Mortgage Tip
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TracyKent
Contributor
By paying extra principle, the interest applied to the loan is lessened and essentially lowering the rate. I pay extra on my loan which is paid automatically over 26 payments a year. By paying the extra each payment plus one full principle only payment, I effectively reduced my rate by about 2.5%.
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ahhh
that's great
-2.6% that is the reason for what Jenny asked then, since the interest is so much over 30 years of the cost. they have divided it out taking that into consideration once the loan is fully paid.
I should start doing this on my car.
that's great
-2.6% that is the reason for what Jenny asked then, since the interest is so much over 30 years of the cost. they have divided it out taking that into consideration once the loan is fully paid.
I should start doing this on my car.
Wayward Son
Contributor
You should. Pay it off & move on to the next. It works, I only have 2 debts left other than my mortgage.
TracyKent
Contributor
Its working well for me... sure I'm paying a little extra now, but with the shorter loan life, I'll be able to enjoy more things sooner. Like diving.
The Bible has a great verse in Proverbs, which is just that, a book full of wise sayings and principles.Actually, it has lots of good advice in Proverbs....it's one of the books I just love to read because it's so helpful!
22:7 "The borrower becomes slave to the lender."
3:28 "Don't tell your neighbor to come back tomorrow to get it, when you have it with you now." *
*these are paraphrases.
So the Bible seems to say that it's not great to be in debt, because as long as you owe someone money they can do bad things to you, like take your house or car. It also says that if you've got the money now, pay it!
And this works out practically too. In economics class we had to construct a table that showed how long it took to pay things off based on how much you paid. I made an excel spreadsheet that has a bug or two in it, so it's not always right, but it does the same thing as the linked website, and shows you an amortization table for it, so you can see how you are saving money.
If you pay off more principle in the beginning, they can't charge you interested on it in the next payment. So you pay less interest every single payment. What's interesting is an amortization chart that shows how much of your monthly payment went to interest and how much towards principle. In the beginning, very little goes to principle. As it's not being paid off much, you still get charged alot for interest. About halfway through a loan, you have paid off what you owed, the rest is just cushioning It's why a 500k loan costs you 750k. Oppurtunity cost.
So yes, pay off as much as you can! My dad paid off a 30 year note in 7 years by working extra calls and paying it off maniacly....about ayear into it he realized how much he could save and devoted himself to paying it off early. Now his "monthly payments" go into retirement funds--when you are done paying off the house, don't take the money and go bonkers withit! You are used to living without it, so put it into savings, stocks or bonds or whatever you want really, anything helps. Not only is this money for your retirement, but the less you live on per year before you retire, the leess you will need when you retire per year to maintain a similar lifestyle. Money always seems to have a snowball effect.
22:7 "The borrower becomes slave to the lender."
3:28 "Don't tell your neighbor to come back tomorrow to get it, when you have it with you now." *
*these are paraphrases.
So the Bible seems to say that it's not great to be in debt, because as long as you owe someone money they can do bad things to you, like take your house or car. It also says that if you've got the money now, pay it!
And this works out practically too. In economics class we had to construct a table that showed how long it took to pay things off based on how much you paid. I made an excel spreadsheet that has a bug or two in it, so it's not always right, but it does the same thing as the linked website, and shows you an amortization table for it, so you can see how you are saving money.
If you pay off more principle in the beginning, they can't charge you interested on it in the next payment. So you pay less interest every single payment. What's interesting is an amortization chart that shows how much of your monthly payment went to interest and how much towards principle. In the beginning, very little goes to principle. As it's not being paid off much, you still get charged alot for interest. About halfway through a loan, you have paid off what you owed, the rest is just cushioning
It's why a 500k loan costs you 750k. Oppurtunity cost. So yes, pay off as much as you can! My dad paid off a 30 year note in 7 years by working extra calls and paying it off maniacly....about ayear into it he realized how much he could save and devoted himself to paying it off early. Now his "monthly payments" go into retirement funds--when you are done paying off the house, don't take the money and go bonkers withit! You are used to living without it, so put it into savings, stocks or bonds or whatever you want really, anything helps. Not only is this money for your retirement, but the less you live on per year before you retire, the leess you will need when you retire per year to maintain a similar lifestyle.
Money always seems to have a snowball effect.
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Wayward Son:
man..you are on a roll. way to go. Hope you are talking it up with the kids. they seem like they aren't listening, but the words echo later.
It sometimes pays to have the deduction on a mortgage though. If you are earning 16% in the market, etc. I don't think paying off my house would be a good idea, if it means money costing 6 % has to get shifted from a place where its making at least double that, ..right?
Even aside from the deduction from income
But paying on a car is another story. Still, the interest rates are so low now and the market is doing so well...I am not sure. geez the DOW just broke 14! I think I might have been better off paying the 7% on the car.
I am exploring the notion now that your IRA can fund /own your home.
I'm getting in a little over my head and need a good CPA
Wayward Son
Contributor
Having the deduction really doesn't pay. Nothing wrong with using it when you file your taxes, but it's not a good reason to not pay off the mortgage. Takes a little playing with the math to demonstrate, but you can easily make your money do better than what the tax deduction does.
Wayward Son
Contributor
The kid may not listen but she can see. In a few months the last 2 debts will be paid off & closed & we'll be debt free except for the house. I think that when that happens it'll pretty much have to make an impression. Plus, she needs me to have money freed up to pay for her to go to school & knows that until these are paid our options are severely limited as I'm not going to borrow money to pay for it. I'll send her & pay for it, but it'll be cash, not credit.
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kudos
Both my kids are working real jobs, which sort of amazes me to be honest.
they like the feeling, I think. My son is selling papers with the homeless and the addicts under the freeway. (I am a little nervous)
It is just so important to instill a good work ethic and an awareness about money and what it takes to get. Hustling papers with people who need the money to have a meal has probably been an eye opener.
Both my kids are working real jobs, which sort of amazes me to be honest.
they like the feeling, I think. My son is selling papers with the homeless and the addicts under the freeway. (I am a little nervous)
It is just so important to instill a good work ethic and an awareness about money and what it takes to get. Hustling papers with people who need the money to have a meal has probably been an eye opener.
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