Is the idea of extra payments to your mortgage a placebo? Please educate me

[NimbleTimbo]

A thing you can do that most people don't know about is you can see if your mortgage company will recast your loan after you've paid down so much extra principle. The company I work for allows it after you've paid off 10k of the principle outside of your regular monthly payment amount. A recast just recalculates your payment based on your new principle amount. It's a re-amoritization schedule. So you can pay it off faster AND reduce your regular monthly payment. I think we only allow a certain number of recasts over the life of the loan

What kind of fees are involved when you do this?

 

[Horn]

What exactly is it that your prescribing?

I just hear that everyone is out to get you(maybe true) and that you should go through life assuming you’ll get got(scarcity mindset).

Are you saying rent(maybe you won’t have to pay!), and put all other money you make into coffee cans in the woods somewhere? Can’t those get stolen? Couldn’t you get shot in your rent house?

You can’t predict everythjng. You make decisions based on as good of information as is available. And leave yourself options and manage risk as best you can, with your particular risk tolerance in mind.

Of course bad things can happen, and exceptions can occur. What are you suggesting folks do about it?

Seems like you're reading far too much into what GeoFish said. Investing involves risk, our guy just pointed that out. It's a worthwhile point in the conversation

 

[TNSTAAFL]

This is not a black and white yes or no decision, and how lucky we are to be having this conversation is one of the first thoughts I keep trying to bring myself back to. Pretty sure I posted similarly already but:

Given the assumption that there are no other debts (car payment, credit card, loans etc), First step is contributing to 401k, second maximizing an employers 401k contribution/match(if you have one), third maximizing your annual contributions to IRS limits. Then the debate gets to continued investment in IRA/ portfolio/etc vs house payoff.

I like your prioritization. Every situation is different of course.

I'd slightly adjust this to suggest creating and maxing out a post-tax Roth IRA prior to maxing out a 401k/403b (beyond any matching money of course). The Roth provides tax free growth and never to again be taxed income down the road, which increases tax diversity in your portfolio, another important form of diversification. Plus, there is a reason the IRS will only allow you to contribute $7-8k per year. They don't want you to do any more than this...which means you should want to.

Taxes are likely going to go up in the long term. Just look at that debt clock.

Food for thought.


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[Skunkworkx]

My big thing was the house to be paid off for retirement...at least I'd have a roof over my head.

House being paid off (EARLY) would allow me a few thousand I wouldn't have to worry about. Would really hate to get, say $6000 a month (401K/pension/SS) and have $3000+ house note.

 

[HuskerInIowa]

My big thing was the house to be paid off for retirement...at least I'd have a roof over my head.

House being paid off (EARLY) would allow me a few thousand I wouldn't have to worry about. Would really hate to get, say $6000 a month (401K/pension/SS) and have $3000+ house note.

To paraphrase a great John Goodman speech from The Gambler and keep it site friendly, you get a house with a 25 year old roof, an indestructible vehicle, you put the rest in the system at 3-5% and that’s your base. Your fortress of solitude. Good for you buddy.

 

[Empostarr]

What kind of fees are involved when you do this?

I'm not 100% sure. I know for me as an employee, its free. But a quick google search says anywhere from $150 to $500.

 

[HuumanCreed]

Whoa, ok so did some number crunching. So if I stop all retirement saving for 6 years, and put all of that into my mortgage principle, plus some extra aggressive payment. I can pay off my mortgage in 6-7 years.

That sound REALLY tempting and it sound like a big risk. I don't think I can convince my wife of this. Its a wild idea that my very cautious wife would be hard to convince.

Con is this push me behind in retirement fund, interest/gain, and some tax consideration for 6 years.

But if I don't have a mortgage in 6 years, that would be a good extra amount of money we CAN put into retirement. Plus it would only be a few years before I hit 50 and can put more in 401k as 'catch up'.

Thoughts? Crazy?

Man this idea is growing on me. It SOUND dangerous, and that article of investing instead of extra payment is convincing. But man....no mortgage in 6 years....

