get a larger payment than renting to get the save living space.


I did acknowledge this. I hate living in NY.

#3. Student loans mess up your credit even if you don't default or miss a payment. My credit score dropped over 100 points over the course of law school simply because of the fact that I owe for school. It's now low enough that I would have trouble qualifying for a mortgage ITE.


I don't know your situation, but installment loans should not give me as much of a drop, I carry quite a bit of installment loans which will be replaced by the student loans.

#4. You are forgetting home maintenance costs.


I bought carefully, I set up reserves monthly, I have not needed to make large maintenance payments, if I do beyond the reserve, I will use equity. Well I paid down quite a bit, so technically it solves #2 too, because selling will still net me a decent amount for move up down payment.

#5. You can't count on keeping that biglaw job. With an apartment, you can easily move somewhere cheaper if you end up having to work for less money. With a home, you may be stuck for a long time until you can sell.


I agree with this. But I can actually afford to rent it out since my total housing payment (with reserve payment for maintenance) is just above the market rent.

I am a very careful planner. It's working out.

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Stanford4Me
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Re: How long to pay back 150G?

Postby Stanford4Me » Tue Jan 18, 2011 6:11 pm

I think this thread shows you shouldn't live/work in NYC. Move to Texas.

09042014
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Re: How long to pay back 150G?

Postby 09042014 » Tue Jan 18, 2011 6:15 pm

Stanford4Me wrote:I think this thread shows you shouldn't live/work in NYC. Move to Texas.


Good luck without ties.

legends159
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Re: How long to pay back 150G?

Postby legends159 » Tue Jan 18, 2011 6:20 pm

After nealric's changes regarding his health insurance premium the Net takehome for a married 1st year biglawyer in NYC is roughly $97K.

throw in about $7.5K (don't know how bonuses are taxed) plus any deductibles when you file taxes and you could bring home a bit under $110K after your first year.

Here is a typical budget (assuming married but no kids):

24K for rent
2K for utilities + internet + cable tv (cable tv is not necessary and can save you 500 a year at least)
12K for groceries + eating out occasionally (this number may be inflated because you get free dinner after 8pm at most NYC biglaw)
10K for miscellaneous expenses
2K for transportation (~100/mo in unlimited metrocard + occasional cab rides)
= roughly 50K expenses

Based on those numbers, one should be able to put $50K a year towards loans.

Of course to be safe one should probably only put $40K and save the rest in a bank account in case of emergency (say you get laid off).

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nealric
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Re: How long to pay back 150G?

Postby nealric » Tue Jan 18, 2011 6:45 pm

throw in about $7.5K (don't know how bonuses are taxed) plus any deductibles when you file taxes and you could bring home a bit under $110K after your first year.


Bonuses are taxed as ordinary income. A 7.5k bonus turns into an extra 4k after taxes. And like I said, you can't count on bonuses.

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nealric
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Re: How long to pay back 150G?

Postby nealric » Tue Jan 18, 2011 6:54 pm

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Last edited by nealric on Tue Jan 18, 2011 8:40 pm, edited 1 time in total.

rose711
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Re: How long to pay back 150G?

Postby rose711 » Tue Jan 18, 2011 7:23 pm

Going back to the OP question on how long it will take. If the interest is 7.5% on 150,000 and you pay 2,000 a month it takes:

Loan Calculator

Loan Balance: $150,000.00
Adjusted Loan Balance: $150,000.00
Loan Interest Rate: 7.50%
Loan Fees: 0.00%
Loan Term: 8.5 years
Minimum Payment: $2,000.00

Monthly Loan Payment: $2,000.00
Number of Payments: 102

Cumulative Payments: $203,040.64
Total Interest Paid: $53,040.64

Note: The monthly loan payment was calculated at $1,780.53 for 120 payments (10 years). Since this amount is less than the $2000 minimum, the term of the loan has beenshortened to 101 payments of $2000 plus a final payment of $1,040.64 .

It is estimated that you will need an annual salary of at least $240,000.00 to be able to afford to repay this loan. This estimate assumes that 10% of your gross monthly income will be devoted to repaying your student loans. This corresponds to a debt-to-income ratio of 0.6. If you use 15% of your gross monthly income to repay the loan, you will need an annual salary of only $160,000.00, but you may experience some financial difficulty.This corresponds to a debt-to-income ratio of 0.9.

