Author Topic: 20 vs 30 year refi? Both at 3%  (Read 1610 times)

thatsdifferent

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20 vs 30 year refi? Both at 3%
« on: July 03, 2020, 12:44:25 PM »
So I stumbled upon the news today that rates are low again and so I'm re-evaluating my situation...

I currently have

$71k left at 4% fixed 30yr, $441/month, 11 yrs in/19 yrs left.

I'm looking at

$71k at 3% fixed 30yr, $300/month, or
$71k at 3% fixed 20yr, $394/month.

Given that I could pay the new 30yr at the 20yr rate, it would basically equal the 20yr mortgage. But the 30yr would give me options if I wanted to spend that payment difference.

Two points to ponder-
1. I'm generally of the mindset not to prepay the mortgage, as I would be better off investing the money. But,
2. I'm not going to invest the difference. I plan to use the smaller monthly payment to save towards the child(s)' private education which will start in ~2 yrs.

Once the children are grown and out of the house, I could think about paying the remainder of the 30yr off (at yr 20), but it looks like it'll still have a $31k balance... ouch...

Thoughts?


YttriumNitrate

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Re: 20 vs 30 year refi? Both at 3%
« Reply #1 on: July 03, 2020, 01:07:18 PM »
What are the closing costs for each of those options?

thatsdifferent

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Re: 20 vs 30 year refi? Both at 3%
« Reply #2 on: July 03, 2020, 01:40:56 PM »
What are the closing costs for each of those options?

Unknown, but at the same place so presumably equivalent.

ducky19

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Re: 20 vs 30 year refi? Both at 3%
« Reply #3 on: July 04, 2020, 03:27:15 PM »
All other things being equal, I would always take the longer note. You can always pay more towards it, but no requirement to do so!

Dicey

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Re: 20 vs 30 year refi? Both at 3%
« Reply #4 on: July 05, 2020, 03:49:19 PM »
All other things being equal, I would always take the longer note. You can always pay more towards it, but no requirement to do so!
I tend to agree with this,  but I have a tiny mental asterisk when the balance is below $100k. What's the house worth?

thatsdifferent

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Re: 20 vs 30 year refi? Both at 3%
« Reply #5 on: July 05, 2020, 05:17:20 PM »
All other things being equal, I would always take the longer note. You can always pay more towards it, but no requirement to do so!
I tend to agree with this,  but I have a tiny mental asterisk when the balance is below $100k. What's the house worth?

I'd be curious what your asterisk is about.

The house is worth 140k. Mortgage was originally about 95k.


SndcxxJ

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Re: 20 vs 30 year refi? Both at 3%
« Reply #6 on: July 05, 2020, 09:48:48 PM »
Knowing the points and closing costs are going to be critical on knowing whether a refinance is worth it at all.  I have a rule of thumb that if the interest difference (in this case 1%) can repay the closing costs and any points in less than 24 months I would do it. 
Sometimes it's easy to get caught up on a low rate and forget the tremendous costs that can be incurred (and added to the note). 
If it turns out that the refinance is actually worth doing then,to me, it is a no brainier to take the 30 year and not the 20 year.

maizefolk

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Re: 20 vs 30 year refi? Both at 3%
« Reply #7 on: July 05, 2020, 10:06:40 PM »
Wow those are awesome rates for such a small mortgage balance. I've been looking for a refinance for my own mortgage with about $100k left and haven't had luck getting rates close to that yet.

I agree with you and the other posters, all this being equal, take the longer-term note to have more flexibility. You can always pay it down faster than schedule but can never pay it down more slowly.

Dicey

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Re: 20 vs 30 year refi? Both at 3%
« Reply #8 on: July 06, 2020, 06:02:38 AM »
All other things being equal, I would always take the longer note. You can always pay more towards it, but no requirement to do so!
I tend to agree with this,  but I have a tiny mental asterisk when the balance is below $100k. What's the house worth?

