U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Real Estate > Mortgages
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 04-13-2015, 10:11 AM
 
67 posts, read 89,957 times
Reputation: 32

Advertisements

Hi guys,

I keep reading all of these mortgage posts about how it helps to make 1 extra mortgage payment a year.
My mortgage is about $2400 per month. So that would be an additional $2400 a year.

My question is regarding making intense mortgage payments. I am thinking about making an extra payment towards the principal of $1000 - $1500 per MONTH. Totaling an extra $12000 - $18000 per year in Principal payment.

I understand I will shorten the life of the loan. But will this effectively lessen the amount of interest I am paying?

I am paying about $1040 a month in interest for the next 2 years. (it drops $2 in interest per month) IT is crazy. I just completed my first year of the loan.

Example:
5/1/2015 My interest is $1043.40
5/1/2016 My interest is $1024.19
5/1/2017 My interest is $1004.08

After 3 years on regular payment schedule it dropped about 39 bucks. So I would like to start making INTENSE payments.

If I start making these extra payments towards principal will the computed interest due DROP significantly right away in the first few months?

Last edited by mulliganx; 04-13-2015 at 10:20 AM..
Reply With Quote Quick reply to this message

 
Old 04-13-2015, 11:08 AM
 
2,303 posts, read 2,124,600 times
Reputation: 3827
Quote:
Originally Posted by mulliganx View Post
Hi guys,

I keep reading all of these mortgage posts about how it helps to make 1 extra mortgage payment a year.
My mortgage is about $2400 per month. So that would be an additional $2400 a year.

My question is regarding making intense mortgage payments. I am thinking about making an extra payment towards the principal of $1000 - $1500 per MONTH. Totaling an extra $12000 - $18000 per year in Principal payment.

I understand I will shorten the life of the loan. But will this effectively lessen the amount of interest I am paying?

I am paying about $1040 a month in interest for the next 2 years. (it drops $2 in interest per month) IT is crazy. I just completed my first year of the loan.

Example:
5/1/2015 My interest is $1043.40
5/1/2016 My interest is $1024.19
5/1/2017 My interest is $1004.08

After 3 years on regular payment schedule it dropped about 39 bucks. So I would like to start making INTENSE payments.

If I start making these extra payments towards principal will the computed interest due DROP significantly right away in the first few months?
Assuming you have Excel, it's very easy to put together an Amortization Schedule to get your exact numbers(or there are plenty of calculators online if you do a quick google search).

To answer your question though, yes it will cut down on the interest. Every month, you make a payment of $X,XXX. Separate from that, the Interest is calculated by applying the monthly rate to the outstanding Principal Balance(let's call this $YYY in interst). That Y number is calculated each month and changes as the principal goes down.

Payment - Interest = the Amount paid towards your Principal
$X,XXX - $YYY = $ZZZ

Your $X,XXX remains unchanged, but when the principal goes down, it means next month, $YYY is smaller because the same Interest % is applied to a smaller balance. Because of that, more money goes towards paying off the loan and you pay it off sooner.

So A) Yes, it will reduce the interest you pay each month, but B) it will also reduce the time you are paying interest, which also means less total interest.
Reply With Quote Quick reply to this message
 
Old 04-13-2015, 11:08 AM
 
2,188 posts, read 2,515,902 times
Reputation: 1610
Quote:
Originally Posted by mulliganx View Post
I understand I will shorten the life of the loan. But will this effectively lessen the amount of interest I am paying?
Yes it will. Someone posted a link in another thread about this to a really neat excel amortization table, where you could plug in extra principal payments and see exactly the effect it would have on your loan amortization.
Reply With Quote Quick reply to this message
 
Old 04-13-2015, 11:23 AM
 
Location: Phoenix, AZ > Raleigh, NC
14,312 posts, read 17,519,551 times
Reputation: 22164
Additional Payment Calculator

Just out of curiosity - what interest rate did you get on this mortgage and what is the term? If you can afford these higher payments (easily), you might be better off doing a refi into a 15 year with a lower interest rate.

Personally, I am retired with a 3.75% 30 year mortgage on a home we purchased 2.5 years ago. We could have paid cash. Why did we get a mortgage? Because the mortgage interest is deductible, which brings down the 3.75% to a 'lower' percentage. Because I can keep OUR cash in OUR investments, making money for US, rather than the bank (and yes, we are easily beating 3.75% with our investment portfolio).

