1/10/2024 0 Comments Mortgage with extra payments![]() Both are valid and part of this nutritious retirement plan. One leg of your retirement plan is to save money to pay your retirement costs, another is to pay off your mortgage so you have fewer costs in retirement to pay for. Every dollar you pay extra on your mortgage earns a guaranteed, risk-free 3% as opposed to the 0.5% ish you’d get in a savings account.Ī 3% risk-free return > An 8% expected return with market risks. ![]() Once you’re out of consumer debt, definitely make a sizable part of your budget retirement savings, but with extra money on top of that, you’re better off paying down the mortgage. Don’t put your house up as collateral for a couple of steak dinners and new clothes. Only do this if you’re committed to getting out of consumer debt quickly and staying out permanently. If you can’t make your mortgage payment, they take your house. If you can’t make your credit card payments, they get mad and say mean things about you on your credit report. While you can save interest costs by moving higher rate debt to lower rate debt, you do so at the cost of pledging your house as collateral. In our example, both had the same rate, so the outcome was identical. The bottom line is that if you have 2 debts, you're better off putting any extra money into whichever debt has the higher interest rate. There will be 25 years left on the mortgage, so it will save you $1159 * (1.03) 25 = $2427 on the final payments of the mortgage. Take that $1159 and pay it towards the mortgage. So here's a third option: pay the $1k extra towards the car now, then when the car loan is over, you'll have an extra $1159 in your pocket. But you had to wait 25 YEARS LONGER to actualize those savings Yes, the latter is larger than the former. If you pay an extra $1k towards the mortgage, you will save yourself $1k * (1.03) 30 = $2427 off of your last mortgage payment(s), so you save $1427 in interest. If you pay an extra $1k towards the car loan, you will save yourself $1k * (1.03) 5 = $1159 off of your last car payment(s), so you save $159 in interest. Let's say you have a $10k car loan (I assume your $100k was a typo) for 5 years and a $300k mortgage for 30 years, both at 3%, and both just recently begun. I have some time, so I'll set you straight. Then your next one will come in and post to forbearance, causing you to continue to roll thirty days if you are not paying attention.īi weekly plans on amortizing loans were set up with the idea that consumers wouldn’t have the discipline to send additional to principal on their own, so an automated biweekly plan is just collecting the funds for you to give you a curtailment by the end of the year that is in the amount of one contractual payment. ![]() If they have no idea about your bi weekly plan, they will most likely end up applying your first bi weekly payment to principal, assuming you are current. The only thing you are doing by sending in partial payments is causing your mortgage servicer to become your secondary bank for you and hold onto your funds until you have accumulated enough for a contractual payment with additional to principal. On a standard am, you are paying the same amount in interest no matter when you make your contractual payment. Just hold the amount you want to send and send in your payment plus extra principal you want to pay when it is due. Here, please treat others with respect, stay on-topic, and avoid self-promotion.Īlways do your own research before acting on any information or advice that you read on Reddit.Īssuming you have a standard am and not a simple interest note, sending in payments bi weekly is not necessary. Get your financial house in order, learn how to better manage your money, and invest for your future. Banking Megathread: FDIC, NCUA, and your cash.Private communication is not safe on Reddit. Scam alert: Ignore any private messages or chat requests. ![]()
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