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Old 12-27-2018, 02:34 PM
 
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[quote=Snowpacked;53987177]
Quote:
Originally Posted by mathjak107 View Post

Look at an amortization schedule. You pay more in interest early, which means the lender is getting their money firstly. The principle is where you want the money to go and that is always less early. Not good for the borrower.
That's generally correct but incomplete.

Most mortgages allow for overpayments to be applied to ones principal balance from day one.
Add a little to each payment earmarking the extra towards interest.
Add a full or partial payment anytime earmarking the extra towards interest.
Add say a $25,000 payment earmarked towards principal and the principal balance will decrease by $25,000.
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Old 12-27-2018, 03:11 PM
 
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[quote=Bp25;53987623]
Quote:
Originally Posted by Snowpacked View Post


That's because your remaining loan amount is higher in the beginning. It's really simple math but many people seem to struggle with it.


Think about it, if more money went to pay the principle (which means that part of interest accrued have to be deferred - not sure why lenders will agree to that) then after a year your principle will be lower and you will be the first one to complain that you have to pay effectively higher interest rate on a lower balance.



Also, put yourself on the other side. Say you loaned someone 100k with 3% interest and they took the loan for 10 years. There are two ways to do it, amortized over 10 years (like a mortgage so that the balance will be zero at the end of 10 years) or just pay 3% interest per year and pay back the entire principle at the end of the 10 years (like interest only loan). Now, after taking the loan they insist that their monthly payment to towards principal only and you agree. After 5 years or so, the principal will be paid and that guy or gal comes back and claims that the principal is paid and they owe nothing to you, therefore they will stop payment. How will you feel about that?
Yes it is easy. That is the way the lenders want it to be. They want their money now and when you get an equity loan. They are able to do the calculation and still make money. Do not be fooled into thinking that it cannot be done differently.
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Old 12-28-2018, 08:08 AM
 
66,723 posts, read 67,787,764 times
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[quote=EDS_;53989975]
Quote:
Originally Posted by Snowpacked View Post

That's generally correct but incomplete.

Most mortgages allow for overpayments to be applied to ones principal balance from day one.
Add a little to each payment earmarking the extra towards interest.
Add a full or partial payment anytime earmarking the extra towards interest.
Add say a $25,000 payment earmarked towards principal and the principal balance will decrease by $25,000.
whether adding extra principal to each payment is a good idea is a very debated topic ...

it can really put pressure on other investments you need to generate income in retirement under a lot more pressure to " have a good time frame " .

the less time you give market investments to grow the more time frame dependent they become . many really hurt themselves when they wait until they pay off the house channeling extra money in , then they hit a poor strech of time like 2000 to 2015 and see little growth when they start to put more money in to investment late in the game . .

so the longer you give yourself the less time frame dependent market investments become .

so channeling extra money in to the house may end up having the income generating ability hurt more than the cost savings in interest .

it really is going to be a personal situation issue but it is not a slam dunk that channeling more money in to the house and saving some interest is a better deal
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Old Today, 04:02 AM
 
Location: Silicon Valley
3,039 posts, read 1,339,347 times
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MJ is winner by TKO!!!


But you'll never win the amortization chart secrets!!!! mwhahaha


Ok, time for bed.
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Old Today, 04:54 AM
 
Location: The Triad (NC)
27,155 posts, read 59,014,924 times
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Quote:
Originally Posted by inquisitive2 View Post
I'm about 4 years into my mortgage.
Am I better off to make some extra payments on my mortgage or invest in some stock?
How much of your NET income in 2014 was spent on housing?
How much of your NET income in 2018 was spent on housing?
Is that percentage declining? Are you at/approaching the 23% (12/52's) target yet?
These are the questions to ask regarding adjustments to your mortgage.
===

As regards getting INTO the equities market with fresh money... NOW? Hold off.
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Old Today, 12:59 PM
 
12,431 posts, read 9,415,330 times
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Quote:
Originally Posted by inquisitive2 View Post
I'm about 4 years into my mortgage. Am I better off to make some extra payments on my mortgage or invest in some stock?
Depends on your time horizon and your risk tolerance. Roughly speaking, paying down debts (mortgage or otherwise) is much like investing in bonds of comparable duration, with lower expected returns but also less volatility. As a rule of thumb I'd suggest investing in stocks if you can stomach the volatility without selling on impulse. If you are closer to retirement you should re-evaluate.
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