- My Forums
- Tiger Rant
- LSU Recruiting
- SEC Rant
- Saints Talk
- Pelicans Talk
- More Sports Board
- Fantasy Sports
- Golf Board
- Soccer Board
- O-T Lounge
- Tech Board
- Home/Garden Board
- Outdoor Board
- Health/Fitness Board
- Movie/TV Board
- Book Board
- Music Board
- Political Talk
- Money Talk
- Fark Board
- Gaming Board
- Travel Board
- Food/Drink Board
- Ticket Exchange
- TD Help Board
Customize My Forums- View All Forums
- Show Left Links
- Topic Sort Options
- Trending Topics
- Recent Topics
- Active Topics
Started By
Message
Home Equity question
Posted on 8/2/13 at 11:53 am
Posted on 8/2/13 at 11:53 am
So I am looking at trying to sell my home in the next 3-5 years and for the past few months have been putting money away for a down payment. I am currently at around 12k and would like to get to 60-70k to have 20% down on a 300-350k house.
My question is this. I am currently just putting this money in a savings account but would it make more sense to put it all toward the principal on my current house thus reducing the interest I will pay over the next 4-5 years at higher rate than it will earn sitting in a savings account?
Is equity as simple as saying I owe 120k on my house that I just sold for 185k and now I have 65k at my disposal?
My question is this. I am currently just putting this money in a savings account but would it make more sense to put it all toward the principal on my current house thus reducing the interest I will pay over the next 4-5 years at higher rate than it will earn sitting in a savings account?
Is equity as simple as saying I owe 120k on my house that I just sold for 185k and now I have 65k at my disposal?
2
Posted on 8/2/13 at 11:56 am to RandySavage
quote:
make more sense to put it all toward the principal on my current house thus reducing the interest I will pay over the next 4-5 years at higher rate than it will earn sitting in a savings account?
It won't reduce the interest that you would pay as it is already figured into your monthly payments over the life of your loan.
It would if you were planning on completely paying off the house early, as you would not have anymore payments once you paid off the principal.
Maybe I'm looking at it wrong
Posted on 8/2/13 at 12:00 pm to Lsut81
Yes, it would reduce the principal and the interest will be less.
My question is, do you have an emergency fund other than the money you are saving for a down payment?
When you sell your current house, you will have to close on it first to get your equity from it to take to your closing on your new place. People do it all the time.
My question is, do you have an emergency fund other than the money you are saving for a down payment?
When you sell your current house, you will have to close on it first to get your equity from it to take to your closing on your new place. People do it all the time.
Posted on 8/2/13 at 12:04 pm to Latebloomer
quote:
Yes, it would reduce the principal and the interest will be less.
Not doubting you, but how so?
When you sign up for a 30yr mortgage, your payments are determined as X. Principal and then interest on the amount financed.
Your payments do not change as your principal is paid down
Posted on 8/2/13 at 12:05 pm to RandySavage
Yes, it is that simple. But also take into account the amount of money you will spend to sell your house (realtor fees, fixing up, etc).
Also, if your house takes longer to sell and you want to buy/build a new one then that equity you see as down payment is tied up.
As for what makes sense...you will definitely "save" more money by paying towards principal. But if you can invest the money for a higher rate than your mortgage interest rate then do that. But a short term savings account will not earn much.
Also, if your house takes longer to sell and you want to buy/build a new one then that equity you see as down payment is tied up.
As for what makes sense...you will definitely "save" more money by paying towards principal. But if you can invest the money for a higher rate than your mortgage interest rate then do that. But a short term savings account will not earn much.
Posted on 8/2/13 at 12:07 pm to Lsut81
quote:
Not doubting you, but how so?
When you sign up for a 30yr mortgage, your payments are determined as X. Principal and then interest on the amount financed.
Your payments do not change as your principal is paid down
Your payments do not change throughout the course of the loan. But the amount going towards principal and interest do change. The lower your loan balance the more that goes towards principal and the less that goes towards interest.
Posted on 8/2/13 at 12:11 pm to mglsu21
quote:
Your payments do not change throughout the course of the loan. But the amount going towards principal and interest do change. The lower your loan balance the more that goes towards principal and the less that goes towards interest.
Exactly...
But he said he plans on selling in 5yrs, so he will never really see it.
Posted on 8/2/13 at 12:11 pm to Lsut81
The interest is figured each month on the remaining balance. Balance is lower, interest is lower. If he didn't sell it, he would just pay if off sooner.
Posted on 8/2/13 at 12:15 pm to Lsut81
He'll pay less interest over the next 3 - 5 years if he has reduced the balance more than what his amortization originally called for.
