Comments on: Pre-Paying our Mortgage

By: bill

bill — Thu, 05 Jul 2007 15:26:57 +0000

When I made prepayments on my mortgage I sent 2 checks- one for the regular monthly payment and another one specifically designated as a prepayment on principle. Thit helps eliminate confusion on their part as to what to do with the extra check. I then followed up with a current printout of my amortization schedule to make sure the extra amount was applied to principle.

By: Steven James

Steven James — Mon, 04 Dec 2006 11:08:57 +0000

Are there some more hidden costs in our mortgage which get added to the cost?

Steven

By: Paul

Paul — Tue, 01 Aug 2006 13:55:36 +0000

Pre-payments are great — but your individual situation has to be considered. If housing values are dropping (in real, inflation adjusted terms) in your area, pre-payments might save you interest expense, but the equity that you are supposedly building is just disappearing. Better to let the bank assume the risk, and keep your money somewhere that will keep it earning above the rate of inflation.

By: Rich Slick

Rich Slick — Sat, 29 Jul 2006 02:14:47 +0000

Currently, I’m experimenting with 0% balance transfers to test the feasibility of transfering large chunks of my mortage over to 0% credit card debt. Why?

To exchange unsecured debt for a secured asset. The most colossal mistake people make is taking home equity out of their only secured asset and paying off unsecured debt.

By: Karen

Karen — Fri, 28 Jul 2006 08:22:26 +0000

It is comforting watching the mortgage balance drop. But I recently came across this article that offers another alternative for long-term savings. For many people it is more effective to direct the money into tax deferred retirement accounts — especially in the US where you can deduct mortgage interest expense. We’re currently living in Australia where mortgage interest is not tax-deductible. Even so, recent newspaper articles here are promoting the idea of contributing to tax-deferred accounts rather than pre-paying the mortgage.

Of course, this is more attractive the closer you are to retirement. Many 20-30 year-olds will prefer the flexibility of pre-paying the mortgage and being able to re-draw or get a second mortgage should funds become tight.

By: nickel

nickel — Thu, 27 Jul 2006 13:02:13 +0000

Good tips. I already called Wells Fargo and confirmed that overpayments automatically go toward principal unless I specify otherwise. Or at least that’s what they claim.

By: Daytonscott

Daytonscott — Thu, 27 Jul 2006 12:42:01 +0000

Oh, and watching where the money goes is always important. I once had a lenders credit an overpayment against future regular payments rather than against principal. A phone call straightens it out, but don’t assume they know what you are trying to do.

By: Daytonscott

Daytonscott — Thu, 27 Jul 2006 12:38:28 +0000

For encouragement, fire up a spreadsheet to calculate how much you’ll save in interest. Even a small monthly overpayment easily turns into thousands of dollars in savings.

As for “put it in a mutual fund, it pays better,” that may be true on paper, but remember your rate of return on a mortgage prepayment equals your interest rate. 8% is a pretty good rate of return–and it guaranteed and is absolutely RISK FREE.

By: Ted

Ted — Thu, 27 Jul 2006 04:31:09 +0000

Be careful. I prepaid my intermediate lender as well and when it went to Wells Fargo, they didn’t credit from the payment date. Couple letters got me the extra credit.

By: Patrick

Patrick — Wed, 26 Jul 2006 15:58:15 +0000

I’ve done that too on many of my rentals. To me it’s better than doing the “Accelerated Mortgage” that your bank usually offers you for a large startup fee and then a montly fee.

By: Blaine Moore

Blaine Moore — Wed, 26 Jul 2006 12:40:21 +0000

That’s what we are doing as well, Nickel, except that I did not figure it out to be 1/12 of an extra payment…it just worked out that way. Fancy that!

Once we are sure that the student loans and financial aid for law school have funded though I am going to be putting an extra 1/2 payment in; I want to keep the cash around just in case for right now though. Hopefully our August payment.

By: the Prince of Thrift

the Prince of Thrift — Wed, 26 Jul 2006 11:00:07 +0000

Overpaying over the life of the loan can shave several years off the life of the loan, it is a very good idea. I intend to do the same with my car loan, at least as long as I have the car. If I decide to sell it to get rid of the loan and be debt free faster then that will be much better, as long as I am not upside down in the loan at the time I sell and I can afford to get another car (that I can actually afford) to replace it. Either way, I have a mutual fund thAt I will put most of thse monthly payments in, for a future car down the line (10-15 years) that I will pay cash for with that saved money. Eventually I will be able stop putting money in that fund because I will have enough cash saved to buy 2 or 3 cars, keeping them each at least 10 years. Anotherwards, lets say I only fund this fund for 10 years. Considering my payments alone, after 10 years of saving those payments I would have enough to buy 2.5 cars or put another way I would have enough to buy a good used car once every 10 years for 25 years. By which time I will be in my 60’s with not much need to buy another car after that.