I'd be curious what your asterisk is about.

The house is worth 140k. Mortgage was originally about 95k.
Ah, the asterisk. Several reasons, actually.

I'm an original member of the DPOYM Club. I live in a HCOLA and always have, so I'm used to bigger mortgage balances. I've stated previously that for a sub-100k mortgage balance, the advantages of delaying payoff are somewhat less significant. Also, i understand that many lenders won't give sub-$100k mortgages the time of day.

Mortgage rates are insanely low right now. If you are a proven disciplined saver, my inclination would be to do the 30 year cash-out re-fi for $100k. Invest the difference and buckle up for a bumpy ride. I believe that in the end, having a mortgage and investing the difference is still the winning approach.

talltexan

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Re: 20 vs 30 year refi? Both at 3%
« Reply #9 on: July 06, 2020, 07:15:30 AM »
I'm really shocked that the two terms are the same rate. There should be a rate premium for 30 years. I wonder if you wait a few days if that 15-year rate will come down?

thatsdifferent

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Re: 20 vs 30 year refi? Both at 3%
« Reply #10 on: July 06, 2020, 06:25:15 PM »
All other things being equal, I would always take the longer note. You can always pay more towards it, but no requirement to do so!
I tend to agree with this,  but I have a tiny mental asterisk when the balance is below $100k. What's the house worth?

I'd be curious what your asterisk is about.

The house is worth 140k. Mortgage was originally about 95k.
... I've stated previously that for a sub-100k mortgage balance, the advantages of delaying payoff are somewhat less significant.

Interesting. I'll have to look more into that.

Quote from: Dicey
If you are a proven disciplined saver, my inclination would be to do the 30 year cash-out re-fi for $100k. Invest the difference and buckle up for a bumpy ride. I believe that in the end, having a mortgage and investing the difference is still the winning approach.

I would like to follow that thinking, however I'm looking to free up monthly cash to save/spend on private schooling in a few short years. Which has been the basis for my question- if I'm *not* saving the difference, is there a preference between one or the other? Worded differently- after private school, college, etc and the kids move out in 20 years, I'll be left with 10 years and 31k on the note. If I start saving the payment difference, then I'll keep the mortgage. If I spend the difference, or just use the smaller payment to minimize my cost of living, then... ??

Ultimately, I'll go with the 30 year, as it will drop my payment the most.

I'm really shocked that the two terms are the same rate. There should be a rate premium for 30 years. I wonder if you wait a few days if that 15-year rate will come down?

The rates are the same between the 30 and 20 yr. The 15 yr is 2.5%.

Wow those are awesome rates for such a small mortgage balance. I've been looking for a refinance for my own mortgage with about $100k left and haven't had luck getting rates close to that yet.


While plugging my numbers into the bank's website, it turns out that my small mortgage will probably incur a slightly higher rate- 3.125%. But still the same for the 30 and 20 yr terms.

thatsdifferent

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Re: 20 vs 30 year refi? Both at 3%
« Reply #11 on: July 06, 2020, 08:22:16 PM »
Ah, the asterisk. Several reasons, actually.

I'm an original member of the DPOYM Club. I live in a HCOLA and always have, so I'm used to bigger mortgage balances. I've stated previously that for a sub-100k mortgage balance, the advantages of delaying payoff are somewhat less significant. Also, i understand that many lenders won't give sub-$100k mortgages the time of day.

Mortgage rates are insanely low right now. If you are a proven disciplined saver, my inclination would be to do the 30 year cash-out re-fi for $100k. Invest the difference and buckle up for a bumpy ride. I believe that in the end, having a mortgage and investing the difference is still the winning approach.

Whoa, whoa, whoa. My wife talked to me, prompting me to re-read your words, and I understand your words differently now. Or rather, I see how I can apply your words to my situation.

