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Old 04-18-2015, 01:55 PM
 
12,404 posts, read 9,212,610 times
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Quote:
Originally Posted by AmFest View Post
Future interests are discounted at the time value of money rate which typically covers inflation and more. So If your interest rate is 4% and inflation is 2%, your effective interest is lower than 2%. At this rate, accelerating payments doesn't really save you much.
Except that you also have to discount the return on the alternative investment by the rate of inflation, so it ends up being a wash.
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Old 04-22-2015, 01:26 PM
 
Location: New York
2,251 posts, read 4,164,578 times
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Quote:
Originally Posted by ncole1 View Post
Yeah, it would be a bad move to pull out enough to pay the house off in a lump sum, and get into the (insert expletive of choice here) tax bracket.

But it might make sense to pull smaller amounts out from the bond allocation and pay it down, since bonds are not likely to return enough to keep up with the interest.
ncole1 you hit this one out of the park, Good Advice!!!

Jkgourmet purchased home 2.5 years ago with a 30 year mortgage. Dito - I do not recommend pulling out a lump sum to pay down your principle. Retired and living on a fixed income, he missed the boat when he was younger. Then would been better to sent in extra towards principle. It is unrealistic due to his age he will pay his 30 year mortgage off in his lifetime.

My experience working with mature borrowers - once a person retired should have little debt. Knowing that payments drive a credit score, recommend to send in a modest extra payment towards principle, to be reported as being more responsible with the credit bureaus which causes the higher credit score. If a person pays off all debt, within a short period credit score can change to N/A (have seen this many times). Next time they need to do any type of financing, might require a co-signer.

As for managing his investment portfolio, recommend looking at Municipalities (large townships) because this type of investment is much safer than individual stocks and can pay better than bonds. Plus the return interest/gains can be non tax able.

Quote:
Originally Posted by mulliganx View Post
...thinking about making an extra payment towards the principal ...
To get the full advantage of paying extra towards principle, it is best to start the first year (right away), due to more interest is amortized into the loan the first five years. After - each month less interest and more principle is paid.

OP doesn't mention his balance - analyzing his situation....
  • 30yr loan x 4.125% x $2400 (P/I) = Balance $495500
  • Sending in extra $200 per month = $2600 (P/I)
  • Reduces 30yr loan to 309 months
Year 1 balance = $484.557.00
Year 2 balance = $472,588.00
Year 3 balance = $460,670.00
Year 4 balance = $465,969.00
Year 5 balance = $453,488.00
Year 6 balance = $440,768.00
Year 7 balance = $427,512.00
Year 8 balance = $413,700.00
Year 9 balance = $399,307.00
Year 10 balance = $384,309.00
Year 11 balance = $368,680.00
Year 12 balance = $352,394.00
Year 13 balance = $335,424.00
Year 14 balance = $317,740.00
Year 15 balance = $299,312.00
Year 16 balance = $280,111.00
Year 17 balance = $260,102.00
Year 18 balance = $239,251.00
Year 19 balance = $217,252.00
Year 20 balance = $194,884.00
Year 21 balance = $171,229.00
Year 22 balance = $146,709.00
Year 23 balance = $121,092.00
Year 24 balance = $94123.00
Year 25 balance = $66,581.00
Year 26 balance = $37,595.00
Year 27 balance = $7,392.00

At year 10 recommend refi - main benefit knocking off term.
10 in 30 year mortgage the balance = $384,309.00
Refinancing into a 15year term equal payment = $2600.00
Recommend doing an in-house (streamline refinance) with current lender to avoid closing costs.

Note: Trying to predict future interest rates is like rolling dice. My view if our president is Republican, the 15yr interest rate you mention will probably go up....lol!! If it is Democratic chances are good future rates will be low.

Good Luck



.

Last edited by Modification Specialist; 04-22-2015 at 01:47 PM..
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Old 04-23-2015, 09:01 AM
 
Location: Boise, ID
8,011 posts, read 22,532,873 times
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This: Free Home Mortgage Calculator for Excel

is the Excel spreadsheet you want to use. You can start the additional payments any month you want, and change the extra to be different every single month if you want. Best "extra payment" spreadsheet ever, and it's free. It will tell you exactly how much interest you pay over the life of the loan based on the extra payments you've entered, and what your balance is on any given month. I haven't found these capabilities on any other program out there.

Note: I am in no way affiliated with this site, I'm just a fan
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Old 04-23-2015, 09:13 AM
 
Location: Boise, ID
8,011 posts, read 22,532,873 times
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Ok, I just discovered it has 1 weakness. It rounds the interest rate to 2 digits after the decimal. So your 4.125 becomes 4.13, so the calculations are SLIGHTLY off. But close enough.

Assuming Modification Specialist's numbers are correct on reverse calculating your loan amount, I show you will pay just shy of $370k in interest over the life of your loan if you make no extra payments.

At $200 extra per month, that drops to $310k. At $1000 extra per month, it drops clear to $193k. At $1500 extra per month, it drops all the way to $157k. So yes, you definitely save a lot in interest. At $1500 extra per month, you would pay off the loan in 14 years also.
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Old 04-23-2015, 03:08 PM
 
2,188 posts, read 2,516,499 times
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Quote:
Originally Posted by Lacerta View Post
Ok, I just discovered it has 1 weakness. It rounds the interest rate to 2 digits after the decimal. So your 4.125 becomes 4.13, so the calculations are SLIGHTLY off. But close enough.
I think the cell isn't rounding, it's just formatted to only show 2 decimal places. The calculation still uses 4.125. You can change the formatting of the cell. I plugged in my interest rate(3.875) and loan balance in this and it matched perfectly with the amortization schedule my lender provided me.
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Old 04-23-2015, 04:08 PM
 
Location: Boise, ID
8,011 posts, read 22,532,873 times
Reputation: 9213
Quote:
Originally Posted by FCNova View Post
I think the cell isn't rounding, it's just formatted to only show 2 decimal places. The calculation still uses 4.125. You can change the formatting of the cell. I plugged in my interest rate(3.875) and loan balance in this and it matched perfectly with the amortization schedule my lender provided me.
Ah, good to know
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