Im sorry, you all are making me look at Mortgage rates again and Im only in the house a few months :).
I thought 4% was a good number when I got it.
Im sorry, you all are making me look at Mortgage rates again and Im only in the house a few months :).
I thought 4% was a good number when I got it.
Once you pay your mortgage off, you will find yourself saying "What the hell am I going to do with all this money?"
Thinkkker wrote: Im sorry, you all are making me look at Mortgage rates again and Im only in the house a few months :). I thought 4% was a good number when I got it.
It is for a 30 year loan.
trucke wrote: Glad to see everyone recommending to pay off the mortgage. I've been teaching debt-elimination for 14 years now at churches and colleges. Here is another way to look at this. Using z31maniac's numbers: 15 year mortgage @ 2.875% with a balance of $97,000. The payment calculates to $664.05/month. These payments include principal and interest. A payment of $664.05 breaks out to $431.65 towards principal and $232.40 taken as interest. Now what percentage of this payment is interest? $232.40 / $ 664.05 = 34.99%. Paying down your mortgage is a guaranteed investment. Pay it off early and you pay less interest. You goal is to find a 'guaranteed' investment that will yeild 35% or better. Good luck! You cannot relate APR (annual percentage rate) between a loan and an investment. The APR is designed to compare loans OR compare investments. Now go pay off that mortgage!
That is so wrong, I don't know where to start.
But, I do vote for paying off the mortgage.
Otto Maddox wrote:trucke wrote: Glad to see everyone recommending to pay off the mortgage. I've been teaching debt-elimination for 14 years now at churches and colleges. Here is another way to look at this. Using z31maniac's numbers: 15 year mortgage @ 2.875% with a balance of $97,000. The payment calculates to $664.05/month. These payments include principal and interest. A payment of $664.05 breaks out to $431.65 towards principal and $232.40 taken as interest. Now what percentage of this payment is interest? $232.40 / $ 664.05 = 34.99%. Paying down your mortgage is a guaranteed investment. Pay it off early and you pay less interest. You goal is to find a 'guaranteed' investment that will yeild 35% or better. Good luck! You cannot relate APR (annual percentage rate) between a loan and an investment. The APR is designed to compare loans OR compare investments. Now go pay off that mortgage!That is so wrong, I don't know where to start. But, I do vote for paying off the mortgage.
Then explain to us why it's wrong.
(I'm not saying it's right, but "hey that's wrong" with no explanation is weak)
In reply to z31maniac:
Simple answer is he is taking compounded interest and comparing it to a yearly rate.
In reply to z31maniac:
Actually worse than that. In his example, you don't pay off the mortgage. $431.65 principle times 180 payments only pays off $77,697.
trucke wrote: Glad to see everyone recommending to pay off the mortgage. I've been teaching debt-elimination for 14 years now at churches and colleges. Here is another way to look at this. Using z31maniac's numbers: 15 year mortgage @ 2.875% with a balance of $97,000. The payment calculates to $664.05/month. These payments include principal and interest. A payment of $664.05 breaks out to $431.65 towards principal and $232.40 taken as interest. Now what percentage of this payment is interest? $232.40 / $ 664.05 = 34.99%. Paying down your mortgage is a guaranteed investment. Pay it off early and you pay less interest. You goal is to find a 'guaranteed' investment that will yeild 35% or better. Good luck! You cannot relate APR (annual percentage rate) between a loan and an investment. The APR is designed to compare loans OR compare investments. Now go pay off that mortgage!
I take issue with your numbers. A 2.875 rate is just that - 2.875%. You are looking at the first month on an amortization table and saying that's what you're paying in interest. Not valid. Also wouldn't be valid to look at the last month of an amortization schedule and conclude that since you're paying $2.13 in interest, that the rate is .3%.
Now, there is validity in the fact that there are a lot more first payments paid than last. But that's a matter of understanding amortization. It's not that APR is a bad way to look at a loan.
Still, we agree that paying off the loan is smart money.
BTW - just got a quote for 2.75% on a 10 year. 
