It depends on what your other debts are (and interest rates on those), what you have in savings, and what your mortgage rate is. If it is not a recent mortgage, then you are probably in a low covid rate of 2-4%. I have ~11 years left of a 15 year loan at 2.3% interest. As much as I don't like debt and I would like to pay off the mortgage for the psychological win, I'm not doing it. I have plenty of money in savings, so I'm putting it towards investments instead. You can get close to 5% in one year CD's right now with no risk. Same deal with my auto loan. I have about 3 years left on an auto loan at 0% interest. I would really like to pay it off, but that money is sitting in a CD that's currently getting me 5.2% interest. I really hate auto loans, and it's killing me, but I'm riding it out collecting the interest money.
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Is the idea of extra payments to your mortgage a placebo? Please educate me
- Thread starter HuumanCreed
- Start date
My current rate is 2.25%. We jumped on the refinancing rate as soon as possible.
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Get the biggest simple interest loan you can get using the former car payment amount as the monthly payment. Take the loan and apply it to your mortgage. Don’t worry about the interest rate for the simple interest loan, you will come out WAY ahead. On top of that you now have more equity in your house should you need it.
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OH WOW THAT IS SWEET. Seems like a no brainer to invest that extra cash so long as you have built up solid emergency fund. I don’t listen to Dave Ramsey on everything but paying cash and buying used vehicles, having a emergency fund, and your income being you’re #1 wealth builder just make sense. You could also invest that in something for your kids if they’re still young.
As noted before, the additional amount must be specified to be applied to the remaining principle! However, the savings in interest (at your current rate) will be minimal compared to a "high interest" investment. I do choose to apply the amount of a full payment, in additional principle, to my mortgage yearly (a bit each month)... That will typically save you 4-5 years off the original on a 30 yr.
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But if you go the “extra principal” route make sure YOU pay that extra principal. A lot of lenders try to get you to sign up for extra principal in the form of paying half your payment every 2 weeks instead of all of it once a month. Bi-weekly results in 13 payments, yes, but they will not make that extra payments until the 26th week so you are paying an extra years interest on some of that money.
I've been looking at loan, vehicle, and mortgage rates... Good thing my heart is strong! I don't think I can touch a loan that's not higher interest than my mortgage lol.
Yes! Mine is specified in an additional box on my monthly payment.
How in the world does this work to benefit anyone but the bank? A simple interest loan (based on a quick Google) will have a rate of 6.9-8.9% and up. Compared to his mortgage with 2.5%. Doesn't seem to make a lot of sense to do that since he'd be paying more than triple the interest rate on that portion of the loan? (Not trying to be argumentative, I just don't get it/want in on this type of thing too if it makes sense)
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Compounding interest is the devil.
Use the calculators online and look up the interest charged on $10,000 for the life of a 30 year loan at 2.5%…….
With a mortgage it’s all about knocking out principal as early as you can because…..compounding interest is the devil. If was created to fleece people and it is great at it.
Use the calculators online and look up the interest charged on $10,000 for the life of a 30 year loan at 2.5%…….
With a mortgage it’s all about knocking out principal as early as you can because…..compounding interest is the devil. If was created to fleece people and it is great at it.
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The only thing I can imagine is he’s taking the loan amount out and applying it to the principal to pay down his principal faster, and then using that extra cash flow to pay off his new loan, which is a higher interest rate, but is on a lower cash amount, so the interest rate would be lower than the overall interest rate on the mortgage. Might make more sense if he has a higher interest rate. I think it’s the difference of say 4% on $150,000 versus 6% on $15,000. But I haven’t done the math to see if it makes sense.
Albisu
New Member
There is always the option of paying additional actual payments (P&I), to create a buffer to mitigate a loss of income. Having previously worked in the mortgage and banking industry for 20+ yrs; I've seen many a family lose their house along with the equity of prepayments after disruption to one or both income earners.
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The banks did not build those big buildings by being stupid.
That's what l figured since my rate is really low. That maybe a 529 plans for the kids or a IRA is a better investment. I'm not very knowledgeable about stock market and my wife is even more paranoid about investing then l am. All our saving and retirement accounts are conservative.
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Skunkworkx
Well-Known Member
Did the Covid re-fi at 2%-2.25% (have to look) and saving almost $500 a month... beating the heck out of the mortgage payments sending that 500 towards principle. (most months) Sometimes extra goes on credit cards.
I have about 12 more years of work and I want to be zeroed out and not have my pension, 401K, and SS $$$ going towards bills and not be able to live.
Calculator shows 12-13 years to go.
Only part that sucks is less $$$ back at tax time...but only means more in my pockets monthly.
I have about 12 more years of work and I want to be zeroed out and not have my pension, 401K, and SS $$$ going towards bills and not be able to live.
Calculator shows 12-13 years to go.
Only part that sucks is less $$$ back at tax time...but only means more in my pockets monthly.
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Depends on one's point of view. Are you paying the compound interest....or EARNING it? (And this is where Albert Einstein comes into play. According to Einstein, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”.) I prefer to earn compound interest, and think it is quite wonderful!
Two things:
You can open an online savings account today, that will earn monthly compounding interest at 4%+. (-2.5% + 4%= 1.5%) you can take the money you would be putting towards your gloriously low interest rate mortgage and put it in there and earn compounding interest at a rate 1.5% higher than youre paying out interest. This isn’t recommending you do that. I don’t know you or your financial situation and income stability. But compounding interest is not the devil. Not knowing how to leverage it is the devil.
Don’t take financial advice from a forum full of people who buy saddle gear that costs an uncomfortable amount of their not so disposable income. Literally, it may be the worst place to take financial advice from!
You can open an online savings account today, that will earn monthly compounding interest at 4%+. (-2.5% + 4%= 1.5%) you can take the money you would be putting towards your gloriously low interest rate mortgage and put it in there and earn compounding interest at a rate 1.5% higher than youre paying out interest. This isn’t recommending you do that. I don’t know you or your financial situation and income stability. But compounding interest is not the devil. Not knowing how to leverage it is the devil.
Don’t take financial advice from a forum full of people who buy saddle gear that costs an uncomfortable amount of their not so disposable income. Literally, it may be the worst place to take financial advice from!
why not do a bit of both. first save an emergency fund, then take half of what you were paying for the car payment and invest (I suggest a Roth or whole life insurance) and take the other half and put it toward the principal every month. that way you appease your wife but are also getting some return on investment.