extra principal payments? (mortgage)

[disneysteve]

interesting that the majority of us that responded to make extra payments.

I'm not surprised by that. This board is frequented by a lot of people who don't represent the typical American. Many of us have our financial lives well in order. We are living below our means, have little or no debt, saving for retirement, setting money aside for college costs, maintain a good EF and still have money to spare. Paying off the mortgage is a reasonable next step.

For most people, this isn't true and prepaying the mortgage shouldn't even be on their radar as they have many more pressing needs for their money.

[greenskeeper]

Since stocks and most of the economy has been propped up by QE since 2006, I have moved a good portion of my monthly cash going to retirement savings and put it towards the mortgage. Three reasons of the top of my head:

1)it's a 5+7/8 return on my money through interest savings.
2)my house will always have SOME value
3)I can live on a heck of a lot less an income if I don't have a mortgage.

If things were different in the world today I would probably put more towards retirement.

[GREENBACK]

interesting that the majority of us that responded to make extra payments.

As one who doesn't choose this route I'll say that my goal isn't to make banks rich early with extra payments but to build my own wealth through payments to myself. I don't argue with those who choose to give their banks extra money but I say why give them extra cash to invest (especially at the current loan rate) when you can invest the extra cash yourself as well as build liquidity to pay off the loan anytime you like.

[jpg7n16]

Since stocks and most of the economy has been propped up by QE since 2006, I have moved a good portion of my monthly cash going to retirement savings and put it towards the mortgage. Three reasons of the top of my head:

1)it's a 5+7/8 return on my money through interest savings.
2)my house will always have SOME value
3)I can live on a heck of a lot less an income if I don't have a mortgage.

If things were different in the world today I would probably put more towards retirement.

I don't have a mortgage, but I'll give the voice for the other side of this discussion.

1) If your mortgage is at 5 7/8%, you should probably refi if you can, down to the low 4's. And then with the tax benefit your net interest cost will be 3.something. I expect my portfolio to easily grow more than 4% after tax. (more than 6% for that matter)

2) The stock market will always have SOME value. It's not like EVERY company in the world will go to $0.

You can lose money in real estate too. Housing prices tanked in Detroit and Arizona (and several other places) not too long ago. Losing money in real estate is just as bad as losing money in stocks.

And if QE has propped up the stock market, what did the tax credits do for housing markets?

3) You could have a heck of a lot more income if you grew your portfolio.

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Just saying for anyone reading this thread, that paying extra on the mortgage isn't ALWAYS the best thing to do for everyone.

True you can save thousands by paying early, but you may have been able to earn 10's of thousands by investing that money instead.

Just something to consider...

[DebbieL]

The previous poster is correct of course, but I (I rent and don't own due to our insane housing bubble which still hasn't burst here in beautiful British Columbia) think for people who own a house they feel more secure paying that off. They can always live in their house once it's paid off. It doesn't really matter whether its value fluctuates at that point. Their living expenses will be less once mortgage free. I can truly see both sides, and I think it is mostly a psychological thing. I don't have enough confidence in my ability to invest the money compared to my ability to do a sure thing (prepaying on the loan).

[greenskeeper]

I don't have a mortgage, but I'll give the voice for the other side of this discussion.

1) If your mortgage is at 5 7/8%, you should probably refi if you can, down to the low 4's. And then with the tax benefit your net interest cost will be 3.something. I expect my portfolio to easily grow more than 4% after tax. (more than 6% for that matter) banks aren't lending 4% 30yr notes

2) The stock market will always have SOME value. It's not like EVERY company in the world will go to $0. of course not, but if it tanks I'd rather have a home free and clear instead of worth(less) paper

You can lose money in real estate too. Housing prices tanked in Detroit and Arizona (and several other places) not too long ago. Losing money in real estate is just as bad as losing money in stocks. My house is not an investment, it's a place to live

And if QE has propped up the stock market, what did the tax credits do for housing markets? i'm not investing in real estate, I am trying to OWN MY HOME outright

3) You could have a heck of a lot more income if you grew your portfolio. of course, infinite growth, how dumb am i?

---------------------------------------------------------------------

Just saying for anyone reading this thread, that paying extra on the mortgage isn't ALWAYS the best thing to do for everyone.

True you can save thousands by paying early, but you may have been able to earn 10's of thousands by investing that money instead. or losing 10's of thousands

Just something to consider...

In this world we live in post 2006, I'd take the sure thing. To each his own.

[jpg7n16]

They can always live in their house once it's paid off. It doesn't really matter whether its value fluctuates at that point.

Unless they have to relocate for their job... or want to move to Florida for retirement... or just need to move for any reason really.

If that happens and you've paid in $300k on a home that only sells for $225k, you've lost the same $75k as someone who invested $300k in the stock market if it fell to $225k.

Or if you get laid off in the process of paying off your mortgage early, and realize your house fell so far in value that you can't borrow against it, and still have to make your scheduled payments - and have nothing liquid to use for spending money since you paid everything towards your mortgage.

I posted so people can get a realistic picture of not only the good, but the bad of paying off your house early. People need to at least consider the downside when making their decision.

Their living expenses will be less once mortgage free.

Which is better: lower expenses? or higher income?

Personally, I don't care. So if I could invest to earn income of 5-11 cents per dollar, I'd rather do that than save 3-4 cents of expenses.

