Thanks

As for is it worth it? That kind of depends on the interest rate and what you would otherwise do with the money.

But if you are not maxing out your tax sheltered retirement options, you lose the opportunity to do so with each passing year. Then decide if you want to pay more on your next mortgage when/if you get one. Just something to consider.

Thank you. We’re not sure which way would be best for us.

after we are 100% mortgage free on this townhome, we will purchase a similar type property, around $75,000-$100,000. renting out the first property we will collect roughly $650 a month (based on current rent amount). we will then add this amount to our original $2,100 bringing the total to $2,750 a month to our 2nd property ( of course we will have to budget for the continued cost of hoa’s- $71 a month, and property taxes- about $50 a month). we can pay off this property in 3 years as well. we will continue to do this for the rest of our lives.

from the time we pay off property #1 it will take about 10 years to recover our entire investment from renters. thereby gaining an asset appreciating in value, and providing monthly income for the rest of my life. this same concept applies to each property we buy. incredible.

my strategy blows any kind of stock market return out of the water. averaged out over the 36 months of me making an extra $1,700 a month payment, i will get a 100% “return” on my investment through interest savings. some can argue this is not making money, but i believe that saving money is earning money.

i really like the idea of starting out very small. i feel confident and protected in paying the mortgage. total monthly cost is $100 less than current rental rate. positive cashflow right from the start…amazing. we are on track to close tomorrow 6/28/10 which means we will get the first time homebuyer credit and receive $7,000…. woohooo. what better time than now?

i would like to hear any input on this matter for or against or adding to.

ps. i believe in having an emergency fund

Currently I double my principal and put some leftover in the stock market. Paying down my principal is my highest priority and I use it as means of diversification because I am quite aggressive with my stock market investment approach/system.

I’m 40 but my husband is 50 and we would like to retire in 12 years. We have 5 children, which we’ve agreed to pay 1 year of college for each. We bought a little bit high on our house because we needed the space, but we’re not lopsided; we’re at the required 30% house pmt ratio/income.

We have about 2 months emergency funds liquid and another 2 months funds tied up in investments that we can’t get out for another 2 years. 2 years ago we sold a rental we had. Now we wish we had the liquid funds to buy a cheap rental to offset our tax deductions; and, property is so cheap now.
But, my point here, do we take some money from our home equity to buy rental property (even though we don’t have a huge liquid emergency fund, and have lots of kid costs up coming) and we already pay down our mortgage a little each month, but we need to vamp it up for the 12 year goal? Doing both is that a good idea?

I have one question/comment I would like to make regarding the supposed benefit of the deduction of mortgage interest. In my situation, my standard deduction is only slightly less that my itemized deduction (married, joint) which of course includes the mortgage interest. So I ask, am I really gaining that much by having the interest deduction?

Several posters in this thread have made some strong arguments for NOT paying off a mortgage early. However, I will continue to work to pay down my mortgage early for these reasons: 1) I bought my house right so I am not concerned with loss of value; 2) the substantial interest monies I will save (i.e. earn) by paying the mortgage off early; 3) peace of mind of not having a mortgage; 4) not being beholden to a banker; and 5) I will continue to work as long as I am physically able so I’m not as concerned with a huge retirement savings.

My employment situation is more secure than most and I actually enjoy what I do. I have my emergency savings in place. I pay for most everything with cash and have no credit card debt and no other loans with the exception of my mortgage.

Ashley, I’m old enough to be your father. Can I adopt you?

Since you claim no knowledge of investing, look into a 2050 or 2055 target date fund at Vanguard, Fidelity or T. Rowe Price. At your age, your contributions matter much more than your investment choices with regards towards your portfolio growth, and these funds are plenty diversified to serve you until you do “learn more”.

If you put $416.66 a month into one of these funds into a Roth IRA, that will max out your IRA contributions for the year and set you up to be filthy, stinking rich when you retire (and not owe taxes!!!), and you will STILL have money left over to put towards your house.