I would just be concerned about putting the money into paying down the mortgage just because something else might come up.
I would just be concerned about putting the money into paying down the mortgage just because something else might come up.
This post was edited on 8/2/13 at 12:15 pm
Posted on 8/2/13 at 12:17 pm to Latebloomer
quote:
The interest is figured each month on the remaining balance. Balance is lower, interest is lower. If he didn't sell it, he would just pay if off sooner.
Yeah, its figured out ahead of time... So him paying more in principal isn't going to affect the interest he pays next month or the month after. His monthly interest amounts are fixed, not variable.
The advantage would be paying the principal off earlier so you save those remaining months of interest payments.
Posted on 8/2/13 at 12:18 pm to Lsut81
quote:
Yeah, its figured out ahead of time... So him paying more in principal isn't going to affect the interest he pays next month or the month after. His monthly interest amounts are fixed, not variable. The advantage would be paying the principal off earlier so you save those remaining months of interest payments.
Correct, which will be greater than interest he can accumulate in a savings account, so the extra money is better applied to the current loan per this scenario
Posted on 8/2/13 at 12:29 pm to Lsut81
quote:
Yeah, its figured out ahead of time... So him paying more in principal isn't going to affect the interest he pays next month or the month after. His monthly interest amounts are fixed, not variable.
The amortization of the loan that is calculated at its origination becomes inaccurate if payments are made in any other pattern than the one that is used to prepare the original amortization. With that being said, it is incorrect to say that the monthly interest is fixed. The monthly interest is based on the remaining principal balance. It is true however that the monthly payment is fixed, with the shift being between principal and interest.
Posted on 8/2/13 at 12:31 pm to ItNeverRains
quote:
Correct, which will be greater than interest he can accumulate in a savings account, so the extra money is better applied to the current loan per this scenario
But he will never get to the point of paying it off... He is planning on selling in 4-5yrs. So he is just parking cash there until he takes it back out when he sells. Id rather have my money in an account that I can access if something comes up and I need it.
Posted on 8/2/13 at 12:43 pm to Lsut81
Add'l principal payments change the amortization schedule so more of your monthly payment will go to principal.
Posted on 8/2/13 at 12:50 pm to yellowfin
quote:
Add'l principal payments change the amortization schedule so more of your monthly payment will go to principal.
Like I said, I could be completely wrong and maybe I am... But will that change the actual dollars that he pays in interest over the next 4-5yrs? Long term, I agree 100% its smart to try to pay off early, but I don't see the point as he won't actually see a benefit since he plans on selling so soon.
Posted on 8/2/13 at 12:51 pm to Lsut81
quote:
His monthly interest amounts are fixed, not variable.
Incorrect. His interest amounts each month will change if he pays more towards principal in prior months.
His interest amount is figured out ahead of time if he pays exactly the amount required monthly to pay it off in the amortized amount of time. However if he pays more each month then following months he will be paying less interest which will cause him to pay off the loan early.
Posted on 8/2/13 at 12:53 pm to Lsut81
quote:
But will that change the actual dollars that he pays in interest over the next 4-5yrs?
yes, he will pay less interest in next 4-5 years which means more towards principal and his balance will be lower when he sells in 4-5 years. Therefore more money in his pocket at that time.
If he is paying $10 extra each month it won't make much difference in 4-5 years. $200-$400 extra each month could make a pretty significant difference.
ETA: There are a few instances where mortgages have an early payment penalty and you are not allowed to pay any extra during the first _____ years. However those are not very common these days.
This post was edited on 8/2/13 at 12:56 pm
Posted on 8/2/13 at 12:54 pm to Lsut81
quote:
But will that change the actual dollars that he pays in interest over the next 4-5yrs?
yes it will
Posted on 8/2/13 at 12:55 pm to mglsu21
quote:
Incorrect. His interest amounts each month will change if he pays more towards principal in prior months.
Well I am completely wrong then... I did not know that your actual interest payments could change from month to month if you paid more down on your principal.
Learn something new every day.
Posted on 8/2/13 at 12:59 pm to Lsut81
quote:
Your payments do not change as your principal is paid down
Right, the payments don't change but (from my understanding) the amount toward principal increases the closer you get to paying off your loan. Thus with each payment more is going toward principal and less to interest.
ETA: Sorry posted this before I read through the rest of the thread. Glad I was right in this instance.
This post was edited on 8/2/13 at 1:04 pm
Page 1 of 2
Back to top
Follow TigerDroppings for LSU Football News