Comments on: Stick With Stocks Or Pay Off The Mortgage? http://frugaldad.com/2010/03/17/stick-with-stocks-or-pay-off-the-mortgage/ Promotional Codes, Coupons & Deals + Money Saving Insights Sat, 26 May 2012 00:58:25 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Chris Curran http://frugaldad.com/2010/03/17/stick-with-stocks-or-pay-off-the-mortgage/#comment-46317 Chris Curran Fri, 08 Oct 2010 00:10:19 +0000 http://frugaldad.com/?p=4990#comment-46317 @mike1329 Go over to http://www.mtgprofessor.com for some of the most advanced mortgage calculators. Be warned though, just entering the information into some of these calculators can be difficult. It's worth it, you can some really complex "what if" scenarios figured out. It's good stuff. Also check out the articles, I was impressed. @mike1329

Go over to http://www.mtgprofessor.com for some of the most advanced mortgage calculators. Be warned though, just entering the information into some of these calculators can be difficult. It’s worth it, you can some really complex “what if” scenarios figured out. It’s good stuff.

Also check out the articles, I was impressed.

]]> By: Mike1329 http://frugaldad.com/2010/03/17/stick-with-stocks-or-pay-off-the-mortgage/#comment-46309 Mike1329 Thu, 07 Oct 2010 18:53:12 +0000 http://frugaldad.com/?p=4990#comment-46309 Yes, I am on twice a month payment program. Yes, I am on twice a month payment program.

]]> By: marci357 http://frugaldad.com/2010/03/17/stick-with-stocks-or-pay-off-the-mortgage/#comment-46306 marci357 Thu, 07 Oct 2010 17:22:34 +0000 http://frugaldad.com/?p=4990#comment-46306 Check with your lender then to be sure. If it's fixed 5%, it should be fixed 5% (divided by 12 for monthly) of the total outstanding each month. If you figure it on a yearly basis, and don't figure in the declining balance, it skews the results, especially once you are over the half-way mark. Are you on twice a month payments or something similar? Check with your lender then to be sure.
If it’s fixed 5%, it should be fixed 5% (divided by 12 for monthly) of the total outstanding each month. If you figure it on a yearly basis, and don’t figure in the declining balance, it skews the results, especially once you are over the half-way mark.
Are you on twice a month payments or something similar?

]]> By: Mike1329 http://frugaldad.com/2010/03/17/stick-with-stocks-or-pay-off-the-mortgage/#comment-46305 Mike1329 Thu, 07 Oct 2010 17:16:56 +0000 http://frugaldad.com/?p=4990#comment-46305 Thanks.. You're probably right, but when I computed the interest rate I based it on the current amount owed, not the original mortgage. Thanks..

You’re probably right, but when I computed the interest rate I based it on the current amount owed, not the original mortgage.

]]> By: marci357 http://frugaldad.com/2010/03/17/stick-with-stocks-or-pay-off-the-mortgage/#comment-46304 marci357 Thu, 07 Oct 2010 17:09:39 +0000 http://frugaldad.com/?p=4990#comment-46304 If it's a 5% fixed rate mortgage, you are still paying 5% on the money still owed..... not 2.5. The interest is on what is still owed, not what the original amount was (which isn't what you still owe) You are paying less dollars and cents in interest, but you are still paying 5%. For me, paying it all off is peace of mind. If I loose my job or choose to retire, I have NO house payment and NO rent. My taxes/insurance are less than $100/month total, and THAT is peace of mind :) If it’s a 5% fixed rate mortgage, you are still paying 5% on the money still owed….. not 2.5. The interest is on what is still owed, not what the original amount was (which isn’t what you still owe)

You are paying less dollars and cents in interest, but you are still paying 5%.

For me, paying it all off is peace of mind. If I loose my job or choose to retire, I have NO house payment and NO rent. My taxes/insurance are less than $100/month total, and THAT is peace of mind :)

]]> By: Mike1329 http://frugaldad.com/2010/03/17/stick-with-stocks-or-pay-off-the-mortgage/#comment-46302 Mike1329 Thu, 07 Oct 2010 13:43:43 +0000 http://frugaldad.com/?p=4990#comment-46302 One issue I've not seen addressed is whether it makes sense to pay off a mortgage after it is more than half paid down. Since you pay progressively less interest as the loan matures, wouldn't you save progressively less interest by paying off the mortgage in its later stages? I'm in the 8th year of a 15 year 5% fixed rate mortgage. When I tally up the remaining interest payment, it appears that the interest rate from this point forward is less than 2.5%, which I can get in a five year CD. Am I missing something here? One issue I’ve not seen addressed is whether it makes sense to pay off a mortgage after it is more than half paid down. Since you pay progressively less interest as the loan matures, wouldn’t you save progressively less interest by paying off the mortgage in its later stages? I’m in the 8th year of a 15 year 5% fixed rate mortgage. When I tally up the remaining interest payment, it appears that the interest rate from this point forward is less than 2.5%, which I can get in a five year CD. Am I missing something here?