For 3,000 a month:

Loan Balance: $150,000.00
Adjusted Loan Balance: $150,000.00
Loan Interest Rate: 7.50%
Loan Fees: 0.00%
Loan Term: 5 years
Minimum Payment: $3,000.00

Monthly Loan Payment: $3,000.00
Number of Payments: 61

Cumulative Payments: $180,415.43
Total Interest Paid: $30,415.43

Note: The monthly loan payment was calculated at $1,780.53 for 120 payments (10 years). Since this amount is less than the $3000 minimum, the term of the loan has beenshortened to 60 payments of $3000 plus a final payment of $415.4
It is estimated that you will need an annual salary of at least $360,000.00 to be able to afford to repay this loan. This estimate assumes that 10% of your gross monthly income will be devoted to repaying your student loans. This corresponds to a debt-to-income ratio of 0.4. If you use 15% of your gross monthly income to repay the loan, you will need an annual salary of only $240,000.00, but you may experience some financial difficulty.This corresponds to a debt-to-income ratio of 0.6.


*****
ok so now we've established that it will take you this long to repay $150,000
$3,626.84 = 4 years at 7.5%
$3,000 a month = 5 years at 7.5%
$2,000 a month = 8.5 years at 7.5%
$1,780.53= 10 years at 7.5%
and
$1,726.20 = 10 years at 6.8%

From this the OP should be able to make some good determinations as to his question.

*****

For reference, the tool I used is: http://www.finaid.org/calculators/loanpayments.phtml

This tool is good to help estimate taxes: --LinkRemoved--

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nealric
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Re: How long to pay back 150G?

Postby nealric » Tue Jan 18, 2011 8:42 pm

It is estimated that you will need an annual salary of at least $240,000.00 to be able to afford to repay this loan. This estimate assumes that 10% of your gross monthly income will be devoted to repaying your student loans. This corresponds to a debt-to-income ratio of 0.6. If you use 15% of your gross monthly income to repay the loan, you will need an annual salary of only $160,000.00, but you may experience some financial difficulty.This corresponds to a debt-to-income ratio of 0.9.


To be fair, that calculator is supposed to be for college grads. It doesn't really contemplate 160k salaries. Paying 15% of one's income is a much bigger deal for a new college grad making 35k than a biglaw lawyer making 160k.

rose711
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Re: How long to pay back 150G?

Postby rose711 » Tue Jan 18, 2011 9:29 pm

nealric wrote:
It is estimated that you will need an annual salary of at least $240,000.00 to be able to afford to repay this loan. This estimate assumes that 10% of your gross monthly income will be devoted to repaying your student loans. This corresponds to a debt-to-income ratio of 0.6. If you use 15% of your gross monthly income to repay the loan, you will need an annual salary of only $160,000.00, but you may experience some financial difficulty.This corresponds to a debt-to-income ratio of 0.9.


To be fair, that calculator is supposed to be for college grads. It doesn't really contemplate 160k salaries. Paying 15% of one's income is a much bigger deal for a new college grad making 35k than a biglaw lawyer making 160k.


True but I've heard there are lawyers out there with this kind of debt who work at jobs paying $35,000. What happens to them?

I think that if the final numbers and the little text paragraph the finaid calculator spits out makes a person think carefully before they borrow, then it can only benefit them. I don't know about anyone else but, for me, the idea of having to pay $3,000 a month for 5 years just to pay off loans puts the total amount into perspective.

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nealric
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Re: How long to pay back 150G?

Postby nealric » Tue Jan 18, 2011 10:22 pm

True but I've heard there are lawyers out there with this kind of debt who work at jobs paying $35,000. What happens to them?


There are. Probably more than make 160k. Either they didn't borrow 150k, they do IBR, or they default. Simple as that. You can't even make minimum payments on 150k of debt with that salary.

albanach
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Re: How long to pay back 150G?

Postby albanach » Tue Jan 18, 2011 11:30 pm

nealric wrote:
Taxes, health insurance, 401k. It all adds up.


Taxes are pretty certain. Health insurance - it seems unlikely there's any biglaw firm not offering full health and dental cover. 401k, obviously you need to choose how much you want to put in.

paycheckcity.com reckons $160k for a single individual in NYC results in a take home pay of $8,117.5

What's the situation with deducting loan interest? If you can, the first $10,000 (interest) could be repaid for a net loss of 'only' about $5k. Obviously that will decline year on year as the principle is paid down, but lockstep should more than cover the difference.

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nealric
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Re: How long to pay back 150G?

Postby nealric » Wed Jan 19, 2011 12:24 am

Taxes are pretty certain. Health insurance - it seems unlikely there's any biglaw firm not offering full health and dental cover. 401k, obviously you need to choose how much you want to put in.


Most biglaw firms make you pay some portion. My firm does. That said, even the cheap plan is a pretty good plan.

What's the situation with deducting loan interest? If you can, the first $10,000 (interest) could be repaid for a net loss of 'only' about $5k. Obviously that will decline year on year as the principle is paid down, but lockstep should more than cover the difference.


Can't do it. 160k is way past the phase-out.




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