topic Re: Benefit of paying extra on mortgage payments..? in Mortgage Loans

Benefit of paying extra on mortgage payments..?

Anonymous — Mon, 21 Jul 2008 05:13:49 GMT

I close on my first home on July 25th. My loan is for $60,000 on a 30 year note. My payments will be about $500 a month. My current rent is $750. I could easily afford to pay up to $1,000 a month for my new mortgage. I was wondering what would be better.. to apply the extra $500 a month towards the principal on my mortgage to get it paid off faster? Or should I instead invest that money into a high yield savings account for the next 10 or 20 years and then just pay the house off with that money??

I like the fact that the payments are so low, because it gives me flexibility to either pay extra, save my money or do both for that matter. I don't plan on moving anytime soon once in the home. The yard is huge and has plenty of room to expand if I ever wanted to.

I could pay an extra $100 a month and cut the interest down alot and put the other $400 into savings. I am only 21 years old and I'm getting alot of advice from a whole lot of different people and I'm torn on what to do. I really want to get started on the right foot so that I won't regret it later. I don't have any money in my 401K yet because my job just started allowing me to deposit, because I just turned 21. I also have accounted for the money that will be going into the 401K when I say that I can afford $1,000 a month for a mortgage. Any advice would be appreciated!! Thanks, Tim

Re: Benefit of paying extra on mortgage payments..?

Anonymous — Mon, 21 Jul 2008 06:40:41 GMT

I'd lean toward making the extra payments.

Yes, it is possible that you'd make extra money if you took the $500 surplus and invested it elsewhere. There's a whole range of possibilities there, ranging from you investing in the next decade's Microsoft and earning 10 to 20% a year, through just sucking along with the rest of the markets these days, to taking a loss.

On the other hand, extra payments on your mortgage are guaranteed to save you interest in the long run. Plus, there's a psychological value in actually holding the deed to your home, knowing that you don't have to pay anyone else and it's all YOURS.

Judging from the principal, terms and payment, you're paying around 9%. This means over 30 years, you'll pay $113,798 in interest, and actually own your home in July 2038.

If you were to pay an extra $200 a month, your interest payments over the life of the loan would be slashed to $38,330 and you'd get the title to your home in July of 2020.

If you paid the full $500 a month extra, your total interest would go down to $20,532, and you'd have it all paid for by May of 2015.

Re: Benefit of paying extra on mortgage payments..?

Anonymous — Mon, 21 Jul 2008 07:24:16 GMT

Thanks.. this gives me something to think about. I was told that I'm paying about 7% interest..the payment is including PMI, Taxes and Hazzard insurance. My hazzard insurance is really high, because of the local fire codes, I'm paying about $75.00 a month.. However, if I do invest the money.. I would never consider investing it anywhere that I could possibly take a loss.. I meant that I was thinking about putting into a savings account or a 10 year CD or something.. Thanks, Tim

Message Edited by timl1987 on 07-21-2008 12:24 AM

Re: Benefit of paying extra on mortgage payments..?

Anonymous — Mon, 21 Jul 2008 13:41:17 GMT

What I would do:

Contribute to 410k up to the maximum match your company contributes (if at all).

Max out your IRA account. Go Roth if your income allows, otherwise go traditional.

With remaining $$$ pay down your principal.