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Message
Remainder Of Mortgage - Which Path To Take?
Posted on 6/27/23 at 2:34 pm
Posted on 6/27/23 at 2:34 pm
Good Afternoon,
I have about $27,000 remaining on my mortgage, where I'm already doubling the principal payment every month like clockwork (and have been for a while now).
Pretty sure the mortgage has around 2.5 years remaining if I keep continuing to do the same thing, and I do want to have it paid off by then, maybe even 2 years flat, if possible.
If I dedicated another $200 every month to this, should it be put towards the principal, or should that extra $200 go into my savings acct where the APY is 4.5% right now?
Thanks in advance!
I have about $27,000 remaining on my mortgage, where I'm already doubling the principal payment every month like clockwork (and have been for a while now).
Pretty sure the mortgage has around 2.5 years remaining if I keep continuing to do the same thing, and I do want to have it paid off by then, maybe even 2 years flat, if possible.
If I dedicated another $200 every month to this, should it be put towards the principal, or should that extra $200 go into my savings acct where the APY is 4.5% right now?
Thanks in advance!
9
Posted on 6/27/23 at 2:36 pm to TimeAndTide
What's your interest rate?
What is your motivation for paying off the mortgage?
Are you in good shape with retirement investing?
What is your motivation for paying off the mortgage?
Are you in good shape with retirement investing?
Posted on 6/27/23 at 2:42 pm to Costanza
quote:
What's your interest rate? What is your motivation for paying off the mortgage? Are you in good shape with retirement investing?
Interest rate is 4.5%
The motivation to pay it off would be just wanting it done, having that peace of mind or whatever you want to call it.
The retirement aspect is in good shape, won't be messing that up at all.
Posted on 6/27/23 at 2:48 pm to TimeAndTide
I'd keep doing what you're doing, and save any excess cash in the savings account, and then write a check when the savings account has enough to finish it off. This gives you maximum flexibility. Congrats on the nearly paid off house! Awesome
Posted on 6/27/23 at 2:50 pm to Costanza
quote:
I'd keep doing what you're doing, and save any excess cash in the savings account, and then write a check when the savings account has enough to finish it off. This gives you maximum flexibility. Congrats on the nearly paid off house! Awesome
Mucho apreciado!
Posted on 6/27/23 at 3:23 pm to Costanza
quote:
I'd keep doing what you're doing, and save any excess cash in the savings account, and then write a check when the savings account has enough to finish it off. This gives you maximum flexibility. Congrats on the nearly paid off house! Awesome
I kige this.
Good thing about paying aggressively is you not only have peace of mind, but also are likely to get better returns from investing in 2025 than now.
Posted on 6/27/23 at 3:27 pm to Bestbank Tiger
quote:
Good thing about paying aggressively is you not only have peace of mind, but also are likely to get better returns from investing in 2025 than now.
If he uses his current money to prematurely retire 4.5% debt, then he has LESS to use to take advantage of what you're talking about. I fail to see the upside of paying it early - you're taking extra after-tax money to invest it in something that is taxed at ordinary rates.
Posted on 6/27/23 at 3:35 pm to Big Scrub TX
quote:
If he uses his current money to prematurely retire 4.5% debt, then he has LESS to use to take advantage of what you're talking about.
I fail to see the upside of paying it early - you're taking extra after-tax money to invest it in something that is taxed at ordinary rates.
It's pure speculation obviously, but if he doesn't pay extra right now, and invests the surplus, he might get less than 4.5%. If he's lucky he knocks out the 4.5% debt and then starts buying stonks in 2025 when the return is back over 4.5%.
It might not be tax free at this point. You pay mostly interest early and mostly principal late, so the payments aren't giving you much toward a tax writeoff. OP might be better off with the standard deduction.
Posted on 6/27/23 at 4:18 pm to TimeAndTide
quote:
Interest rate is 4.5%
If your mortgage is 4.5% and your savings is 4.5% then the financially optimal choice between the two is put the money in the mortgage, not savings. You will pay taxes on your 4.5% in the savings at your highest tax margin rate. That meaning your real rate for savings is going to be closer to 3.5% after taxes are removed. You wont pay taxes on the 4.5% you save on your early mortgage payments.