In the next few years I will start paying for school costs for one kid, and then a second kid, and these costs are expected to be 20k/yr at their highest. Originally I was going to refinance to get a lower payment, allowing me to free up cash month to month to pay for the schooling. But this was never going to be enough for all the schooling, and so regular chipping out of the nest egg was going to be an acceptable (last) option.

Now, I see that if I cash-out re-fi and *do* drop it (30k) into (VTSAX) savings, it will bump my nest egg (and over 30 yrs I'll come out waay ahead of my 3% borrow rate). Meanwhile, I won't have quite as much month-to-month to pay the schooling, and I'll have to dip into the nest egg a little quicker. But dipping out of the nest egg will never be more than 2%, meanwhile my investments continue growing at >8% long-term, and I'll be way ahead, down the road, eventually. Whew. My head shouldn't hurt this much.

Dicey

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Re: 20 vs 30 year refi? Both at 3%
« Reply #12 on: July 06, 2020, 10:39:16 PM »
Ah, the asterisk. Several reasons, actually.

I'm an original member of the DPOYM Club. I live in a HCOLA and always have, so I'm used to bigger mortgage balances. I've stated previously that for a sub-100k mortgage balance, the advantages of delaying payoff are somewhat less significant. Also, i understand that many lenders won't give sub-$100k mortgages the time of day.

Mortgage rates are insanely low right now. If you are a proven disciplined saver, my inclination would be to do the 30 year cash-out re-fi for $100k. Invest the difference and buckle up for a bumpy ride. I believe that in the end, having a mortgage and investing the difference is still the winning approach.

Whoa, whoa, whoa. My wife talked to me, prompting me to re-read your words, and I understand your words differently now. Or rather, I see how I can apply your words to my situation.

In the next few years I will start paying for school costs for one kid, and then a second kid, and these costs are expected to be 20k/yr at their highest. Originally I was going to refinance to get a lower payment, allowing me to free up cash month to month to pay for the schooling. But this was never going to be enough for all the schooling, and so regular chipping out of the nest egg was going to be an acceptable (last) option.

Now, I see that if I cash-out re-fi and *do* drop it (30k) into (VTSAX) savings, it will bump my nest egg (and over 30 yrs I'll come out waay ahead of my 3% borrow rate). Meanwhile, I won't have quite as much month-to-month to pay the schooling, and I'll have to dip into the nest egg a little quicker. But dipping out of the nest egg will never be more than 2%, meanwhile my investments continue growing at >8% long-term, and I'll be way ahead, down the road, eventually. Whew. My head shouldn't hurt this much.
Whew, that was a lot of learnin' in a very short time! We oldtimers love it when someone is a quick study. Bonus points for having a smart wife, lol.

Is it safe to assume when you say "dip into your nest egg", you actually mean spending from taxable accounts and not tax deferred accounts? If you actually do intend to dip into tax deferred accounts (Aaack! Noooo!!!), it would make more sense to dip into the $30k-ish mortgage proceeds that you will have dumped into VTSAX. Make sense?

Also, given your new understanding and apparent comfort with the idea, you might consider going for the full 80% LTV, as long as you're positive you can handle the payments. I say that with a straight face, mostly for the benefit of others. Your payment will be so low that you could flip burgers three days a week and make the mortgage, so you should be fine.

The subject of private school will be pointedly be ignored for the purpose of this conversation.

thatsdifferent

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Re: 20 vs 30 year refi? Both at 3%
« Reply #13 on: July 07, 2020, 11:28:12 AM »
Ah, the asterisk. Several reasons, actually.

I'm an original member of the DPOYM Club. I live in a HCOLA and always have, so I'm used to bigger mortgage balances. I've stated previously that for a sub-100k mortgage balance, the advantages of delaying payoff are somewhat less significant. Also, i understand that many lenders won't give sub-$100k mortgages the time of day.

