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I laid out multiple scenarios and the lump sum with a HELOC versus just putting extra money towards the primary mortgage, and it never took more than 3-4 more months off the loan. And I didn't even calculate the interest the HELOC would charge. So high risk, almost no reward.
The advantage of paying additional principal every month depends on how much extra you pay.
Example:
100,000 loan at 6% 30 years, P+I 599.55 per month, total interest paid 115,838.
Add just 100 to your payment and the loan is paid off in 252 months (21 years) and the total interest paid is only 76,112.72.
But you have to start paying extra at the very beginning to get the maximum benefit.
Going back to the first example, let's say you start paying extra at the end of 10 years (120 months). At that point you will owe 83,685.78 and will have already paid 55,631.78 in interest.
Now add 100 to the payment. The 83,685.78 gets paid off in another 15.25 years (183 months) with interest of 44,240.37. By starting late it took you 25.25 years to pay off the mortgage and you paid just under 100,000 in interest. Still a savings and a shorter payoff period but not quite as much as if you started at the beginning.
Run the figures on your own mortgage balance again. There has to be more than just a few months benefit to you for paying extra each month.
The advantage of paying additional principal every month depends on how much extra you pay.
Example:
100,000 loan at 6% 30 years, P+I 599.55 per month, total interest paid 115,838.
Add just 100 to your payment and the loan is paid off in 252 months (21 years) and the total interest paid is only 76,112.72.
But you have to start paying extra at the very beginning to get the maximum benefit.
Going back to the first example, let's say you start paying extra at the end of 10 years (120 months). At that point you will owe 83,685.78 and will have already paid 55,631.78 in interest.
Now add 100 to the payment. The 83,685.78 gets paid off in another 15.25 years (183 months) with interest of 44,240.37. By starting late it took you 25.25 years to pay off the mortgage and you paid just under 100,000 in interest. Still a savings and a shorter payoff period but not quite as much as if you started at the beginning.
Run the figures on your own mortgage balance again. There has to be more than just a few months benefit to you for paying extra each month.
I played with a calculator and posted it all earlier in the thread. No matter what I changed, the large lump sum reduction in principal versus the same amount spread out over time only moved the maturity date up by a couple of months. I ran the numbers with large annual payments (since a HELOC promotional rate is usually only good for a year or less) versus the same amount spread over monthly payments. No matter the loan balance, interest rate, amount going to principal, the results were the same.
Quote:
Here is a scenario.
Let's say you owe $100K. You refinanced last month, 30 years. 4% interest.
Maturity date: September 2047
You plan on paying $1000 extra per month until it is paid off.
New maturity date: January 2024
You decide to take out the HELOC and pay a $12,000 lump sum. You will repeat this every year.
New maturity date: September 2023
So you are paying the same amount, but it is paid off a few months earlier. (However, you will be paying interest on your HELOC, so is the savings worth it? Not likely.)
Another scenario. You owe $200K. You refinanced last month, 30 years. 4.5% interest.
Maturity date: September 2047
You plan on paying $1000 extra per month until it is paid off.
New maturity date: January 2028
You decide to take out the HELOC and pay a $12,000 lump sum. You will repeat this every year.
New maturity date: September 2027
Same results. The higher interest rate and loan amount didn't really matter. Same amount being cut off the loan, which is just a few months. Still not worth the risk.
One more scenario. You owe $400k. You refinanced last month, 30 years. 4% interest.
Maturity date: September 2047
You plan on paying $2000 extra per month until it is paid off.
New maturity date: February 2028
You decide to take out the HELOC and pay a $24,000 lump sum. You will repeat this every year.
New maturity date: September 2027
And, the results are still about the same.
Last scenario. I'll keep the $400K, 30 years, 4% interest, but increase the payment amount.
Maturity Date: September 2047
$5000 extra per month, Maturity Date: January 2023
$60,000 extra per year, Maturity Date: September 2022
I played with a calculator and posted it all earlier in the thread. No matter what I changed, the large lump sum reduction in principal versus the same amount spread out over time only moved the maturity date up by a couple of months. I ran the numbers with large annual payments (since a HELOC promotional rate is usually only good for a year or less) versus the same amount spread over monthly payments. No matter the loan balance, interest rate, amount going to principal, the results were the same
In my last post I was no longer discussing the HELOC gimmick (which I agree is a bad idea on many levels), just the advantages of paying extra on a first mortgage.
Those advantages are significant even with as little as 100 extra per month.
In my last post I was no longer discussing the HELOC gimmick (which I agree is a bad idea on many levels), just the advantages of paying extra on a first mortgage.
Those advantages are significant even with as little as 100 extra per month.
That was never disputed. You quoted my comment about the HELOC theory versus just paying extra towards the principal on a monthly basis. I've said over and over that paying monthly is a better plan. I didn't even read your math because I assumed you were referring to what you quoted. I had already debunked the fact that the amount over you pay does not change the outcome with the HELOC vs. monthly debate.
You don't even have to pay $100 a month. Simply 'rounding' up to the nearest hundred will knock a couple of years off of a 30 year mortgage. It will vary, since escrows will fluctuate over the life of the loan, but it will move the maturity date up a few years (for most homeowners- of course the amount of the loan can affect this).
You don't even have to pay $100 a month. Simply 'rounding' up to the nearest hundred will knock a couple of years off of a 30 year mortgage.
True.
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