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#11,151
#11,151
allvol123 said:
Thanks for your input. I have a specific scenario to run by you, or some of the others.

I can run a business well, but need to be better at managing money.

I borrowed 400k a few years ago to open a business. The loan is for 10 years with a balloon payment at the end of the 10 years that is 60% of the total loan.

The balloon payment always made me nervous. So I have been very aggressive by socking 5k a month in a savings account for it. At this point I have over half of that 60% saved up.

I have probably been overly cautious. Not looking for admonishment on my past moves, but solid advice on future.

Thinking I could put 150k in a CD and have it at 185-190k in about 8 years. That would leave me about 40k needed to pay off. I could make that by setting aside 500 per month for the next 8 years. Thus freeing up 4500 (the 5k per month I have been saving) and do something else with that 4500 per month.

I could then be plugging that 4500 into a brokerage account, paying off my house, etc.
just thinking I should throttle back and do something monthly with that money that works out better for me. Rather than continuing to sprint towards paying off the loan.

I think 3 different people would give 3 different answers. Idk. Just looking for different perspectives.
Click to expand...
What interest rate are you paying as nobody can give advice without that data
 
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#11,153
#11,153
allvol123 said:
Thanks for your input. I have a specific scenario to run by you, or some of the others.

I can run a business well, but need to be better at managing money.

I borrowed 400k a few years ago to open a business. The loan is for 10 years with a balloon payment at the end of the 10 years that is 60% of the total loan.

The balloon payment always made me nervous. So I have been very aggressive by socking 5k a month in a savings account for it. At this point I have over half of that 60% saved up.

I have probably been overly cautious. Not looking for admonishment on my past moves, but solid advice on future.

Thinking I could put 150k in a CD and have it at 185-190k in about 8 years. That would leave me about 40k needed to pay off. I could make that by setting aside 500 per month for the next 8 years. Thus freeing up 4500 (the 5k per month I have been saving) and do something else with that 4500 per month.

I could then be plugging that 4500 into a brokerage account, paying off my house, etc.
just thinking I should throttle back and do something monthly with that money that works out better for me. Rather than continuing to sprint towards paying off the loan.

I think 3 different people would give 3 different answers. Idk. Just looking for different perspectives.
Click to expand...
Are you saying you need $240K and you already have $150K saved up?
 
#11,155
#11,155
allvol123 said:
Yes.

About 125 saved right now. Do you think a CD is too conservative of a move? Worked hard for where I am, which is very stable footing. Not adventurous enough to plunge this money into something with risk for a potential quick and large percentage return.

Just thinking there is no need to keep racing towards that 240. Maybe back off and let the money do a little work (CD) for 8 years and save the rest at a much slower pace over the 8 years. This freeing up a large monthly amount to improve my financials outside the business.
Click to expand...

What are you paying to the bank each month for the part that's not subject to the balloon?
 
#11,159
#11,159
Velo Vol said:
This didn't age well. LOL

Click to expand...

I was just remembering before I saw your post that the entire news media pitched that spiel, and for quite an extended period, particularly aimed at people who would not ordinarily speculate and small investors and first time investors. And this at the exact peak. Do people remember that? It was an absolute media-wide frenzy. This was not something that happened in some obscure corner of the internet.
 
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#11,160
#11,160
Part of me is thinking call the bank and ask if you can apply the $125K to your principal of your loan WITHOUT PENALTY. Right now, Im guestimating your loan balance is about $375K and this should take it down to $250K. Im not sure you will find a CD paying 4%. If they will do that, see if they will run you an amortization table for the remaining $250K to see how much you would have to pay each month to pay it off in the next 8 years without having a balloon payment at the end. I would bet that will be about 1,000 extra per month over the $2K you are already paying them.

I would then invest a large portion of the remaining 4K in the low cost mutual funds I described earlier. That will give you another nest egg.
 
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#11,161
#11,161
If there is a prepayment penalty on your loan, then yeah, I would save the $125K you already have plus another $1500 per month until you get to the 240K. Since this is like a sinking fund, a CD is fine since you want to preserve your capital. An I-bond might not be a bad idea either. I would then invest the other 3500 in mutual funds.
 
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#11,162
#11,162
allvol123 said:
Thanks for your input. I have a specific scenario to run by you, or some of the others.

I can run a business well, but need to be better at managing money.

I borrowed 400k a few years ago to open a business. The loan is for 10 years with a balloon payment at the end of the 10 years that is 60% of the total loan.

The balloon payment always made me nervous. So I have been very aggressive by socking 5k a month in a savings account for it. At this point I have over half of that 60% saved up.

I have probably been overly cautious. Not looking for admonishment on my past moves, but solid advice on future.

Thinking I could put 150k in a CD and have it at 185-190k in about 8 years. That would leave me about 40k needed to pay off. I could make that by setting aside 500 per month for the next 8 years. Thus freeing up 4500 (the 5k per month I have been saving) and do something else with that 4500 per month.

I could then be plugging that 4500 into a brokerage account, paying off my house, etc.
just thinking I should throttle back and do something monthly with that money that works out better for me. Rather than continuing to sprint towards paying off the loan.

I think 3 different people would give 3 different answers. Idk. Just looking for different perspectives.
Click to expand...

Meet early and regularly with the lender or potential new lenders. You should be able to refinance the balloon payment with somebody if you can show them that the business is viable and executing. Hiring a CPA to express their opinion on the accuracy of the financial statements could be a good investment.