]]> By: Paying Off Mortgage http://frugaldad.com/2010/03/17/stick-with-stocks-or-pay-off-the-mortgage/#comment-45324 Paying Off Mortgage Tue, 14 Sep 2010 02:22:42 +0000 http://frugaldad.com/?p=4990#comment-45324 I am aggressively paying off the mortgage for multiple reasons. The first is the peace of mind that comes with the elimination of debt and the related financial obligations. The second is an alternative form of "investing" which is in my mind means simply taking steps to ensure that I have adequate cash or cash flow for future needs. We have four children, the oldest of whom is a freshman in high school. We've been saving for college, but with the cost of higher education ridiculously high and climbing, we remain concerned about our ability to pay it. Our goal has been to pay off the mortgage by the time our oldest is a freshman in college. Then we have the peace of mind of a paid-off house and significantly higher cash flow to help fund education costs. Maybe we can even pay the full amount of college out of pocket and roll existing savings to the younger children. Then we'd see the added benefit of a reduction in our monthly savings for our younger children. All dreams of course, and life can certainly throw curve-balls that change everything. Certainly seems like a nice plan for us though. I am aggressively paying off the mortgage for multiple reasons. The first is the peace of mind that comes with the elimination of debt and the related financial obligations. The second is an alternative form of “investing” which is in my mind means simply taking steps to ensure that I have adequate cash or cash flow for future needs. We have four children, the oldest of whom is a freshman in high school. We’ve been saving for college, but with the cost of higher education ridiculously high and climbing, we remain concerned about our ability to pay it.

Our goal has been to pay off the mortgage by the time our oldest is a freshman in college. Then we have the peace of mind of a paid-off house and significantly higher cash flow to help fund education costs. Maybe we can even pay the full amount of college out of pocket and roll existing savings to the younger children. Then we’d see the added benefit of a reduction in our monthly savings for our younger children.

All dreams of course, and life can certainly throw curve-balls that change everything. Certainly seems like a nice plan for us though.

]]> By: Matt http://frugaldad.com/2010/03/17/stick-with-stocks-or-pay-off-the-mortgage/#comment-39386 Matt Thu, 25 Mar 2010 14:42:22 +0000 http://frugaldad.com/?p=4990#comment-39386 My wife and I recently decided that we're going to knock out our mortgage over the next 3.2 years. We're stopping all Roth contributions to do this, but sticking with 401(k) b/c of the match. I'm keeping track of not only the missed IRA contrubtions, but also the missed growth and dividends we would have received. The next project after the mortgage payoff will be to make our retirement savings as close to 'as it would have been' as possible. I agree with Michael's point (in #8), though we do have a home eqity line (zero balance) available, too. We decided not to actually pay on the mortgage directly. We'll put the money in a credit union account (at 2.02%) then pay the mortgage off when we have the cash. This way, if some huge emergency comes up we're not equity rich and cash poor. We decided on this method b/c our mortgage is a low fixed rate, but the home equity line is a higher rate. An emergency could be covered by either, but reducing savings rather than taking out the home equity line will mean extending payment on the low rate rather than adding payments on a potentially higher rate. After tax adjusting both the interest income and mortgage interest expense, holding the money until the end will cost us only enough interest to push the payoff off one month. I'll be keeping my eye on online savings rates, too. We're getting 2.02% in the credit union, so it won't take much of an increase in rates to almost completely offset the 4.375% rate we have on or mortgage. My wife and I recently decided that we’re going to knock out our mortgage over the next 3.2 years. We’re stopping all Roth contributions to do this, but sticking with 401(k) b/c of the match. I’m keeping track of not only the missed IRA contrubtions, but also the missed growth and dividends we would have received. The next project after the mortgage payoff will be to make our retirement savings as close to ‘as it would have been’ as possible.

