[quote=EconProf]We agree on most of this, ER. Like much in economics and finance, decisions hinge on assumptions we must make with imperfect knowledge. If the MR does go up 2% a year (which is not assured–they went down for the past two years), then my 4.2% hurdle becomes 6.2%. Since I have 6% mortgages I could pay down with this money, its a tossup.
One question that has been batted around on this thread is whether paying off the MR translates automatically into a correspondingly higher value to the property. If not, IOW if buyers are not perfectly rational, then someone could lose by paying off the MR and then moving. So I should estimate my odd of moving in the next few years and factor that in to the decision.
In general, I think that buyers are pretty rational, and plug do MR’s into prices automatically. A heavy MR will lower a property’s value; its absense will raise it. For a buyer to swear off MR areas entirely would not be rational, since in newer areas they are practically impossible to avoid. If one has a family with school kids, MR is the price you pay for better schools, on average.
As for the close-together, grotesquely large and expensive new houses they are putting up around Santaluz in 4S and Del Sur, I agree with BG that they are not to my taste. But you are paying for the demographics, the shopping, and the resale value, and that is what is compelling to today’s buyers.[/quote]
Yes, EconProof. I do agree with you that your example isn’t as compelling as mine was. I think it’s GREAT that CFD #2 was refinanced to take advantage of this low interest rate environment and I’ve questioned publicly and encouraged the Press to see why ALL CFD’s haven’t refinanced at the lower rates.
Probably in your situation I’d maybe not pay off CFD #2 but I still would pay off CFD #4.
I do think you have to assume that the rate WILL go up from here out forward. We were in a very unusual situation the past few years but I think you would agree that interest rates can’t stay artificially low for too much longer. Plus, they already refinanced so the rate won’t be going down. It will only move up from here on out. To be conservative, I think you should assume that.
Absolutely, I totally agree you have to factor in the odds you will move/sell in the next few years. No doubt about it.
But still, I don’t think that anyone paying it off won’t be able to recoup it. I don’t believe lenders loan for future CFD tax liability but if you increase your price of your house, you could get a loan for home value.
I also believe that we won’t see the lows and the housing depth mess like we saw after the last crash with no-doc loans and anyone with a heartbeat getting a mortgage. So I assume we’ve seen the lows. Not to say there couldn’t be more ups and downs but I don’t honestly see a situation like we saw before. I do believe that anyone that bought at the depths of the lows were truly fortunate and timed it right.
Yes, I agree that not all the communities around here are my cup of tea. For example, several developments in Carmel Valley like Pacific Highlands Ranch totally aren’t worth it with 5 or 6 people looking in on your backyard and NO privacy. I also don’t find anything too special about 4S Ranch.
But there are several beautiful developments around here. We have friends in several of them and they truly love living around here. (Verrazzano, Santa Monica, Del Sur, Fairbanks Summit, Crosby, Collins Ranch, and of course Santaluz).
[quote=ocrenter][quote=EconProf]Since early retirement and I both live in Santaluz and face Mello-Roos fees, we met up today to compare notes. It turns out the decision of whether or not to pay off the MR is not at all clear cut.
I brought my tax bill with me so we could crunch the numbers to see if it is worthwhile. I also called earlier today, the number on the tax bill to learn my cost to pay it off, and got additional information about MR.
My bill contains two MR payments, CFD#2 for $2108 per year, and expiring in 2030, and Poway Unified, CFD#4 for $904 per year. I only called the number for the first, which revealed that my cost would be “about $30,000” to pay off (exact amount would cost me $500 to find out, but would apply as a credit to the payoff). That means if the amount stayed the same for the next 17 years, I would pay a total of about $36,000.
It clearly appears I should NOT pay it off, given that I could invest that $30,000 today and have it double assuming a mere 4.2% annual ROR compounded. Of course the unknowns are 1) Will that $2108 stay the same for 17 years, and 2) Will that expiration date of 2030 stay the same.
The guy I talked to on the phone was reassuring on both counts, but I do not share his confidence. Still, changes in 1 or 2, or both, would have to be pretty major to prompt me to pay it off. And the hurdle of 4.2%, (or 5%, or 6% depending on assumed changes in 1 or 2) should be pretty easy to beat with alternative investments, or paying down my other mortgages, of which I have many.
Early retirement and I also determined that the two MR fees are based on different factors. It seems the first depends on square footage, and the Poway Unified one depends on property value. Interesting.
Anyway, I am not paying off the MR, based on this information, unless someone here can bring other evidence to bear.[/quote]
I
I do wonder why PUSD can get CDF2 rate down to 4% but CDF11-3 is still at 7.5%.[/quote]
Exactly OCR! I can’t figure out why they can’t get it refinanced but then again NOTHING about PUSD surprises me these days.
