Is it a good idea to pay extra towards principal balance? It looks like you won't be shaving off too many years off the loan unless you really pay alot extra per month?
Good question. IMHO, it's better to re-fi with a 15 year loan, depending on what kind of rate you can get.
Before you got a loan, if you knew you had extra cash and can afford to make higher payment you should have gotten shorter term loan because it has lower interest rate. Once you got the loan, whether you should pay extra toward the principal is up to what else you can do with the extra cash. If your loan has a rate of 5% and you can invest the extra cash and get back more than 5%, you should invest. If not, you should pay toward the loan. Of course, pay attention to the tax's implication too.
Wrong... It's ALWAYS a bad thing. If you have extra money to put towards principle, you NEVER pay the principle. Put that money in a mutual fund and you'll be a lot better off in the long run. Sit down with a financial planner or someone who can explain this to you with real numbers. There is also plenty of literature out there on the subject. Paying down your principle is a very bad idea.
Hold on now, let's reevaluate my statement. It's never a bad thing, inasmuch as it's preferable to (for example) blowing the money on electronics. However, investing in a fund is probably better, depending on your finanical situation. But paying down principle is not going to "hurt" you - and if you pay enough it might be quite beneficial. But I get your point. And it's valid. The returns on mutual funds will outweigh the money you save on your low-interest home loan. There is an interesting article on msn money this morning about how renting can save you money as opposed to owning - simply due to the returns, akin to your argument above. Of course, that assumes you pay WAY more to own than to rent, which is not the case necessarily in Houston, but I digress...
really depends on your loan, what is your current rate at, has your ARM reset-ed to a higher rate. For example, if your are paying 7% on the mortgage, paying down your principal is like an investment with a guaranteed 7% return, which is not bad. Obviously you could do better in a mutual fund, or you could do worse. Small note, you can only deduct mortgage interest from taxes for the first 1.1Million in mortgage principal, so if you have a mortgage that's higher than 1.1, its wise to pay it down to at least that much.
I think there is something to be said for owning your home. I pay extra tward the principal every month. But then again I do not believe debt is the way to go, my mortgage is the only debt I have had in years.
Well my mortgage is ok 5.85% 30 year fixed. I can get around 5% on CDs or 10% + currently on my mutual funds. But I am not sure I want to carry the mortgage for 30 years. Maybe I should invest and then pay it off at a later date instead of paying some extra principal each month?
what is the lowest rate right now the rate on my townhouse is 7%, I was thinking about refinancing but it might cost me more since I would have to pay extra for closing fees etc
Me too. I might have a new car payment to deal with in a couple of years, but that's it. The single worst thing anyone can do for their personal finance is carry a bunch of credit card debt. I used to, and now that it is paid off, I never will again.
You overstate. If a person loses sleep over a 30 year mortgage and owning a house free and clear would solve that, by all means pay down the mortgage. Sleeping well at night is a non-financial goal. Not all goals have to be financial.
One strategy is to pay your mortgage every other week with one half of your normal monthly payment. You will end up the equivalent of one extra monthly payment per year. No BFD, right? That extra payment should reduce your 30 year mortgage to about 22 years. Another strategy is look at the principal / interest split on each payment and send a "second" check each month with the principle amount, effectively doubling your monthly principal payment. You will pay off your 30 year mortgage twice as fast, in 15 years. The strategy that I use is to pay what a 15 year note would have been on my 30 year note. The house will be paid off twice as fast (and I will sleep better, thank you very much).
I couldn't agree more! I understand that I could probably do better with a mortgage and invest the $ - plus use the tax break. BUT - I can't overstate how good it feels to not worry about a mortgage. Plus, having that out of the way enables me up to take much more risk in business investments than I ever would have done before. I had this conversation at the last Inc500 with a bunch of business owners and I thought I would get hammered with how it was a waste of $ to not take advantage of a mortgage; but almost to a person everyone admitted that they knew the #s and paid off their mortgage as quickly as they could anyway.
Thats exactly what my dad is doing right now my moms didn't understand it first, she was so pissed at him, lol it was funny
Ok I am paying more than one extra payment per year, more like two extra payments per year. How can I find out how much time would that reduce the payment? I do not know how does the extra principal work, can someone explain it to me? Edit: I know the concept I want the detailed math if possible.
