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Posted on 7/1/18 at 8:47 am to indytiger
quote:
Can someone here explain to me why I shouldn't do this?
Do you plan on living in the house for the entire length of the loan? This plays a big factor. While your interest rate on the loan is 3.375%, the actual interest you pay per month is not evenly distributed throughout the life of the loan. You pay the bulk of the interest in the first years of the loan.
If you plan to sell the home in say 10 years, the actual interest rate you paid over the 10 years is higher than 3.375%.
Posted on 7/1/18 at 9:43 am to indytiger
I pay my mortgage every two weeks. It makes budgeting easier and still pay extra on my mortgage. I think it shortens a 30 yr loan by about 7 years.
Posted on 7/1/18 at 9:43 am to Huey Lewis
quote:
$300,000 at 4.5% for 30 years = $1,520 a month.
Don't forget the tax deduction for interest.
Posted on 7/1/18 at 9:49 am to LSUstudent2006
quote:
But the comfort of knowing your house is paid for and you don’t owe anyone anything is worth a lot to some people.
That is costing them thousands.
Peace of mind should come from being able to raise money in a hurry if you need to. Two extreme cases should illustrate this:
Case A: I pay off my mortgage and then the next day I lose my job. Suddenly I wish I still had the money.
Case B: I pay the minimum on my 4% note, and make 6% in my investments. One day I lose my job. That's okay, since I have plenty of money in my account to live on for awhile since I didn't spend it on paying down a mortgage.
Posted on 7/1/18 at 10:05 am to indytiger
The real question here is do you prefer the certianty of investing at your mortgage rate or do you prefer the speculative rate you can get in the market or future fixed rates because that is what the decision truly is.
I honestly normally lean to a bit of both but as CD rates will be passing your mortgage rate soon enough I might would suggest piling up a bit of cash if you want certian returns and go that route. Avalable cash earning more than your mortgage on a certian basis is not a bad position to be in. JMHO
Just make sure you are maxing out 401K/Roth options at the same time.
I honestly normally lean to a bit of both but as CD rates will be passing your mortgage rate soon enough I might would suggest piling up a bit of cash if you want certian returns and go that route. Avalable cash earning more than your mortgage on a certian basis is not a bad position to be in. JMHO
Just make sure you are maxing out 401K/Roth options at the same time.
Posted on 7/1/18 at 10:35 am to foshizzle
quote:Not a problem. Get a HELOC.
Case A: I pay off my mortgage and then the next day I lose my job. Suddenly I wish I still had the money.
For me, paying extra towards the mortgage and getting out of it early was just one facet of a long-term diversified investment strategy. 401k, home equity, business equity, brokerage account, etc.
Posted on 7/1/18 at 11:31 am to CajunTiger92
quote:
This plays a big factor. While your interest rate on the loan is 3.375%, the actual interest you pay per month is not evenly distributed throughout the life of the loan.
Can you show me the math on this? Because it looks like your reiterating a common misconception that mortgage interest is frontloaded. If your rate is 4%, you pay 4% on your balance. Is mortgage interest front loaded?
Banks prefer shorter terms, because they can turn their money over quicker. That's why they charge higher interest rates for a longer terms.
Posted on 7/1/18 at 11:42 am to Bayou Tiger
quote:heloc is great, everyone should have one. Home equity is where money goes to die. Your home will appreciate or depreciate just as much whether you have a lot of equity or no equity.
Get a HELOC
the only thing is it's not really flexible. As your equity grows, your heloc dosent, and would have to refinance with closing cost. For a new home owner it would even take a few years to have a decent sized Heloc, because they only lend 70-80 of equity, but that's probably enough for 8 months emergency fund.
Posted on 7/1/18 at 2:51 pm to foshizzle
quote:
Case A: I pay off my mortgage and then the next day I lose my job. Suddenly I wish I still had the money.
I'd actually feel the opposite. If I lost my job and had no mortgage, I would not worry nearly as much since I dropped my biggest, most expensive bill. I can go work at Kroger and pay all my other bills, if I had to. This assumes I have an appropriate emergency fund in place.
Posted on 7/1/18 at 5:55 pm to Huey Lewis
Buy Dave Ramsey's book The Total Money Makeover. You'll never ask questions here again. Money well spent. Yes pay the extra. Make your goal to be debt free. Nothing like it.
Posted on 7/1/18 at 6:10 pm to FinleyStreet
quote:
I'd actually feel the opposite. If I lost my job and had no mortgage, I would not worry nearly as much since I dropped my biggest, most expensive bill. I can go work at Kroger and pay all my other bills, if I had to. This assumes I have an appropriate emergency fund in place
So you'd rather pay $500 a month more and have no cash we're you to lose your job than have a couple hundred k in cash?
Posted on 7/1/18 at 7:52 pm to indytiger
Everyone is different. If you need to free up budget to relieve stress, pay off the mortgage. If you just have tons of discretionary budget every month, invest instead.
Many on this board don't live normal lives and don't have the first clue how valuable it can be for some to be debt free. It comes at a price but you get something for that price that is guaranteed.
Many on this board don't live normal lives and don't have the first clue how valuable it can be for some to be debt free. It comes at a price but you get something for that price that is guaranteed.