Mortgage rates are insanely low right now. If you are a proven disciplined saver, my inclination would be to do the 30 year cash-out re-fi for $100k. Invest the difference and buckle up for a bumpy ride. I believe that in the end, having a mortgage and investing the difference is still the winning approach.

Whoa, whoa, whoa. My wife talked to me, prompting me to re-read your words, and I understand your words differently now. Or rather, I see how I can apply your words to my situation.

In the next few years I will start paying for school costs for one kid, and then a second kid, and these costs are expected to be 20k/yr at their highest. Originally I was going to refinance to get a lower payment, allowing me to free up cash month to month to pay for the schooling. But this was never going to be enough for all the schooling, and so regular chipping out of the nest egg was going to be an acceptable (last) option.

Now, I see that if I cash-out re-fi and *do* drop it (30k) into (VTSAX) savings, it will bump my nest egg (and over 30 yrs I'll come out waay ahead of my 3% borrow rate). Meanwhile, I won't have quite as much month-to-month to pay the schooling, and I'll have to dip into the nest egg a little quicker. But dipping out of the nest egg will never be more than 2%, meanwhile my investments continue growing at >8% long-term, and I'll be way ahead, down the road, eventually. Whew. My head shouldn't hurt this much.
Whew, that was a lot of learnin' in a very short time! We oldtimers love it when someone is a quick study. Bonus points for having a smart wife, lol.

Is it safe to assume when you say "dip into your nest egg", you actually mean spending from taxable accounts and not tax deferred accounts? If you actually do intend to dip into tax deferred accounts (Aaack! Noooo!!!), it would make more sense to dip into the $30k-ish mortgage proceeds that you will have dumped into VTSAX. Make sense?

Also, given your new understanding and apparent comfort with the idea, you might consider going for the full 80% LTV, as long as you're positive you can handle the payments. I say that with a straight face, mostly for the benefit of others. Your payment will be so low that you could flip burgers three days a week and make the mortgage, so you should be fine.

The subject of private school will be pointedly be ignored for the purpose of this conversation.

"Nest egg" to me is my mid- to long-term investments, which are broad-based stocks/bonds, in one taxable and several tax deferred accts. The taxable acct would be the first one to be dipped into, and would not be exhausted through the payment of private school. In a related note, the cash from the cash-out refi would be put into this taxable acct. (Roth IRAs are fully funded each year from another income stream).

I would be open to going with a higher LTV, but would hesitate to have a higher payment than I have now. Just having a $25/month decrease in payment would give some 'instant gratification' pleasure.

As it currently stands, I work 3 days a week now which covers my pretty-low budget numbers. That allows my "nest egg" to grow untouched (except for when private school starts).

Dicey

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Re: 20 vs 30 year refi? Both at 3%
« Reply #14 on: July 07, 2020, 03:01:06 PM »
Ah, the asterisk. Several reasons, actually.

I'm an original member of the DPOYM Club. I live in a HCOLA and always have, so I'm used to bigger mortgage balances. I've stated previously that for a sub-100k mortgage balance, the advantages of delaying payoff are somewhat less significant. Also, i understand that many lenders won't give sub-$100k mortgages the time of day.

Mortgage rates are insanely low right now. If you are a proven disciplined saver, my inclination would be to do the 30 year cash-out re-fi for $100k. Invest the difference and buckle up for a bumpy ride. I believe that in the end, having a mortgage and investing the difference is still the winning approach.

Whoa, whoa, whoa. My wife talked to me, prompting me to re-read your words, and I understand your words differently now. Or rather, I see how I can apply your words to my situation.

In the next few years I will start paying for school costs for one kid, and then a second kid, and these costs are expected to be 20k/yr at their highest. Originally I was going to refinance to get a lower payment, allowing me to free up cash month to month to pay for the schooling. But this was never going to be enough for all the schooling, and so regular chipping out of the nest egg was going to be an acceptable (last) option.

