50K towards tuition or 50K towards house?
Hey Monkeys,
Say your parents will help foot the bill for your MBA for up to 50K. If you have the choice, should you instead use the 50K as a down payment for your future house?
Here are the variables:
- The house is estimated to be bought in 4 years and is 200K
- The MBA will be completed in 2 years and tuition is 40K / Yr (Other cost not included)
- The credit rating is 'above average'
- Other Investments totaling 35K
The hardest thing for me to figure out is the tax benefit of having student loans, the length of deferred re-payment, and the difference in interested rates between student loans and mortgages (I have done neither). Are there any experienced monkeys who can help fill out variables?
My conclusion (with out using any math) is that if worst comes to worst you can always sell your house but you can't sell your MBA.
What would you do and why? What would be the best way to analyze this financially?
I'm curious too. I saving for B-school or a home. I'll have to borrow to finance one of them. Which is the proper strategy?
You can't sell your mba, but you can let your folks buy it for you. Go with the MBA. Chances are you'll have to pay the other $50Kfo it which is better than a $100K debt and a house which you have only a little more equity in than the next round of closing costs plus a monthly mortgage payment.
personally im going to keep my money in the market and let it grow since i have it invested and will be 'out' in 3 years from now for business school.. but that also depends on what youre going to be doing with the 50k and what rate on a loan youd be getting, of course.
personally i think if you dont have it invested right now might as well use it to blast down your first semester or so's payments down... then with 10k from summer work and 20k offer maybe hopefully for signing bonus youll have taken out your whole first year of the MBA and only have to pay for half of it
where are you planning to live either way?
once you graduate from the MBA with a job a bank isnt going to be handing you out a mortgage loan without working for a bit im quite sure so its not like that 50k will be dumped into a house immediately either.
.
Invested in bonds?
Year to year I'm getting tired of seeing my stocks get owned. I'm not sure I can take the risk anymore with my down payment if I need to have it in 5 years.
The tax benefit of student loans is laughable. Currently $2,500/year (interest) and begins phasing out at $60,000 AGI and completely phases out at $80,000 AGI.
As for student loan rates it depends if they are fixed or variable, federal or private and subsidized or unsubsidized. There is a cap on student loans though, I believe around 8 or 9%. Federal subsidized is around 3% (not cap, just current rates). It is also, tough to forecast where interest rates will be in 2 years, that goes for student loans and mortgage debt. Depending on your credit rating, and the type of mortgage you get (fixed, variable and the term) rates are currently between 3.25% - 5%, again hard to say where they will be in 2 years. On your mortgage, the first $500,000 in capital gain appreciation is tax-free if you live in your home for a minimum of 3 out of 5 years. Also, you can deduct all mortgage interest.
I don't think you should be thinking about this in terms of interest rates and tax benefits. It really boils down to, do you think that your earning potential will increase significantly if you invest in your education and get your MBA? If yes, get your MBA, if not, then put some more thought into it.
Respectfully, I don't think the ROI on the MBA should have any affect on my decision since my 50K invesment would be done before the MBA. What I earn post MBA is somewhat speculative and the motivation to get an MBA is not always driven on a salary increase.
So suppose my earning potential increases moderately and I still decide to get the MBA. What would be my decision?
If I read correctly, you are deciding between $50,000 towards a house or $50,000 towards your MBA, and you do not think the return on your MBA has anything to do with this equation? Also, you said that the drive to get your MBA is not always based on a salary increase, while I would agree with you here, you outlined the question in the form of how your money would be best spent so I assumed you were factoring your total expected return into the equation.
Depends on where you get your MBA, honestly. Most MBA's from schools outside the top 10-15 are a rip off.
I suck at reading...nevermind
All of your mortgage interest is tax deductible. Your student loan interest issubject to some formula and a cap. (for the same amount of loan you get better tax benefit from mortgage). Mortgage can be discharged in bankruptcy (say you end up upside down on a house), student loans can't.
However, with all that said, I would buy the house right now and start renting it out/subletting. By the time u graduate, you will have increased ur home equity and saved on the apartment rentals. Depending on the area, it could end up being ($1000/mo24 mo) in sublet income going towards mortgage, plus (500/mo24mo) in rent payments you can instead apply towards mortgage. So that's 36 k applied towards your mortgage, out of which let's say 25k is applied towards principal. Essentially you will have made a 25% annual return on ur investment WHILE you were going to school.
Pardon my french, but why the fuck would you contemplate buying a house now? Prices are about to crash again. Oh and dont get an mba unless you absolutely need to. Save the 50k in CASH and wait till PHYSICAL silver is below $10 then start accumulating physical ag. Best free advice youll ever get. But i doubt parents would give you money for that....oh well
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