Posted on 7/1/18 at 10:01 pm to notsince98
This stress stuff and peace of mind stuff works is a solid advice for people trying to get out debt. Makes sense with things like school loans, bad cc debt etc.
For a mortgage at 3%, you'd do yourself a disservice of not running the numbers. I'd let the numbers dictate the decision. If it's close enough, sure go for the payoff. But if it's anywhere close to what the other poster showed on page 1 - save for the 8% assumption-(haven't run the numbers myself) then you can see how costly and irresponsible "peace of mind" can be.
Bottom line, layout the amortization schedule and run the numbers. Let that dictate the decision.
For a mortgage at 3%, you'd do yourself a disservice of not running the numbers. I'd let the numbers dictate the decision. If it's close enough, sure go for the payoff. But if it's anywhere close to what the other poster showed on page 1 - save for the 8% assumption-(haven't run the numbers myself) then you can see how costly and irresponsible "peace of mind" can be.
Bottom line, layout the amortization schedule and run the numbers. Let that dictate the decision.
Posted on 7/1/18 at 10:16 pm to Mingo Was His NameO
quote:
So you'd rather pay $500 a month more and have no cash we're you to lose your job than have a couple hundred k in cash?
It doesn't have to be a all or nothing scenario, he should only be adding extra money to his mortgage payment after he has funded retirement accounts, and has a adequate emergency fund, then if he lost his job he would have cash to carry him through the crisis. FWIW, I am not a Dave Ramsey disciple, I was managing my finances this way for 25 years before I ever heard of Ramsey.
Posted on 7/2/18 at 7:58 am to castorinho
quote:
This stress stuff and peace of mind stuff works is a solid advice for people trying to get out debt. Makes sense with things like school loans, bad cc debt etc.
For a mortgage at 3%, you'd do yourself a disservice of not running the numbers. I'd let the numbers dictate the decision. If it's close enough, sure go for the payoff. But if it's anywhere close to what the other poster showed on page 1 - save for the 8% assumption-(haven't run the numbers myself) then you can see how costly and irresponsible "peace of mind" can be.
Bottom line, layout the amortization schedule and run the numbers. Let that dictate the decision.
You act like a mortgage isn't capable of stretching someone's budget thin.
Debt is debt and there is no substitute for owning real estate. It is one thing that will always have some type of value.
Posted on 7/2/18 at 7:58 am to Mingo Was His NameO
quote:
So you'd rather pay $500 a month more and have no cash we're you to lose your job than have a couple hundred k in cash?
No, you must've stopped reading after the second sentence. I said that if I had no mortgage and an appropriate emergency fund in place, I would not worry as much.
200k in the bank and a 500k note I would worry.
50k in the bank and zero note would be substantially less worry.
But, that's not to say I think the OP should do one or the other. People always talk about not putting all your eggs in one basket from an investment standpoint, so I don't know why that wouldn't be the case here. For me, I'd like to pay off the house at some point, but I also want to ensure I am contributing plenty to retirement.
Posted on 7/2/18 at 1:43 pm to EA6B
quote:
It doesn't have to be a all or nothing scenario, he should only be adding extra money to his mortgage payment after he has funded retirement accounts, and has a adequate emergency fund, then if he lost his job he would have cash to carry him through the crisis. FWIW, I am not a Dave Ramsey disciple, I was managing my finances this way for 25 years before I ever heard of Ramsey.
The OP didn't mention how old he was, when he wanted to have the mortgage paid off or how long he planned on owning this home. But assuming he's not staring retirement in the face and he's going to keep this home for awhile, this is also how I see it. That kind of cuts it down the middle, right?
But with that said, if he's 59 and he's going to keep the house, I'd be breaking my back to pay it off ASAP. On the other end of the spectrum, if he's 29 and he thinks he'll sell it within the next couple of years, I probably wouldn't worry about it.
As long as risk is properly accounted for, I have no issue with people considering the opportunity cost involved in retiring debt ahead of schedule. But risks change as you move up or down the age scale. Maybe the posters here are a little different, but I think what most Americans do is use excess cash to fund consumer purchases. Although they might initially have an investment plan going in, over time that begins to slip. So they don't really use it to go from 10% retirement savings to 15% or whatever. I used to counsel people to take a 30 year fixed and pay it on a 15 year schedule. Then if there was an issue, they could drop back to the 30 year payment. I read a study several years ago that the majority of people who start off with that plan eventually fall off the wagon. I often wonder how many of the people that I spoke with many moons ago stuck to that plan.
Posted on 7/2/18 at 2:34 pm to Jag_Warrior
That is exactly what I do. I can see how most people are not disciplined enough and fall off pace. I like to have the option of defaulting to a lower note if I need to.
Posted on 7/2/18 at 2:52 pm to foshizzle
quote:
Case A: I pay off my mortgage and then the next day I lose my job. Suddenly I wish I still had the money.
Case B: I pay the minimum on my 4% note, and make 6% in my investments. One day I lose my job. That's okay, since I have plenty of money in my account to live on for awhile since I didn't spend it on paying down a mortgage.
Excellent point. I would also add that the cash flow benefits of paying your mortgage off don't appear until its paid off. If you invest it though, you can receive immediate cash flow benefits.
Also, the peace of mind doesn't really appear until the end either.
With that said, I throw $100/extra each month at my mortgage.
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