Will we pay it off later? Maybe. But with these low rates, I doubt it.
Reply With Quote Quick reply to this message
 
Old 04-13-2015, 12:30 PM
 
67 posts, read 89,957 times
Reputation: 32
30 yr mortgage at 4.125 %. I believe the 15 year refinance is about 2.75% or 3% depending on what rate I get.
Reply With Quote Quick reply to this message
 
Old 04-17-2015, 01:50 PM
 
12,404 posts, read 9,209,597 times
Reputation: 8868
Quote:
Originally Posted by Jkgourmet View Post
Additional Payment Calculator

Just out of curiosity - what interest rate did you get on this mortgage and what is the term? If you can afford these higher payments (easily), you might be better off doing a refi into a 15 year with a lower interest rate.

Personally, I am retired with a 3.75% 30 year mortgage on a home we purchased 2.5 years ago. We could have paid cash. Why did we get a mortgage? Because the mortgage interest is deductible, which brings down the 3.75% to a 'lower' percentage. Because I can keep OUR cash in OUR investments, making money for US, rather than the bank (and yes, we are easily beating 3.75% with our investment portfolio).

Will we pay it off later? Maybe. But with these low rates, I doubt it.
Do you have a pension also, or are you assuming that the investments will perform well enough to pay the note without being forced to sell at a loss?
Reply With Quote Quick reply to this message
 
Old 04-17-2015, 02:30 PM
 
Location: Phoenix, AZ > Raleigh, NC
14,312 posts, read 17,519,551 times
Reputation: 22164
Quote:
Originally Posted by ncole1 View Post
Do you have a pension also, or are you assuming that the investments will perform well enough to pay the note without being forced to sell at a loss?
No pension. Significant IRA's and Social Security. Performing very well (thank you) in a highly diversified mutual fund portfolio that can be invested into something else (like cash) in minutes. We could pay off the mortgage immediately, if we wanted, without any penalty on the IRA's (just the standard personal income taxes on the withdrawal).

But the overall earnings in those IRA's (plus the tax sheltered status of an IRA) make it financially foolish to pay them off. Unless, of course, we mentally wanted to pay them off. For many, having the psychological security of a paid off house is more important than anything. I understand that, and we are open to reconsidering our position as we get older.

I openly admit we are very blessed to have such choices. And grateful.
Reply With Quote Quick reply to this message
 
Old 04-17-2015, 05:20 PM
 
12,404 posts, read 9,209,597 times
Reputation: 8868
Quote:
Originally Posted by Jkgourmet View Post
No pension. Significant IRA's and Social Security. Performing very well (thank you) in a highly diversified mutual fund portfolio that can be invested into something else (like cash) in minutes. We could pay off the mortgage immediately, if we wanted, without any penalty on the IRA's (just the standard personal income taxes on the withdrawal).

But the overall earnings in those IRA's (plus the tax sheltered status of an IRA) make it financially foolish to pay them off. Unless, of course, we mentally wanted to pay them off. For many, having the psychological security of a paid off house is more important than anything. I understand that, and we are open to reconsidering our position as we get older.

I openly admit we are very blessed to have such choices. And grateful.
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.
Reply With Quote Quick reply to this message
 
Old 04-18-2015, 08:13 AM
 
2,409 posts, read 2,491,694 times
Reputation: 1807
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.
Reply With Quote Quick reply to this message
 
Old 04-18-2015, 08:47 AM
 
Location: Southern California
4,350 posts, read 4,937,863 times
Reputation: 2129
Low interest rates makes the impact of paying extra principal small, dumping extra money in your retirement fund would more than likely have a better return than making intense payments on your mortgage.

As long as you are making "Principal" payments, the computed interest is calculated just on the remaining balance, so yes you are going to pay less interest as so as you make your intense payments.

If you are going to make those intense payments anyways, consider doing a 15 year fixed or an ARM depending on your equity or cashflow needs.
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Real Estate > Mortgages
Follow City-Data.com founder on our Forum or

All times are GMT -6.

2005-2018, Advameg, Inc.

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top