Don’t take risks in equity markets with any funds that will be needed to repay the loan. Especially if you’ve personally guaranteed the loan.

Go to a CFP, a legit broker like Schwab, or even the CPA if you need help on where to best stash excess funds. A good one should be able to assist with a proper compensation strategy as well (401(k), deferred compensation, having family on the payroll, structuring bonuses to minimize taxes, etc).

Interest rates are rising. Owning layers of bonds/CDs might be a good plan to accumulate the balloon requirements. Until rates have peaked, or at least leveled off, you probably don’t want to buy more than a year or two to maturity. The CPA, CFP, broker/advisor should have a good handle on what bond investment is appropriate. Be sure that they are a fiduciary so that they don’t steer you into investments that sacrifice your returns for their fees and commissions.
 
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#11,164
#11,164
Thunder Good-Oil said:
Meet early and regularly with the lender or potential new lenders. You should be able to refinance the balloon payment with somebody if you can show them that the business is viable and executing. Hiring a CPA to express their opinion on the accuracy of the financial statements could be a good investment.

Don’t take risks in equity markets with any funds that will be needed to repay the loan. Especially if you’ve personally guaranteed the loan.

Go to a CFP, a legit broker like Schwab, or even the CPA if you need help on where to best stash excess funds. A good one should be able to assist with a proper compensation strategy as well (401(k), deferred compensation, having family on the payroll, structuring bonuses to minimize taxes, etc).

Interest rates are rising. Owning layers of bonds/CDs might be a good plan to accumulate the balloon requirements. Until rates have peaked, or at least leveled off, you probably don’t want to buy more than a year or two to maturity. The CPA, CFP, broker/advisor should have a good handle on what bond investment is appropriate. Be sure that they are a fiduciary so that they don’t steer you into investments that sacrifice your returns for their fees and commissions.
Click to expand...

Thanks for the info.
 
#11,165
#11,165
Thunder Good-Oil said:
Meet early and regularly with the lender or potential new lenders. You should be able to refinance the balloon payment with somebody if you can show them that the business is viable and executing. Hiring a CPA to express their opinion on the accuracy of the financial statements could be a good investment.

Don’t take risks in equity markets with any funds that will be needed to repay the loan. Especially if you’ve personally guaranteed the loan.

Go to a CFP, a legit broker like Schwab, or even the CPA if you need help on where to best stash excess funds. A good one should be able to assist with a proper compensation strategy as well (401(k), deferred compensation, having family on the payroll, structuring bonuses to minimize taxes, etc).

Interest rates are rising. Owning layers of bonds/CDs might be a good plan to accumulate the balloon requirements. Until rates have peaked, or at least leveled off, you probably don’t want to buy more than a year or two to maturity. The CPA, CFP, broker/advisor should have a good handle on what bond investment is appropriate. Be sure that they are a fiduciary so that they don’t steer you into investments that sacrifice your returns for their fees and commissions.
Click to expand...

Only concern with your comments is the time has likely passed to refinance out of the balloon. I would assume he would be looking at 6-7% rate now. I think the better way may be paying extra per month (if allowed by loan) which would serve as a de facto way to eliminate the balloon at the end.

But yes, he needs to have a discussion with the lender.
 
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#11,166
#11,166
BigOrangeMojo said:
Only concern with your comments is the time has likely passed to refinance out of the balloon. I would assume he would be looking at 6-7% rate now. I think the better way may be paying extra per month (if allowed by loan) which would serve as a de facto way to eliminate the balloon at the end.

But yes, he needs to have a discussion with the lender.
Click to expand...
The lender is likely interested in working with you to retire a 4% loan. The lender isn’t very good at their job if they won’t take a prepayment on the principal since rates have increased. Sounds like you’re doing great - just resist substantially upping your standard of living and invest the moneys going toward the loan repayment until you feel comfortable with your nest egg.
 
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#11,169
#11,169
#11,171
#11,171
mrorange211 said:
You and your wife could both purchase. I-bonds would be an easy way to dispose of 20k in your situation.
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Haven’t tried this personally, but if I understand correctly you can also choose to have any tax refund put into an I bond without limits. Am thinking of sending a $100K tax payment to the IRS before I file my taxes then allocate the refund to an I bond.
 
#11,172
#11,172
BigOrangeMojo said:
Only concern with your comments is the time has likely passed to refinance out of the balloon. I would assume he would be looking at 6-7% rate now. I think the better way may be paying extra per month (if allowed by loan) which would serve as a de facto way to eliminate the balloon at the end.

But yes, he needs to have a discussion with the lender.
Click to expand...

I meant to discuss arranging a refinancing at maturity rather than immediately. Be prepared to roll it over instead of only having the option of paying the balloon off in full at the current due date.
 
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#11,174
#11,174
walkenvol said:
Haven’t tried this personally, but if I understand correctly you can also choose to have any tax refund put into an I bond without limits. Am thinking of sending a $100K tax payment to the IRS before I file my taxes then allocate the refund to an I bond.
Click to expand...

If that's true, it's fing genius.
 
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#11,175
#11,175
walkenvol said:
Haven’t tried this personally, but if I understand correctly you can also choose to have any tax refund put into an I bond without limits. Am thinking of sending a $100K tax payment to the IRS before I file my taxes then allocate the refund to an I bond.
Click to expand...

I think limit is 5k for refund.
 
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