Extra Mortgage Payment

[rizzmo]

I'm having a hard time deciding how much extra to put toward my monthly mortgage payment. Here are the numbers

Home Value: ~$132,000 (purchase price)
Mortgage: $105,600
Interest Rate: 6.125% (might be off a little)
Mortgage Payment: $642.50

My wife and I have only been in the house a few months, but we have been paying an extra $500 toward principal each month. At this rate my mortagage will be paid off in 10 years. I would like to pay more than this, but there seems to be little gain in terms of interest savings or mortgage time reduction per dollar spent. So I guess I was wondering if any of you had a good formula or way to figure when paying more does or does not make sense?

[sweeps]

The question is where will you put the money if you don't pay more on the mortgage. Assuming you get a tax deduction for your mortgage interest, you'll be getting 5% or so return on your money by paying down the mortgage.

If you would otherwise put that extra money in a retirement plan earning, say, 8%, it would probably be better to save more for retirement.

On the other hand, if you would spend that extra money frivolously, then it's a better idea to pay more on your mortgage.

[gamecock43]

I just learned that my brother paid off his mortgage in 2 yrs by putting down a big chunk and then living off one income and applying wifes entire income to the mortgage.

They have been mortgage free for a few years now and have been able to make 1 big home improvement a year to their house (adding a pool and deck, adding an addition, replacing all appliances) and this has kept the value of their home steady even though the houses around them have declined in home value a lot over the last year.

They have also saved money by paying cash for these improvements so the improvements were "cheaper" than other peoples improvements.

And their lifestyle is very stress free. They have cash on hand to treat family to dinner, they go on vacations, wife was able to work part time...

I understand that if you can invest the money and get a better return than your mortgage interest rate then you will come out ahead, but I was able to see firsthand the benefits of living without a mortgage and its now my goal to be mortgage free. I think it just sets you up to have more options and choices in life down the line. And it sets you up to live life REALLY frugally for a few years and those formed habits can save you money over your lifetime. My brother still uses coupons or craigslist when buying anything.

[Caoineag]

I know on my 15 year I save almost nothing by prepaying (in time or interest) simply because its a small mortgage and my money is better spent elsewhere. That said, I did the 15 year because it costs $100 more and lowered the interest .5% and that was worthwhile. I actually used amoritization calculators to determine what was worth doing. In the end though, you have to decide what works best for you.

[simpleyme]

it was years ago when I was looking at a loan I had I told my DH that no matter how you figure it no matter how low you get the interest you still have to pay the amount borrowed back and that really sucks ;-)

[Cylenchar]

Here is a mortgage calculator from bankrate.com, it will allow you to play around with additonal payments and see what that would do to your mortgage.

Mortgage Calculator -- Bankrate.com

[Goldy1]

My mortgage is a 30 yr we will end up paying it off in 15 yrs which will be in about 3 or 4 years. dh bought house before we met. Our rate is 4.75 so the interest we pay is very low now, but used to be higher originally.
WE have paid extra and made some lump sum dumps on the principal. Dh got laid off and we have savings in the bank, yes, but had we not paid so agressivley we would have even more. What is more valuable during unemployment? Cash is. 700 a month is not exactly some big huge monkey off my back since it is so low esp since everything else I have to buy and purchase from milk to gas to healthcare premiums have skyrocketed...LOL.

[jIM_Ohio]

My thoughts-

1 is my 401k maxed?
2 is my Roth maxed?
3 is my HSA maxed?
4 is my EF at a full 6 months of expenses?
5 do I have taxable accounts funded with new contributions?

1-2-3 are a must to some extent before mortgage paydown is considered
4 is probably a need
5 will be done at same time I pay down my mortgage.

If you could put the extra $500/mo (6k per year) into your 401k, your tax bill might drop $1500 (if in 25% bracket).

I am paying my mortgage off- my second mortgage anyways- it is 53k financed at 7.5% fixed. My Roth and HSA are maxed, and we have 20% of gross pay going to retirement accounts, plus another $50/mo going to the 2nd mortgage payment right now.