 

[thedutchtouch]

Whoa, ok so did some number crunching. So if I stop all retirement saving for 6 years, and put all of that into my mortgage principle, plus some extra aggressive payment. I can pay off my mortgage in 6-7 years.

That sound REALLY tempting and it sound like a big risk. I don't think I can convince my wife of this. Its a wild idea that my very cautious wife would be hard to convince.

Con is this push me behind in retirement fund, interest/gain, and some tax consideration for 6 years.

But if I don't have a mortgage in 6 years, that would be a good extra amount of money we CAN put into retirement. Plus it would only be a few years before I hit 50 and can put more in 401k as 'catch up'.

Thoughts? Crazy?

Man this idea is growing on me. It SOUND dangerous, and that article of investing instead of extra payment is convincing. But man....no mortgage in 6 years....

Similar situation over here, but my mortgage is manageable and interest rate is pretty good so the "con" column- compound interest in current 401k investment vs none of I "catch up" later (current plan is trying to maximize contributions now AND during catch up) and annual tax savings on mortgage etc is what is preventing me from making this same leap as well. Need to do more number crunching and such, but currently leaning toward letting the mortgage ride and using the short term money for stuff like renovations and building a garage etc. theory being it makes my current life better and increases the value of my property so makes more sense than paying off mortgage earlier but keeping everything as-is.

 

[GreginPA]

Thoughts? Crazy?

personally - I do a little bit of both. I pay a little extra on my mortgage each month and I contribute to my 401k and ROTH IRA. Spread the love around. Cover all your bases. Don't put all your eggs in one basket.

When I boil down the numbers, I'm putting more into my retirement each month than I am putting towards principal (including the extra) on my mortgage

 

[VASteve]

So if I stop all retirement saving for 6 years

If your employer contributes some kind of matching to your 401K contributions, you should put whatever amount in there to get that max match from them. That is free money for your retirement. I feel you would gain more in the 401K investments over time than what you would get by paying off your mortgage early.

 

[kyler1945]

Whoa, ok so did some number crunching. So if I stop all retirement saving for 6 years, and put all of that into my mortgage principle, plus some extra aggressive payment. I can pay off my mortgage in 6-7 years.

That sound REALLY tempting and it sound like a big risk. I don't think I can convince my wife of this. Its a wild idea that my very cautious wife would be hard to convince.

Con is this push me behind in retirement fund, interest/gain, and some tax consideration for 6 years.

But if I don't have a mortgage in 6 years, that would be a good extra amount of money we CAN put into retirement. Plus it would only be a few years before I hit 50 and can put more in 401k as 'catch up'.

Thoughts? Crazy?

Man this idea is growing on me. It SOUND dangerous, and that article of investing instead of extra payment is convincing. But man....no mortgage in 6 years....

Are you just trolling everyone?

Haha this thread feels like watering plants with Brawndo for sure.

 

[HuumanCreed]

Are you just trolling everyone?

Haha this thread feels like watering plants with Brawndo for sure.

No, just doing a lot of researching due to recently switching company. My old company did have matching up to 4%. We usually did 10% and call it a day.

But the new company said they don't match, but offer an increase in salary that will be similar to matching 7ish%. Their compensation model leave it more to the employee on how they want to invest/save their money.

So wife and I was trying to figured out if we want to put that in 401k or IRA or invest it. One of the number we crunched out was if we REALLY suck it up (cut back on stuff, no investment, no misc savings), put all our eggs in our mortgage, it can be pay off in 6 years. By that time, our oldest would be in 16. We are in a position to support his college education if he needs it without going into debt as of now.

BUT once he finish his 4 years (if nothing go wrongs). His sisters are on deck. I have 3 girls that are back to back to back in terms of high school graduating. THAT is what worries me, I'm going to need to stretch that dollar really long for those years. Instead of taking a bunch of loans, taking out a mortgage form a fully paid house (to backup whatever saving(529plans) we already have) seem like the better solutions.

 

[The_Fit_Ness_Monster]

My dad and uncles were products of the Enron crash, I refuse to pay into a retirement plan, having to work at 60 bc I want to Is much better than watching my dad get ready to retire and losing it all, yeahhhhh screw ALL that.