Posted on 6/27/23 at 4:38 pm to TimeAndTide
Interest on an amortized loan is next to negligible on the backside of the amortization schedule. Do some research and you'll see how low the interest portion is as it relates to the total monthly payment. Stay liquid!!!
Posted on 6/27/23 at 4:39 pm to Bestbank Tiger
quote:
It's pure speculation obviously, but if he doesn't pay extra right now, and invests the surplus, he might get less than 4.5%. If he's lucky he knocks out the 4.5% debt and then starts buying stonks in 2025 when the return is back over 4.5%. It might not be tax free at this point. You pay mostly interest early and mostly principal late, so the payments aren't giving you much toward a tax write off. OP might be better off with the standard deduction.
Well, I get no kind of tax benefit from the mortgage interest paid each year. It's just too little to get even close to the usual standard deduction.
This post was edited on 6/27/23 at 4:40 pm
Posted on 6/27/23 at 6:05 pm to TimeAndTide
You can beat 4.5% in a HYSA right now. I would keep it liquid instead of paying ahead as long as rates are above mortgage rate. Even if you lose a little after tax, it gives you more flexibility if an expense or opportunity arises. You can always lump sum pay off the loan when you have enough saved thus freeing up cashflow immediately.
Posted on 6/27/23 at 6:20 pm to BestBanker
quote:
Interest on an amortized loan is next to negligible on the backside of the amortization schedule.
So many people don’t realize this.
Posted on 6/27/23 at 7:35 pm to BestBanker
quote:
Interest on an amortized loan is next to negligible on the backside of the amortization schedule. Do some research and you'll see how low the interest portion is as it relates to the total monthly payment. Stay liquid!!!
This. He has 2.5 years left. He’s already paid all the interest for the most part
Posted on 6/28/23 at 12:22 am to TorchtheFlyingTiger
quote:This. There's just no argument whatsoever for paying it off early.
You can beat 4.5% in a HYSA right now. I would keep it liquid instead of paying ahead as long as rates are above mortgage rate. Even if you lose a little after tax, it gives you more flexibility if an expense or opportunity arises. You can always lump sum pay off the loan when you have enough saved thus freeing up cashflow immediately.
Posted on 6/28/23 at 10:32 am to Big Scrub TX
quote:Lots of downvotes, so I'd like to hear: what is the rationale for paying off a nearly 0% interest loan in a world where CASH is earning almost 5.5%?...a world that also has some value on the table outside of just mainstream stock indices.
This. There's just no argument whatsoever for paying it off early.
Posted on 6/28/23 at 11:22 am to Big Scrub TX
quote:
Lots of downvotes, so I'd like to hear: what is the rationale for paying off a nearly 0% interest loan in a world where CASH is earning almost 5.5%?...a world that also has some value on the table outside of just mainstream stock indices.
Just to be a little more specific, with the next payment I make, I believe the interest portion of the payment will be below $100 a month, so yes, not much left in that department.
Seems like it probably makes sense to continue making a double principal payment, and then putting aside $200 each month into the APY savings account - that way it's a mix of both worlds, so to speak.
Posted on 6/28/23 at 11:53 am to TimeAndTide
quote:Again, what is the benefit to you of retiring 0% interest debt? What are you gaining? I would argue you are not only foregoing 5-5.5% free money, but you are ALSO reducing your optionality to take advantage of an actual non-cash investment.
Seems like it probably makes sense to continue making a double principal payment, and then putting aside $200 each month into the APY savings account - that way it's a mix of both worlds, so to speak.
Let's put it this way - if the lender offered you the chance to take 10 years instead of 2 years to pay off the remaining balance, you would happily take that deal. The goal is almost to never pay it off in a sense.
Posted on 6/28/23 at 12:08 pm to Big Scrub TX
quote:
Again, what is the benefit to you of retiring 0% interest debt? What are you gaining?
Monthly cash flow, which can be important to some people. Just a lot more money each month to do as you wish ultimately.
Posted on 6/28/23 at 12:17 pm to Big Scrub TX
quote:
Let's put it this way - if the lender offered you the chance to take 10 years instead of 2 years to pay off the remaining balance, you would happily take that deal. The goal is almost to never pay it off in a sense.
I would have to say no, because I want that mission accomplished much sooner than later. Having that freedom might be a corny way to put it, but what can I say?
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