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Welcome to Arts and Ideas in the Air, Under the Tent, and Around Baltimore, your daily podcast briefing of all things going on in and around Arts and Ideas Sudbury School.
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So today is Monday, the last Monday of October. You know what that means? On Friday is our Halloween celebration. Yay!
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No food this year for pandemic reasons. Boo! But we can all dress up and come and have a good time and all that good stuff.
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Proper face masks should be worn under any Halloween mask, but otherwise. Online students are welcome to come in that day because it's Halloween. It's our holiday around here. It'd be great to see some of you come out.
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I just want to put it out there, though. I am not wearing a costume. I'm being serious. I mean, I might have a little thing, but no big costume. I simply don't have the brain power or the emotional space or anything else.
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But I'm really looking forward to seeing what other people come up with. It'd be great.
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Let's see. Today we had mandatory announcements. So that was cool. Yeah, there was an announcement of the Halloween stuff. There's a creative writing thing that's, I think, happening maybe right now.
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There was the history class that's doing bicycles and World War I. And then, yeah. Tomorrow's school meeting, of course. Wednesday is the history discussion. Thursday is Article Club at 11.
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It's on some topic that's somewhat got some mature stuff going on. It didn't really sound appealing to me, but maybe you'll like it. It's in Discord if you are curious.
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Yeah, I don't know. And then Friday is Halloween. So that's our week, people. We had one JC case today. It was a five-minute rule case. That went very well.
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And, yeah. Let's see. What else? Oh, yes. If you are planning on graduating, make sure to let Phil know by the end of this week.
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Everyone needs to declare that they're doing a diploma thesis before November 1st. So got to have it done by Friday. You know, I mean, telling Phil. So make sure to tell Phil if that's what you're planning on doing.
2:56
All right. It is a little cool and chilly here. Kind of wet in the field. People still came up for mandatory announcements, which was great to see. And, yeah, just kind of a chill in the air.
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So I guess we're starting to see what it will be like. My main problem is my feet are cold, and I'm not wearing my sandals right now. I'm wearing my Dan's, or Tanita's, I guess. Clogs, as they say.
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But, you know, I'm dealing. But still, people came out. They were playing around with the swing and, you know, some soccer balls and stuff. We do have a Slack line set up. I don't think that was mentioned during announcements.
3:47
Let's put up on Friday so one can walk along that line. That can be great fun. Yeah. I haven't seen Gaga being played lately. Hopefully that'll come back soon, but people are certainly using the Gaga pit.
4:04
You know, still got a sand base and cool walls and so forth. So that's nice. And, oh, I guess we're hoping to have an Animal Corporation meeting tomorrow. So if you're into chickens, feel free to attend.
4:22
And I think that might be it. So it's Monday, so I thought Millions Monday. I'm going to change it from what I usually do, which is kind of a guesstimation thing.
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And today I was going to talk a little bit about mortgages. Why? Because I'm in the process of buying a house. That's right, I'm going to buy a house. We're under contract for a house that's a 10 minute walk from here.
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It's a lovely house. Probably will need a lot of work. But today I wanted to talk about the finances. So for those who don't know, a house generally requires one to get a loan from a bank. We call it a mortgage.
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And the way it works is you have a down payment and then, you know, that covers part of the purchase price and then the bank gives a loan for the rest of it.
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And there's an interest rate. So as, you know, basically there's interest that accrues on the money that's borrowed and you pay that and some principal and then eventually you pay off the loan.
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That's the basic idea. And there's also closing costs. Those are non-trivial. If you're thinking about buying a house, think about making sure to include closing costs.
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So, what's the particular situations for us? Well, it's not the exact numbers, but let's just say a house is $200,000 for the purchase price.
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And that it gets appraised for that. So appraised is means what is the value of the house? And basically the appraisal comes up with the purchase price unless it's really out of whack.
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Yeah, it's kind of like a weight scale that I have where if you weigh yourself twice, you can see the numbers kind of fluctuate and then zooming in on the previous weight if it's close.
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It's kind of crazy. But, yeah. So traditionally, 20% down was the typical thing for a mortgage. So for $200,000, the down payment would be $40,000. Now that's a lot of money to come up with.
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So there are various schemes and mechanisms to deal with that. The most straightforward scheme is, of course, less down payment.
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And then you end up with something called PMI, or private mortgage insurance, which is basically you have so little equity in the house or money that you put into it that if something were to happen,
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you couldn't pay off the mortgage and the bank takes it, and then the bank's kind of really stuck. And they don't like that.
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So they have something called PMI, which adds on more money that you have to pay. Good. Great.
7:40
And so, yeah. It's this kind of weird thing where it's very typical in the economy, but I still think it's weird, where if you have less money, it costs more money to do stuff.
7:53
Basically because there's more likelihood to be problems, so it's logical from a certain sense, but it's absolutely kind of cruel to have happen.
8:03
Great. So, now there's also the question of how to fund things. So, you know, the simplest thing is you have a bunch of cash on hand.
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A complicated thing is if you have somebody willing to give you a gift of cash, that can be done, but it's a complicated thing because banks want to make sure you're not taking a loan from somebody else, because that's not good.
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So, and then there's kind of a third thing, which is various grants and loan programs out there, particularly to help first-time home buyers.
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And then there is also, if you have retirement accounts, you might be able to take some money out for that.
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In particular, I have a Roth IRA, which allows you to take out all the money you've contributed, just straight out, and also allows you to take up to $10,000 for the purchase of your first home without any penalty.