Contrary to what you are thinking, this is actually a case where sticking with what you know will actually COST you LOTS in the future from lost opportunity, which could be significant. Please don’t wait until your house is paid off to start, or when you finally get that investing thing figured out, you will be kicking yourself and I say this as someone who does advocate paying off your house. Just not at the expense of saving for retirement, even in your early twenties. Other debt maybe, but not the mortgage.

http://solidpersonalfinance.wo.....or-invest/

1. 25% LTV required these days to get a home equity loan. Sorry to those of you who don’t have that yet, or have it any more with the current times.
2. Open a check book with a bank, in my case M&I
3. Home equity loan open with the same bank, (must be the same bank so you can move funds same day between the home equity line of credit and the check book).
4. Setup overdraft protection on your check book to be covered by the home equity line of credit.
3. Mortgage the house with another bank, in my case it’s a 30 year.

The system:
1st, Direct deposit from my wife and my job goes into the check book.
2nd, pay all bills, setup auto bill pay the day it’s due which keeps the money working for you as long as possible.
3rd, log into the Mortgage account and make a payment plus what ever extra principle you have in your check book to drain your check book to $0. The nice part is it tends to take 3 days before the money is drawn from my check book but it hits the mortgage the day I make the payment.
4th, Live for two weeks with a $0 balance in your check book! The overdraft protection draws money into your check book when ever you buy something, draw out cash, or us the credit from your check book. The balance grows on the HELOC but you defer interest until the day after you needed money.
5th, 2 weeks goes by and you get paid, pay off the HELOC, pay the bills, make the mortgage payment.
5th, If you want to go a step further, use a credit card which is a 1 month free loan to defer payments even longer so that you can use the credit card companies money for an extra month!

My wife and I are on track to pay off our $200,000 30 year mortgage in 4.3 years! The point is every penny you don’t spend is going to pay interest on your mortgage the day that you get it. You never have cash on hand but you have credit available for the HELOC when ever you need it for an emergency.

I was tired of conventional so I figured out the extreme, hope it helps someone else to their financial freedom. I’m about $20,000 closer to mine in about 6 months!

It worked! My lender reapplied the payments, saving me approx $4400 in interest. Thanks for the advice!

Thanks to fivecentnickel for a great website!

Merry

That’s exactly what I intend to do if they won’t reapply the payments. We are going to talk to them tomorrow; will let you know what happens.

Thanks again,
Merry

Also, if your lender will not agree to re-apply the payments you have already made, I suggest you stop paying your mortgage until the next payment is due in May 2010. Instead, deposit the money into your savings account, the extra payments too if you like. When your next payment is due, send the entire amount, and specify that the extra is for additional principal.

Regards,

Petunia

Thanks so much for the info. You have, unfortunately, confirmed my fears. I will do as you suggest and contact my lender. At least I didn’t get too far out on my payments! Merry

You aren’t saving a single cent of interest with your current method. You are simply sending in future payments early. If that is your goal, that’s great. If your goal is to reduce interest paid, then you need to send extra principal with your regular payment.

Mortgages are not simple interest notes. With a simple interest note, interest accrues daily. If mortgages were simple interest, the amount of interest would vary due to how many days in the month and whether your payment had posted on the 30th, the 1st, the 4th, etc. However, as you can verify with your amortization schedule, your monthly interest does not vary at all based on days of the month or the exact date your payment posts.

If I were you, I would contact my lender and see if they won’t re-apply the additional payments you have already made. Payments received mid-month could have been held in suspense and applied as additional principal on the first of the following month. (Assuming that your goal actually was to reduce interest paid.) If they agree, then you will no longer be paid through May 2010, but you will have reduced your principal balance and the life of your mortgage.

Regards,

Petunia

When is the best time of the month to make an extra payment? Assuming you make your regular payment on the 1st of every month, and you want to put extra money toward the principal, should you do that in the middle of the month, or just shortly before you make your regular mortage payment? I read once that the less time that has passed since the last time your account was active, the more money will go toward your principal and the less to interest.