DILYSI Dave wrote:trucke wrote: Glad to see everyone recommending to pay off the mortgage. I've been teaching debt-elimination for 14 years now at churches and colleges. Here is another way to look at this. Using z31maniac's numbers: 15 year mortgage @ 2.875% with a balance of $97,000. The payment calculates to $664.05/month. These payments include principal and interest. A payment of $664.05 breaks out to $431.65 towards principal and $232.40 taken as interest. Now what percentage of this payment is interest? $232.40 / $ 664.05 = 34.99%. Paying down your mortgage is a guaranteed investment. Pay it off early and you pay less interest. You goal is to find a 'guaranteed' investment that will yeild 35% or better. Good luck! You cannot relate APR (annual percentage rate) between a loan and an investment. The APR is designed to compare loans OR compare investments. Now go pay off that mortgage!I take issue with your numbers. A 2.875 rate is just that - 2.875%. You are looking at the first month on an amortization table and saying that's what you're paying in interest. Not valid. Also wouldn't be valid to look at the last month of an amortization schedule and conclude that since you're paying $2.13 in interest, that the rate is .3%. Now, there is validity in the fact that there are a lot more first payments paid than last. But that's a matter of understanding amortization. It's not that APR is a bad way to look at a loan. Still, we agree that paying off the loan is smart money. BTW - just got a quote for 2.75% on a 10 year.
I get a mortgage interest deduction, so that cuts about 25% off my mortgage rate. That is one other thing to consider.
In reply to Otto Maddox:
True. The interest amount drops with each payment, but not much. The overgoal is to keep the most money in your pocket. Dropping over $200/month on interest is not my idea of good financial practice. On a 30 year morthage that interest goes up to over 90% of the payment amount in the first few years. Even after 15 years on a 30 year mortgage you are paying over 75% of the payment amount in interest.
Give Dave Ramsey all call!
Otto, the tax deduction may not be there either. Besides the fact that CONgress and the POTUS want to eliminate the mortgage deduction, as the other interest deductions such as credit cards, car loans, etc., have already been eliminated, the standard deduction has a big chunk built in. Your mortgage interest, added to all your other deductions, has to add up to a lot to get over the amount the standard deduction would have been. You are only at the advantage where the itemized deductions are over the standard deduction, which you would have got just for breathing. Or not even breathing, for that matter, as if you're dead, you still are going to pay taxes that last year. Anyway, your mortgage deduction might only be 50% over the standard deduction, which means you would get half of that 25% back, or 12.5% in your tax bracket. As it's now tax time again (gotta pay for The O's wars,) do your taxes both ways and see what the incremental difference is with and without the mortgage deduction. Unless you have a whole lot of other deductions that you're itemizing, you won't come out much ahead with the mortgage interest.
trucke, your math fails to account the principal amount of the loan. Yeah, you're paying 200 bucks interest and 400 on principal (or vice versa), but the true interest rate is on the 100K, not the 400 that is your payment.
I like Dave too. I disagree with some of his stuff, but in general he has good ideas and helps people. His one-size-fits-all is easy for people to follow (well, easier than one size fits one would be.)
That is the one downside to paying off early - losing the interest deduction. Although personally, I'd rather not have to be paying that money at all vs. getting a portion of it back. As I'm closing in on the final two years of my mortgage (if all goes well), I'm nearing the point where it may not pay to itemize deductions. However, my real estate taxes are relatively small. For somebody paying $12K/yr in real estate taxes (not uncommon around here), they will almost alway itemize.
I'm pretty much in the "pay it off" camp. But you should ask yourself a few questions.
Are you planning to live in this house for the rest of your life? If so, the "pay it off" deal gets a lot more attractive. In that case, you're paying off something that will result in a bill going away with no huge concern for the value of the property. Obviously, if the value tumbled a LOT it would suck. But it's less of an "investment" if you never plan to sell it. Of course, no one knows, but it's likely that the worst of the housing decline is behind us. That makes it more attractive as well.
If you are planning to sell at some point, you have to look a little harder at your neighborhood and what you think may happen down the road. If it seems likely to be flat for a long time, or at risk for slow decline, it might make sense to invest somewhere else. As for discipline, it makes a lot of sense to have an auto-deduction go to your investment broker.
