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rpg37
LSU Fan
Ocean Springs, MS
Member since Sep 2008
46946 posts

When does it make sense, mathematically, to accelerate mortgage payments?

In my newest house, the 6.5% interest rate (which is still not as bad as some) is annoying in comparison to all my others. I am well aware that speeding up the homes at 4% and less is dumb. Is 6.5% high enough to speed up or should I just continue paying them, take advantage of the interest deduction in April, and keep maxing what I can into stocks?


BabyTac
Louisiana Tech Fan
Austin, TX
Member since Jun 2008
11751 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
Nothing dumb about paying off a house. There’s a certain freedom that comes with actually owning a home and not borrowing one.


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685
jamiegla1
Member since Aug 2016
6810 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
I feel like the whole "which is the most efficient way to spend my money" question is bullshite 95% of the time. How many people do you know that actually invest the money they dont spend on paying off lower interest loans in something that makes more money? I think nearly everyone just spends that money immediately or puts it in a rainy day fund where it makes almost nothing


wiltznucs
South Florida Fan
Apollo Beach, FL
Member since Sep 2005
8954 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
As oversimplifications go; I’d look at every additional dollar spent paying down the principal balance early as a guaranteed 6.5% return.

The historic average for the S&P 500 is only 7-8%. So 6.5% is not too shabby.

I know opinions vary widely; but, I’m a huge proponent for paying off your home mortgage early. I haven’t had a mortgage in years. The feeling of financial freedom and the security of knowing you’ll always have a home is immeasurable.
This post was edited on 12/5 at 8:10 pm


turkish
Member since Aug 2016
1661 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
I have my payoff sum in an account making >2x my interest rate.
This post was edited on 12/5 at 8:19 pm


jamiegla1
Member since Aug 2016
6810 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
quote:

I have my payoff sum in an account making >2x my interest rate

congrats. you are in the 5% of people that do
This post was edited on 12/5 at 8:30 pm


GREENHEAD22
LSU Fan
Member since Nov 2009
19529 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
What is the rule, making one extra monthly payment a year cuts 5 years off a 30 mortgage. Do that at a bare minimum.


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182
ItzMe1972
Member since Dec 2013
9603 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
Stocks or paydown? Both seem to work.

When you ask about stocks are you referring to a retirement or plain savings account?


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lynxcat
Rutgers Fan
Member since Jan 2008
24042 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
quote:

6.5% interest rate


To be clear, there is no “right” answer as this is all just about opportunity cost of the marginal dollar. I am in the mathematical camp…I put no value on the “it feels so much better to own a home outright” as I’ll still be paying $3K a year in home insurance and $11K a year in property taxes (or greater into perpetuity).

With that said, 6.5% as risk free return is quite good relative to historical market returns (which is not risk adjusted). Now, 6.5% doesn’t look as good when the savings rate is 5% in money market funds but I don’t think you would regret paying down the mortgage in your situation as long as you have ample access to cash in case it is needed.


ItzMe1972
Member since Dec 2013
9603 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
Long term mortgages have fixed payments, but the dollar value declines. In my mind the payment goes down over time since you're paying with deflated dollars.


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jamiegla1
Member since Aug 2016
6810 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
quote:

Long term mortgages have fixed payments, but the dollar value declines. In my mind the payment goes down over time since you're paying with deflated dollars.

I feel so dumb that I never thought of this


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112
turkish
Member since Aug 2016
1661 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
What was your point exactly? That people are bad with money? Some heavy hitting stuff there. Bad decisions are bad decisions regardless of the percentage of people you think make them.
This post was edited on 12/5 at 9:11 pm


Powerman
LSU Fan
Member since Jan 2004
161978 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
quote:

When does it make sense, mathematically, to accelerate mortgage payments?

Probably never but there are worse things to do with your money


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jamiegla1
Member since Aug 2016
6810 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
quote:

What was your point exactly? That people are bad with money? Some heavy hitting stuff there. Bad decisions are bad decisions regardless of the percentage of people you think make them.

My point is that while there is a smarter way to manage your finances, we ignore a psychological aspect of it. You may even be a victim of poor money management relative to someone that is better at it.

We are not robots, by and large, and respond better to things that make us feel better (pay off loan early) than things that dont (keep the mortgage but invest the extra 5% in something that pays a little back).

Im not paying off my mortgage early and investing that money in something with a higher return. Im just saying that we shouldn't shite on people that choose something different.
This post was edited on 12/5 at 9:51 pm


Fat Bastard
LSU Fan
coach, investor, gambler
Member since Mar 2009
71382 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
BUT THAT WATCH BRO! THE ROLEX!



molsusports
Ohio State Fan
Member since Jul 2004
36071 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
quote:

Long term mortgages have fixed payments, but the dollar value declines. In my mind the payment goes down over time since you're paying with deflated dollars.


That's absolutely correct.

I would qualify that agreement by saying at the very start of an amortization schedule your early payments avoid a huge percentage of the interest over the duration of the loan. Which is to argue there's an argument for making a bit of extra effort at the start (first year or three) of the schedule and then just revert to paying just your regular monthly amounts.

The idea of buying only a home that you could afford to finance as a fifteen year fixed is also desirable IMO.


Gorilla Ball
LSU Fan
Member since Feb 2006
11539 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
I think if your interest rate on mortgage is greater than your return on your investments.
I have the cash to do so but I’d prefer to have the cash. I’m over 59 do I could use my retirement accounts but they are doing better return than my 3.90% mortgage


Gorilla Ball
LSU Fan
Member since Feb 2006
11539 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
Great points


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BabyTac
Louisiana Tech Fan
Austin, TX
Member since Jun 2008
11751 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
quote:

I’m over 59


I’m always amazed at older people that still have a mortgage. How is that possible?


RATeamWannabe
US Marine Corps Fan
Baton Rouge
Member since Sep 2009
25870 posts

re: When does it make sense, mathematically, to accelerate mortgage payments?
don't judge people man, not everyone is on the same timeline


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