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And there's no taxes on it because it's a Roth IRA. Roth means you pay the tax before you put it in, which is good when you're young to do because your tax rate will be very low.
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As you get older, it sometimes makes sense to do a traditional IRA where it comes in pre-tax dollars, and then when you take it out when you retire, it gets taxed at that point.
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And so if you take it out to buy a house, it has to get taxed.
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And there can also be, if you have these retirement accounts and you're taking money out, there's generally a 10% penalty, except in certain circumstances, such as buying your first house up to $10,000.
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So, in our particular instance, we have found a couple programs that will basically give us, let's say 10% of the costs, and then with my Roth IRA, that allows us to do the down payment and closing costs in such a way that essentially works out really well.
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Not touching our cash at all, satisfying the bank, and the PMI we will pay up front, and so it's just kind of rolled up in that IRA money.
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There's also something called points, which allows you to lower that interest rate, and that will help lower your monthly payments.
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So all of that rolled up, all of that is in the closing costs, and so, yeah, we're sitting pretty, basically.
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We can get this house and not pay anything from our existing cash base.
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It's just a small cost to the retirement savings, which is fine.
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Now, let's talk about the monthly payments. How do they figure that?
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In general, for a conventional loan, you have either a 20, 25, or 30-year term, which means at the end of the term, your loan is paid off.
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We opted for a 30-year term because it's being paid less.
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And so what they basically do is they figure out what monthly payment is required, so it's a fixed monthly payment for the entire 30 years, but at the end of it, it gets paid off.
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And all the interest that is accruing throughout all that time is being paid off as well.
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So each month, you pay off the interest that accrues on the loan, and then a part of principal.
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When it starts off, you pay very little principal, because it's mostly interest, but as you pay down the principal, that interest amount shrinks and shrinks and shrinks and shrinks.
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And then at some point, maybe year 10 or something, there's actually more principal you're paying down than interest, and that's golden.
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Now, if you are doing this setup, and you want to pay it off early, which you can for the most part, you should make sure you can, but generally you can.
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You want to pay that off early, if at all you can, rather than later, because you're saving all that interest.
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For every $200 that you pay off early, you might save several hundred dollars or something in interest costs over the years.
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So that's good. And so we have, what we've been able to come up with is actually a loan where we're not using any of our existing cash, just some IRA money.
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And then the monthly payments are actually 200 less than our current rent that we're renting.
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So that's why people like to say that buying a house is actually a good financial move, because if it's done right, it's actually cheaper than renting.
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And on top of that, the payments are fixed, rent increases every year, and you also gain equity in the house, so when you sell the house, you might actually be able to extract some cash from the place you were living at.
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So it's all upswings. The downswing is, of course, you have to maintain it, and you are taking the risk that you have this asset that, if you can't unload it, and people have bought into neighborhoods where something happens and nobody wants to live there anymore.
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There's a terrible time in our past when something called redlining, which basically the banks on the behalf of the federal government refused to lend into certain neighborhoods, generally neighborhoods of black people.
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So that really destroyed the wealth for generations that should have been accumulating in their houses, just couldn't. It also made them unable to get loans and to fix up their houses and so forth, and so it was a terrible practice.
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But there are also other things, such as, you know, say in California right now, there's raging wildfires, and so maybe nobody wants to live in those houses near the woods anymore.
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And so now if you own one of those houses, you can't sell it because nobody wants to buy it, or they want to buy it for far, far less than you paid for it.
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Or even with the pandemic, you know, being able to work from home, maybe that means people don't have to live in San Francisco to be near their work. They can live anywhere they want.
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Those places were selling for like a million, two million for just like a little shack, and now maybe people don't want to live there anymore. It's too expensive, and they move elsewhere, particularly helped by, you know, all the smokes and fires.
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So, you know, owning a house has risk, definitely. It has responsibilities, definitely. But there's also the financial upswing.
15:26
So this little Millions Monday, or maybe Mortgage Monday, you know, it's got to be an alliteration, but yeah, Mortgage Monday is, well, hopefully clear.
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If you want to play around with sort of how the payments and principal interest works, there is of course math behind it, but you don't need to know any of it.
15:49
All you have to do is go to an amortization calculator. A-M-O-R-T-I-Z-A-T-I-O-N. And basically you can just play around with, type that into Google and you'll find some sites that allow you to see the prices and there's even one, maybe multiple ones where you can actually see how the principal interest varies over time.
16:14
That's pretty cool. One thing to note about those monthly payments, though, is that's not the actual monthly payment you pay for your house.
16:22
So like, you know, let's say the amortization thing comes out to be like $700. Well, then there might be $200 more for property taxes and another $100 more for insurance, and so, you know, that's, so then the payment becomes like $1,000.
16:46
Right. Now, if you have PMI, add something more on that and so forth. But yeah, that's buying a house and mortgage.
16:56
It's also a good tip to know about it is once you decide to go, it goes very fast and quickly.
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We had to have, we had to apply for a loan within five days of the signing. You know, inspection happens like in a week from the signing.
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So that's like two days from now for us. We get to go to the inspection and then there's various other things that we have yet to experience.
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But that'll be exciting. Appraisal. It can be a problem if it comes on appraised value below hand.
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Then there's the titling. You know, whether everything with the deeds and so forth is all good.
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So a lot to think about. But owning could be cool.
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I guess I'll find out soon. I hope you all have a good one. Sorry about the length of this. I guess it takes a while to talk about mortgages, but hope you enjoyed it.
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OK. Bye bye.