The problem is one size doesn't fit all.
As others have noticed Trucke's logic is flawed and misleading - here's how to calculate mortgage interest:
Multiply the principal balance by the interest rate, then divide by 360 (not 365).
The result is your 'per diem'. Multiply that by 30 for your monthly interest - for the purposes of your mortgage, every month has 30 days (hence the 360 not 365).
As the principal balance goes down, the proportion of your payment that satisfies accrued interest will get smaller as well. But that proportion of your payment is not the interest rate.
ARMS, Hybrids, etc are different in that as the rate changes your payment can change as well.
The mortgage tax deduction is probably safe in the short term but may eventually go away - Hess is right that your mortgage interest has to exceed the standard deduction before it helps you. You could say that it helps well-off folks more than those of modest means. If that's good or bad depends on your view.
fast_eddie_72 wrote: I'm pretty much in the "pay it off" camp. But you should ask yourself a few questions. Are you planning to live in this house for the rest of your life? If so, the "pay it off" deal gets a lot more attractive. In that case, you're paying off something that will result in a bill going away with no huge concern for the value of the property. Obviously, if the value tumbled a LOT it would suck. But it's less of an "investment" if you never plan to sell it. Of course, no one knows, but it's likely that the worst of the housing decline is behind us. That makes it more attractive as well. If you are planning to sell at some point, you have to look a little harder at your neighborhood and what you think may happen down the road. If it seems likely to be flat for a long time, or at risk for slow decline, it might make sense to invest somewhere else. As for discipline, it makes a lot of sense to have an auto-deduction go to your investment broker.
Most likley not. Ideally I'd like to pay the house off and then sell to use as a downpayment on a "final" house, or keep as a rent house for some supplemental income.
The mortgage interest deduction does lower your taxes, but it still results in less total in your pocket than if you didn't have the loan.
I have $10k
I pay $1k in interest.
I pay 25% tax on the remaining $9k ($2,250)
I have $6,750
I have $10k
I pay no interest
I pay 25% tax on the $10k ($2,500)
I have $7,500
Yes, paying $1000 in interest lowered my tax bill by $250, but spending a grand to save $250 is a E36 M3ty deal.
[Flounder]
Too many people drinking the "it will lower my taxes" kool aid is part of the reason we're in the current E36 M3storm.
[/Flounder]
DILYSI Dave wrote: Yes, paying $1000 in interest lowered my tax bill by $250, but spending a grand to save $250 is a E36 M3ty deal.
But you have to live somewhere, right? And you have to pay for it, right? So if you would be paying the same amount in rent as you would be for your mortgage payment plus an allocation for the expenses of homeownership, then that $250 tax savings is money ahead.
szeis4cookie wrote:DILYSI Dave wrote: Yes, paying $1000 in interest lowered my tax bill by $250, but spending a grand to save $250 is a E36 M3ty deal.But you have to live somewhere, right? And you have to pay for it, right? So if you would be paying the same amount in rent as you would be for your mortgage payment plus an allocation for the expenses of homeownership, then that $250 tax savings is money ahead.
I'm not comparing rent vs. mortgage. I'm comparing paid off house vs. mortgage.
Otto Maddox wrote: In reply to z31maniac: Actually worse than that. In his example, you don't pay off the mortgage. $431.65 principle times 180 payments only pays off $77,697.
PLUS, he's taking a single payment near the start of the mortgage and using that to illustrate the LIFE of the mortgage. Mortgage payment allotments are set up so that you are paying mostly interest early on, but that the interest portion ratchets DOWN and principal portion ratchet UP with each payment. By the end of the loan, you are paying off mostly principal each month, even though the principal + interest total payment has been fixed throughout the duration.
DILYSI Dave has got it right on the tax deduction. The deduction is great IF/WHEN you have a mortgage. Using the tax deduction as a reason to not pay off a mortgage will cost you a significant amount of your life time earnings.