I agree with Michael’s point (in #8), though we do have a home eqity line (zero balance) available, too. We decided not to actually pay on the mortgage directly. We’ll put the money in a credit union account (at 2.02%) then pay the mortgage off when we have the cash. This way, if some huge emergency comes up we’re not equity rich and cash poor.

We decided on this method b/c our mortgage is a low fixed rate, but the home equity line is a higher rate. An emergency could be covered by either, but reducing savings rather than taking out the home equity line will mean extending payment on the low rate rather than adding payments on a potentially higher rate.

After tax adjusting both the interest income and mortgage interest expense, holding the money until the end will cost us only enough interest to push the payoff off one month.

I’ll be keeping my eye on online savings rates, too. We’re getting 2.02% in the credit union, so it won’t take much of an increase in rates to almost completely offset the 4.375% rate we have on or mortgage.

]]> By: almost there http://frugaldad.com/2010/03/17/stick-with-stocks-or-pay-off-the-mortgage/#comment-39259 almost there Sat, 20 Mar 2010 16:34:34 +0000 http://frugaldad.com/?p=4990#comment-39259 When one has a paid off house they need less income to live. I invested in mutual funds and sold when there were gains in order to apply them to the mortgage. Buy a house you can live in that isn't too expensive. We were house payment free at 40 and retired at 50. Now I can choose to invest in mutual funds with the extra funds I am not putting into a mortgage. When one has a paid off house they need less income to live. I invested in mutual funds and sold when there were gains in order to apply them to the mortgage. Buy a house you can live in that isn’t too expensive. We were house payment free at 40 and retired at 50. Now I can choose to invest in mutual funds with the extra funds I am not putting into a mortgage.

]]> By: Glenn http://frugaldad.com/2010/03/17/stick-with-stocks-or-pay-off-the-mortgage/#comment-39258 Glenn Sat, 20 Mar 2010 16:06:59 +0000 http://frugaldad.com/?p=4990#comment-39258 I am doing both as well, paying down the mortgage and investing. When I make an extra principal payment I am saving the interest associated with that payment. For example: $100K Mortgage @ 5.5% APR Mortgage payment: $568 Interest portion: $400 Principle portion: $168, in the 8th year When I pay an extra $168 towards the principle, I just saved (made) $400, because I cut a whole payment off the amortization schedule. Try to get that kind of return in the market. Obviously as the mortgage is paid down, the money saved goes down as well. So it pays more to make extra payments early in the life of the loan. Here is a link to a great amortization schedule for excel that I use to see how much interest I have saved. http://www.vertex42.com/ExcelTemplates/loan-amortization-schedule.html Here is an example of the difference between paying every extra every month as opposed to saving up to pay off in one payment: Mortgage: $100K Term 360 Months Interest: 5.5% APR Payment: $568 If I saved $100 per month and waited to pay it down with one check, then it would take me 300 months to have enough money to pay off the remaining principal. I would save about $4,300 in interest. If I paid that extra $100 every month towards the principal then the mortgage would be paid off in 253 months and I would save $35,000 in interest. Also I would have the mortgage paid off 4 years earlier than the above method. Also I don't have to pay any taxes on the interest I saved, as I would on the interest made when stashing the money away to make the single payment. I am doing both as well, paying down the mortgage and investing. When I make an extra principal payment I am saving the interest associated with that payment.

For example:
$100K Mortgage @ 5.5% APR
Mortgage payment: $568
Interest portion: $400
Principle portion: $168, in the 8th year

When I pay an extra $168 towards the principle, I just saved (made) $400, because I cut a whole payment off the amortization schedule. Try to get that kind of return in the market. Obviously as the mortgage is paid down, the money saved goes down as well. So it pays more to make extra payments early in the life of the loan. Here is a link to a great amortization schedule for excel that I use to see how much interest I have saved.

http://www.vertex42.com/ExcelTemplates/loan-amortization-schedule.html

Here is an example of the difference between paying every extra every month as opposed to saving up to pay off in one payment:

Mortgage: $100K
Term 360 Months
Interest: 5.5% APR
Payment: $568

If I saved $100 per month and waited to pay it down with one check, then it would take me 300 months to have enough money to pay off the remaining principal. I would save about $4,300 in interest.

If I paid that extra $100 every month towards the principal then the mortgage would be paid off in 253 months and I would save $35,000 in interest. Also I would have the mortgage paid off 4 years earlier than the above method. Also I don’t have to pay any taxes on the interest I saved, as I would on the interest made when stashing the money away to make the single payment.

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