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banks aren't lending 4% 30yr notes

Really? Then why does Google have a 3.75% mortgage when you google "Mortgage rates"??
Mortgage rates: Google
Refinance rates: https://www.google.com/advisor/mortg...mortgage+rates

I'd rather have a home free and clear instead of worth(less) paper

My point is that it will never be worthless paper.

My house is not an investment, it's a place to live
i'm not investing in real estate, I am trying to OWN MY HOME outright

Unless you ever need to move for any reason. Then you'll realize that you've been heavily invested in real estate.

People own their stock/bond investments outright too.

of course, infinite growth, how dumb am i?

Who said anything about infinite growth? The only thing I've said was that I've earned much more than 5%, and expect that to continue going forward - even in this post 2006 world.

In this world we live in post 2006, I'd take the sure thing. To each his own.

I think YOU should pay off your mortgage. I don't EVERYONE should.

My post was more for the readers who are on the fence. There wasn't much said about the benefits of investing instead of paying down your mortgage. Each person needs to evaluate which is right for them.

If I owned a home and had a 5% mortgage, there's no way in the world I would pay extra.

[riverwed070707]

As one who doesn't choose this route I'll say that my goal isn't to make banks rich early with extra payments but to build my own wealth through payments to myself. I don't argue with those who choose to give their banks extra money but I say why give them extra cash to invest (especially at the current loan rate) when you can invest the extra cash yourself as well as build liquidity to pay off the loan anytime you like.

If you don't want to make the banks rich, you should have purchased without a mortgage, no? Banks make money on the interest you're paying, not on the principal of the money they lent you. What you're proposing is doing to them what you don't want them to do to you -- make profit off someone elses money. I'm not saying its wrong or a bad idea, I just think the perception you give is that the banks are doing something negative, when technically, they are the ones helping people get a home they otherwise couldn't have purchased outright.

[greenskeeper]

banks aren't lending 4% 30yr notes

Really? Then why does Google have a 3.75% mortgage when you google "Mortgage rates"??
Mortgage rates: Google
Refinance rates: https://www.google.com/advisor/mortg...mortgage+rates

yup it looks good until you go to apply even with perfect credit.

advertising and actually lending are two different things.

Everything on the internet is true also.

[GREENBACK]

If you don't want to make the banks rich, you should have purchased without a mortgage, no? Banks make money on the interest you're paying, not on the principal of the money they lent you. What you're proposing is doing to them what you don't want them to do to you -- make profit off someone elses money. I'm not saying its wrong or a bad idea, I just think the perception you give is that the banks are doing something negative, when technically, they are the ones helping people get a home they otherwise couldn't have purchased outright.

You're missing the point of my argument.I love having a mortgage in today's enviorment. Of course banks are making money off the interest. That is what they do and that's fine with me. My point is when interest rates are so low (as they are now) I see no reason to give extra to a bank who will certainly invest the collective extra money when I could be investing that money. I'm not saying they are doing anything negative. The vast majority of people, including me, could never have bought a home without taking on a mortgage.

The bottom line is that giving extra on a loan with a 4% interest rate has no appeal to me when I'm certain I can take that extra money and earn twice that rate over time. I'm also more flexible in terms of cash on hand should life throw a curveball that wasn't anticipated. My strategy has put me in the position to pay off my mortgage if I had to but I refuse to give away a large amount of money like that when it could be working for me.

I'm not doing anything to the banks. It's a buisness relationship. They make 4% interest for lending me money. They set a minimum payment over a set period of time and I pay them that. I invest what I don't give them and earn more than 4% over time. If the rate were 13% as it was for my parents I would not do this.

[MonkeyMama]

4% is not unusual or rare on a 30-year loan today. VERY doable. This is a bit of a tangent, but I don't think that 4% an exaggeration by any means.

[GREENBACK]

4% is hardly an exageration. I refied last winter at 4.3% on a 30 year note.

[greenskeeper]

4% is hardly an exageration. I refied last winter at 4.3% on a 30 year note.

called my bank. Can re-fi to 4.53% and save $300+/month interest. $3k closing costs.

It will be a new 30yr note but if I pay the old payment and nothing more, I will still own the house 6 year earlier than the original note I took out in 2007.

I will be paying additional principal (between $500-$1000/month, have to run the numbers with the new loan)

I didn't go with a 15yr because I like the fallback in case of an emergency.

[greenskeeper]

As one who doesn't choose this route I'll say that my goal isn't to make banks rich early with extra payments but to build my own wealth through payments to myself. I don't argue with those who choose to give their banks extra money but I say why give them extra cash to invest (especially at the current loan rate) when you can invest the extra cash yourself as well as build liquidity to pay off the loan anytime you like.

Actually you are not making banks rich by paying extra to the principal. It's the money they already loaned to you. If you take the mortgage out the full term, then you are making the banks rich on all the interest you pay over the life of the loan.

[dawnwes]

I am refinancing right now to a 3.37% on a 15 year loan with no closing costs from a 15 year with 4.5%. Well, I do have to pay escrow fees, which are a full year upfront of my taxes and insurance, but no costs to the bank as they are given as a credit.

Our payments will go down by $300 and will save about $20K in interest if I only make the min. payments. If I keep the same payments, I will save even more and pay off the loan in 12 years.

I don't currently make extra payments because we have been trying to beef up our college savings for the kids and saving for a car.

Dawn