Duke wrote:Otto Maddox wrote: In reply to z31maniac: Actually worse than that. In his example, you don't pay off the mortgage. $431.65 principle times 180 payments only pays off $77,697.PLUS, he's taking a single payment near the start of the mortgage and using that to illustrate the LIFE of the mortgage. Mortgage payment allotments are set up so that you are paying mostly interest early on, but that the interest portion ratchets DOWN and principal portion ratchet UP with each payment. By the end of the loan, you are paying off mostly principal each month, even though the principal + interest total payment has been fixed throughout the duration.
This is true, but it doesn't rachet that fast. Take a good look at your amortization schedule and see how much is going out of pocket and for how long.
I know exactly how long it takes, because I double my principal payment every month when I send it in. Always have, always will.
That doesn't mean your math is right, because it isn't.
agree with the majority but there are some more variables 1. probably most important is what is the years to maturity of the existing mortgage. given your age it is probably longer than 15 years. but i'm suprised how many people who have paid for 5 to 7 years on a 30 year mortgage then refinance into a new 30 year mortgage to save $200 a month and don't think about the 7 years of new payments they are incurring at the end of the new mortgage. so if your current mortgage has less than 15 years to maturity rethink your calculations.also you need to know what the closing costs are that dramatically affects the real cost of a refi .2. have you talked to your existing lender a mortgage modification has far fewer closing costs than a new mtg origination., dramatictically in fl, because there are title insurance to buy on a new mtg and govt taxes on a new mtg that don't exist on a modification. i ask my mth holder what his best deal was on a mod vs my refinancing with a competitor he came within 1/8 % of matching the lowest rate charged me $750 total for closing costs saving me nearly $4000 in closing costs a fees. 3. always be sure you've got 6-12 months of money market funds, before you do accelerated paydowns etc, because if you hit bad times you can't borrow money. many of my clients currently are land rich cash poor. 4. yes there are reasonable investments, not riskless but long term low risk that are virtually guarnteed to earn/grow at over 4% i.e. philip morris or chevron dividend over 4% appreciation probably 4-8 annualized in cap gain = 8-10% total return over time. 5. as others have stated the real after tax cost of a mtg is the effective rate ( rate minus tax savings) and the most important part of that analysis is to do your taxes with the inerest deduction vs std deduction. at your age, not knowing your income, but on a $97,000 mtg i bet your are getting little benifit from the deduction 6 having said all that most calculations will show that investing in the mkt will make you more money if you 1.actually do it consistently,have a long horizon and don't try to time markets and 2.don't 2nd guess yourself. 7.in reality is houses given the upkeep costs, improvements, intrest costs etc generally are at best a breakeven, but its the one investment that most people consistently make. a below average investment will eventually accumulate more money than no investment. 8. those are facts but all investment decisions have to be tempered by your sleep at night value, which is why so many are recomending a paydown stategy \
I'm also in the pay it off crowd but all that math is making my head hurt. Several years ago when interest rates started their drastic drop I refinanced my house. Payments were going to almost half of what they were before on a standard 30-year so I asked what about shorter time. Worked out that 15-year payments were less than $100 more than I was paying on the original loan. Took that and only have less than 7 years left to pay on my house.
As for selling later, I don't see the big deal. If you don't live in the house the rest of your life and sell the house even after payoff then you have all the selling cost (minus expenses) to put on the next house. SWMBO and I have been considering this recently. Our house that was on the edge of town when we bought it is no longer the edge of town. There is even a new High School opening up next school year right outside our subdivision. Not looking forward to that. On the bright side, all the other subdivision around are high end houses selling for more than twice what I bought mine for plus I'm told the school proximity raises value also so if we decide to move further out of town we should make out pretty well. SWMBO and I disagree on some aspects though I want a heavy wooded lot of about 1 to 3 acres cleared just enough for a house and a garage/workshop. She doesn't like trees. But then again she grew up in Korea after the war and there were no trees (at least big trees) in Korea at that time.
I don't have any fancy math to back my arguement. I chose to pay mine off as soon as possible because I absolutely hate being in debt, period. Once my house is paid off in April, my house payment is going towards a small home improvement loan and I'll be totally debt free by July. I can't freakin' wait.
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