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Started By
Message
mortgages additional payments or lump sums?
Posted on 3/31/14 at 3:38 pm
Posted on 3/31/14 at 3:38 pm
Which do you think work better on paying off a home and would save you more money?
Example: pay $500 extra per month or pay a one time extra payment of 6000 each year.
Example: pay $500 extra per month or pay a one time extra payment of 6000 each year.
8
Posted on 3/31/14 at 3:40 pm to Morgan56
There are online calculators that you can play with.
Posted on 3/31/14 at 3:43 pm to Morgan56
Depending on your interest rate, you might be better off not paying the home early...
Posted on 3/31/14 at 3:46 pm to wickowick
Don't blow his mind. Some folks will never get it.
Posted on 3/31/14 at 3:50 pm to Morgan56
If you choose to pay your mortgage early, pay it when the funds are available.
Posted on 3/31/14 at 3:57 pm to wickowick
quote:
Depending on your interest rate, you might be better off not paying the home early..
Also may be true if you have not maxed out IRA and/or 401k.
Posted on 3/31/14 at 5:24 pm to Morgan56
See wickowick's comment re: interest rates. If after the tax break on interest payments your effective rate is below inflation, you are better off not prepaying at all.
For example, if your rate is 4.4% and you're in the 25% tax bracket, your post-tax rate is really 3.3%. If you think inflation over the next 30 years will be greater than this, don't prepay.
If you prepay anyway (whether you should or not) then again it depends on the rate. If you shouldn't be prepaying by the above calculation, delay the payment for as long as possible by doing a lump sum at the end of the year. If you should be prepaying, do the lump sum at the start of the year or at least as much of it as you can as early as you can.
For example, if your rate is 4.4% and you're in the 25% tax bracket, your post-tax rate is really 3.3%. If you think inflation over the next 30 years will be greater than this, don't prepay.
If you prepay anyway (whether you should or not) then again it depends on the rate. If you shouldn't be prepaying by the above calculation, delay the payment for as long as possible by doing a lump sum at the end of the year. If you should be prepaying, do the lump sum at the start of the year or at least as much of it as you can as early as you can.
Posted on 3/31/14 at 9:04 pm to foshizzle
I love these guys who always say to put it into the market, because the return is better than your house. In this thread there is even some condescension. But can the market crash? Yes? Can it pull a japan and not bouce back ever? Yes. If you become disabled or lose your job, will that money in the market do you much good? Not really. Is paying off your house early a age bet? Yes.
The market is very high right now, so the value of putting your money in the market is not guaranteed.
The market is very high right now, so the value of putting your money in the market is not guaranteed.
Posted on 3/31/14 at 9:18 pm to AndyJ
quote:
I love these guys who always say to put it into the market
I don't think anyone did that here, but I'll play anyway.
Yes, it's possible that financial markets will crash in any given year. It's also possible real estate will too.
One thing we do know is that most financial markets over the course of a 30 year mortgage will outperform the return you get by prepaying. Maybe not in a specific year, but over the full 30 it's still a very good bet.
Posted on 3/31/14 at 9:26 pm to Morgan56
I pay on my mortgage every two weeks. It reduces my 30 yr by about 7 yrs.
Posted on 4/1/14 at 8:53 am to AndyJ
quote:
If you become disabled or lose your job, will that money in the market do you much good? Not really.
Liquidity is actually one of the best arguments against aggressively paying down mortgage. If you become disabled and lose your job, it's a hell of a lot easier, quicker, & cheaper to get your money out of a market account than it is to get it out of your house.
Posted on 4/1/14 at 9:03 am to Cold Cous Cous
quote:
Liquidity is actually one of the best arguments against aggressively paying down mortgage. If you become disabled and lose your job, it's a hell of a lot easier, quicker, & cheaper to get your money out of a market account than it is to get it out of your house.
And the opposite is just as valid, mortgage payments are usually a family's largest expense, if you become disabled or lose your job and have no mortgage payment you don't need to draw as much investments. Life changing health events, forced retirement, kids going to college, these things seem to occur at the age when the average person would have a house paid off if they had been focused when they were young.
This post was edited on 4/1/14 at 9:07 am
Posted on 4/1/14 at 3:05 pm to foshizzle
quote:
See wickowick's comment re: interest rates. If after the tax break on interest payments your effective rate is below inflation, you are better off not prepaying at all.
For example, if your rate is 4.4% and you're in the 25% tax bracket, your post-tax rate is really 3.3%. If you think inflation over the next 30 years will be greater than this, don't prepay.
If you prepay anyway (whether you should or not) then again it depends on the rate. If you shouldn't be prepaying by the above calculation, delay the payment for as long as possible by doing a lump sum at the end of the year. If you should be prepaying, do the lump sum at the start of the year or at least as much of it as you can as early as you can.
with rates as low as they are now, its probably smarter to not pay extra. But, there are emotional reasons to want to pay off early and they are valid.
I would say you shouldn't pay down your mortgage until you max out roth, 401k and have a solid 6-9 month cushion. But after that, its up to the individual.
I do the pay every 2 weeks deal but I max out my retirement options.
Posted on 4/1/14 at 8:37 pm to Morgan56
We bought our first home in 2004. Paid double mortgage payments every month and then extra principal in dec each year. Paid it off in 7 years with a 20k lump sum at end
Posted on 4/1/14 at 9:26 pm to Morgan56
We're paying extra on our mortgage every month and using it like a savings acct for our forever home. In a couple of years, we should have $100K to put down on the next house.
Posted on 4/1/14 at 10:29 pm to Morgan56
I just started doing this in February. Been paying my regular note but applying everything I make at my side job towards principle. I figured if I payed an extra $750 per month I would pay off 11 years early and save 61 k in interest.
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