Now, I see that if I cash-out re-fi and *do* drop it (30k) into (VTSAX) savings, it will bump my nest egg (and over 30 yrs I'll come out waay ahead of my 3% borrow rate). Meanwhile, I won't have quite as much month-to-month to pay the schooling, and I'll have to dip into the nest egg a little quicker. But dipping out of the nest egg will never be more than 2%, meanwhile my investments continue growing at >8% long-term, and I'll be way ahead, down the road, eventually. Whew. My head shouldn't hurt this much.
Whew, that was a lot of learnin' in a very short time! We oldtimers love it when someone is a quick study. Bonus points for having a smart wife, lol.

Is it safe to assume when you say "dip into your nest egg", you actually mean spending from taxable accounts and not tax deferred accounts? If you actually do intend to dip into tax deferred accounts (Aaack! Noooo!!!), it would make more sense to dip into the $30k-ish mortgage proceeds that you will have dumped into VTSAX. Make sense?

Also, given your new understanding and apparent comfort with the idea, you might consider going for the full 80% LTV, as long as you're positive you can handle the payments. I say that with a straight face, mostly for the benefit of others. Your payment will be so low that you could flip burgers three days a week and make the mortgage, so you should be fine.

The subject of private school will be pointedly be ignored for the purpose of this conversation.

"Nest egg" to me is my mid- to long-term investments, which are broad-based stocks/bonds, in one taxable and several tax deferred accts. The taxable acct would be the first one to be dipped into, and would not be exhausted through the payment of private school. In a related note, the cash from the cash-out refi would be put into this taxable acct. (Roth IRAs are fully funded each year from another income stream).

I would be open to going with a higher LTV, but would hesitate to have a higher payment than I have now. Just having a $25/month decrease in payment would give some 'instant gratification' pleasure.

As it currently stands, I work 3 days a week now which covers my pretty-low budget numbers. That allows my "nest egg" to grow untouched (except for when private school starts).
I'd wager that the "pain" of a slightly higher payment would be more than assuaged by perusing your increased investment account balances. Your new mortgage payment will be fixed and never go up, but over time your investment accounts will.

Another thing to consider is if there is any way to mitigate the costs of the private school. Could you work there one day a week in exchange for reduced tuition? Teach? Coach? Fix things? Find out what they need and see if you can fill it...for a hefty tuition discount.

While I'm at it, it sounds like you've done and continue to a lot of things right. Kudos to you!

thatsdifferent

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Re: 20 vs 30 year refi? Both at 3%
« Reply #15 on: July 07, 2020, 07:46:29 PM »
Another thing to consider is if there is any way to mitigate the costs of the private school. Could you work there one day a week in exchange for reduced tuition? Teach? Coach? Fix things? Find out what they need and see if you can fill it...for a hefty tuition discount.

While I'm at it, it sounds like you've done and continue to a lot of things right. Kudos to you!

We'll try financial aid or see if some labor hours could be had. It is what it is.

Thanks for being a sounding board- I was hoping you'd be the one to chime in on my thread. ;-)

thatsdifferent

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Re: 20 vs 30 year refi? Both at 3%
« Reply #16 on: July 09, 2020, 08:53:05 PM »
In case anyone is still listening, I went in today, got approved for a cash-out refi (amount to be determined after the house appraisal), and a rate locked in at 2.625!

2.625!

That is all.

Dicey

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Re: 20 vs 30 year refi? Both at 3%
« Reply #17 on: July 09, 2020, 11:31:36 PM »
In case anyone is still listening, I went in today, got approved for a cash-out refi (amount to be determined after the house appraisal), and a rate locked in at 2.625!

2.625!

That is all.
Holy S-H-I-T! That is amazing! At that rate, I'd be inclined to max that sucker out.

thatsdifferent

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Re: 20 vs 30 year refi? Both at 3%
« Reply #18 on: July 10, 2020, 01:32:56 PM »
In case anyone is still listening, I went in today, got approved for a cash-out refi (amount to be determined after the house appraisal), and a rate locked in at 2.625!

