question do you let them know, the extra payment is inteneded for the principal or is that a logical of course...
lets say your actual payment is 1400 dollars, so one extra payment of 1400 dollars will be devided into 12 months, thats 116.67 per month you would pay two payments a month of 758.34 = 758.34x2=1516.67 I think thats how it works, I don't have the papers infront of me
Won't they then just be losing sleep over all the money they DON'T have invested for retirement... that they could have if they took the equity out of their home and invested it while enjoying the write off of the home-loan interest?
That's what my mortgage broker told me to do. It works extremely well for the first couple of years of the mortgage. However when your principal portion gets higher it can almost double your payment.
Why would I worry about that? I have equity in my home which will keep appreciating over time with no risk. If I needed money for retirement I could sell my house and move into a smaller home (which is my plan) and live off the balance or I could do a reverse mortgage. BUT if my stock portfolio tanks then I am left with no savings and a large mortgage. Plus now that I don't have a house payment I can set aside much more into aggressive growth funds every month or I can continue to purchase development property (which I believe is a better investment).
You do not have to pay double principal in later years. Use this one site to find out how much you have to pay extra to reduce your payment years. Calculator
Who said anything about putting the money into stocks? There are other more diversified instruments. Real estate does have risk. There is obviously no simple answer here; it is more about what suits your goals and temperment.
I am not claiming that paying off a mortgage is the best plan. I am stating that in spite of all the math pointing to it NOT being a good idea that in my opinion it is a viable option. I also disagree that having a paid off property is risky. I claim it is not. When people are harmed by real estate downturns it is almost always because the lowered market causes them to be upside down on their loan. With a paid off mortgage looking toward the long term I believe there is no risk that can't be easily covered by property insurance.
Very well said. Having paid off my own house (in 7 years, yay) I agree with what most people here are saying. Ideally I would make more money if I had paid the minimum and invested my money. But there is definitely something to be said for peace of mind. My wife is very risk adverse and I have been wanting to do some investments, namely buy apartment buildings. She would not have any of that until she felt we were more financially secure. Paying off this house went a long way towards that. Now we know that if anything goes wrong I can always at the least work at McDonald's to pay taxes and insurance. We'll always have a roof over our heads. Now she's comfortable with me taking risks I'll be able to focus on my investments without having the extra worry of screwing up and my family ending up in the streets. Maybe that'll allow me to be a better investor and make more money in the long run.
pirc1, what you want is a prepayment calculator. There are many out there. They will give you a detailed chart of what your current payment is and how it will cut down on that and how much longer you have for payment. Here is one. http://www.vlender.com/cgi-bin/calc/prepay.cgi