2.625!

That is all.
Holy S-H-I-T! That is amazing! At that rate, I'd be inclined to max that sucker out.

We may try for a 40k cash-out, which would only be a few dollars more than our current payment
/current thoughts.

Given the Covid, things in the real estate market are apparently moving pretty slow, so the lock is for 90 days.

thatsdifferent

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Re: 20 vs 30 year refi? Both at 3%
« Reply #19 on: August 25, 2020, 08:20:24 PM »
We closed last week. The house appraised higher than anticipated, so we were able to pull out 52k. We could've pulled out a few thousand more, but we kept our payment at a nice even $500. I may make a spreadsheet to track how we're better off investing the cash-out; it would be interesting to watch. #ineedalife

Boll weevil

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Re: 20 vs 30 year refi? Both at 3%
« Reply #20 on: August 26, 2020, 12:28:54 PM »
Hope this works out for you. I tend to be a bit suspicious about borrowing extra to invest... looks great on paper but the real world isnít paper. See the New York Mets and Bobby Bonilla for it going wrong.

talltexan

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Re: 20 vs 30 year refi? Both at 3%
« Reply #21 on: August 27, 2020, 08:41:32 AM »
The NY Mets were able to contend for a WS title in 2000 thanks to the cash flow they opened up with that Bonilla deal.

v8rx7guy

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Re: 20 vs 30 year refi? Both at 3%
« Reply #22 on: August 27, 2020, 08:48:47 AM »
From my small amount of experience, the real rate drop is at 15yr.  Often 20, 25 & 30yr terms are right about the same +/-0.125% .  If you can swing it, compare the 15yr too.

srad

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Re: 20 vs 30 year refi? Both at 3%
« Reply #23 on: August 27, 2020, 11:01:04 AM »
Hope this works out for you. I tend to be a bit suspicious about borrowing extra to invest... looks great on paper but the real world isnít paper. See the New York Mets and Bobby Bonilla for it going wrong.

Bonilla - I didn't expect to see this guy in a real estate forum...  Good reference.  I'm with Boll, i'm not a fan of pulling out money from my properties to pay for anything other than, more properties.  I'm just super conservative with my equity.  But, I've also have been painfully wrong lately,  Interest rates keep falling,  I thought they'd start to climb years ago.  And the stock market,,, how the f is it reaching all time highs right now? 

You are sitting on a 2.625%, $500 a month loan, so i'm going to assume you'll end up just fine if the market dumps.  2.625%, wow, just wow...

aasdfadsf

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Re: 20 vs 30 year refi? Both at 3%
« Reply #24 on: August 29, 2020, 12:08:05 AM »
In case anyone hasn't already said this...

If the interest rate and closing costs are the same, you should always take the longer period of time. If for some reason you don't like getting charged 3% interest, you can always choose to pay it off faster. But given a choice between 15 and 30 years, you take the 30 years and then you can make it a 15 year loan by making extra payments if that's your thing. But the 30-year gives you the option of making smaller payments and using your extra money for other things. There is never a reason to choose the shorter period unless you are getting a lower interest rate, and even then you probably shouldn't.

talltexan

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Re: 20 vs 30 year refi? Both at 3%
« Reply #25 on: September 03, 2020, 06:51:17 AM »
I was shopping for a house in 2013 when the term premium was 100 basis points (4.25% for 30, 3.125 for 15). Conditions today seem totally foreign compared to that.

Telecaster

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Re: 20 vs 30 year refi? Both at 3%
« Reply #26 on: September 03, 2020, 10:10:08 AM »
In case anyone is still listening, I went in today, got approved for a cash-out refi (amount to be determined after the house appraisal), and a rate locked in at 2.625!

2.625!

That is all.

Insane.  I'd love to do something like that.  I've got a metric s-ton of equity, but I'm just not seeing rates that low.