OT: [censored] thread, May, READ RULES IN TOP POST

[Indiana]

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indi,

i understand that there are several good reasons not to pay off specifically long term fixed rate with tiny rate loans, especially when they are being put in the tax shelters we call homes.

also, congrats on there only being a couple of beats in those interior shots. the most striking of which is the old person fabric scheme. (ottoman/chair/curtain for kitchen doors) eek. if that thing in the corner is an entertainment unit, it's one of the most tasteful ones i've ever seen.

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citanul,

that's not my furniture, that was the previous owners stuff. She was like 65 yrs old. I have Bernhardt couches, a 50 inch sony baller LCD and a nintendo Wii in that front room now.

As for why you don't want to make $100.month extra payments or whatever is kind of subtle and I'm shocked that most americans are falling for doing this. Then answer is this: When you have a 30-yr fixed loan like I do, regardless of whether or not you pay extra towards the principal every month, the bank DOES NOT adjust your payment schedule at all. So you still make the following payment the next month regardless of how much extra you pay the previous month. For this reason it is smarter to put the extra 100 bucks per month in an interest barring account at the bank, and just pay the house in full at year 23 because then you get to keep your interest as an extra bonus.

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Nice house Indy.

From my understanding (could be wrong), if you pay additional $100 to the principal, even though the next monthly payment remains the same but the principal part is slightly more and interest part is slightly less. so the interest you gain from $100 investment is balanced out by the interest you pay to the mortgage.

check out this mortgage calculator

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Yes this is a true statement also. I mean if your monthly payment stays the same every month (banks dont redraw payments, its always the same amount), aren't you better off just putting that extra principal payment into an interest baring account and just paying off the house in full at year 23?

[Slim Pickens]

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In about 3 hours, I'll be leaving work early to go play 18 holes of golf at Half Moon Bay with two CEOs of a fortune 500 company and former friends.

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I played that course once. My friend and I got their Monday afternoon super-saver discount for about $60 a person. I thought some punk was stealing my clubs. He was actually just putting them on the cart for me. I felt weird being there because I'm sure that kid was worth way more than I was at the time, as a 22-year-old-undergrad.

Also, way to go like five minutes without bragging. Fortune 500 CEOs...

[Indiana]

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In about 3 hours, I'll be leaving work early to go play 18 holes of golf at Half Moon Bay with two CEOs of a fortune 500 company and former friends.

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I played that course once. My friend and I got their Monday afternoon super-saver discount for about $60 a person. I thought some punk was stealing my clubs. He was actually just putting them on the cart for me. I felt weird being there because I'm sure that kid was worth way more than I was at the time, as a 22-year-old-undergrad.

Also, way to go like five minutes without bragging. Fortune 500 CEOs...

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LOL. Yah I love that course. Breathtaking views on 18th hole leading up to the Ritz Carlton. Its too expensive though. Like $7 for a dam glass of beer.

[BHokie1]

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bill, that was my understanding as well.

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Agry

[SuitedSixes]

I rent my house $875 month for a 4-bedroom (less than 3 years old) in a family community. I like flushing money because I'm a mid limit grinder with a barely profitable business. FTW!!!

[billxo1b]

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indi,

i understand that there are several good reasons not to pay off specifically long term fixed rate with tiny rate loans, especially when they are being put in the tax shelters we call homes.

also, congrats on there only being a couple of beats in those interior shots. the most striking of which is the old person fabric scheme. (ottoman/chair/curtain for kitchen doors) eek. if that thing in the corner is an entertainment unit, it's one of the most tasteful ones i've ever seen.

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citanul,

that's not my furniture, that was the previous owners stuff. She was like 65 yrs old. I have Bernhardt couches, a 50 inch sony baller LCD and a nintendo Wii in that front room now.

As for why you don't want to make $100.month extra payments or whatever is kind of subtle and I'm shocked that most americans are falling for doing this. Then answer is this: When you have a 30-yr fixed loan like I do, regardless of whether or not you pay extra towards the principal every month, the bank DOES NOT adjust your payment schedule at all. So you still make the following payment the next month regardless of how much extra you pay the previous month. For this reason it is smarter to put the extra 100 bucks per month in an interest barring account at the bank, and just pay the house in full at year 23 because then you get to keep your interest as an extra bonus.

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Nice house Indy.

From my understanding (could be wrong), if you pay additional $100 to the principal, even though the next monthly payment remains the same but the principal part is slightly more and interest part is slightly less. so the interest you gain from $100 investment is balanced out by the interest you pay to the mortgage.

check out this mortgage calculator

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Yes this is a true statement also. I mean if your monthly payment stays the same every month (banks dont redraw payments, its always the same amount), aren't you better off just putting that extra principal payment into an interest baring account and just paying off the house in full at year 23?

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assuming 500k mortgage, 6% mortgage rate, 30 year fixed. you pay 579190.95 interest.

if you pay extra $10000 on 1/1/2008, you will pay 533810.02 interest (payoff date: 2035/11/01). so you save 45380.93.

Now if you invest this $10000 instead with 6% rate, you will gain 42901.09 by 2035/11/01.

note that mortgage interest is tax deductible, but you need to pay tax for the investment gain. The conclusion seems that you better pay extra to the mortgage.

But if you can make more then 6% on your investment, e.g., 8%, then you are better off investing than paying the mortgage.

Edited: assuming the saving is compounded monthly.

[citanul]

yeah, indi, the point is that they are compounding your money faster than you are. savings accts, etc, rates are sort of by nature worse than mortgage rates. when you send the bank extra money it pays off the base from which interest is piled on. future payments are the same, but you end the mortgage in fewer years, because you've paid less money total. if your method worked, you could take out a huge mortgage, put the whole thing in a bank, then pay them back 23 or whatever years later with massive profit.

without reading bill's second post here, i'm going to assume he went in to better detail of how it all works.

[BillytheKidd]

WOW, uh Indy, one of is missing something here. Obviously, your theory of putting the extra money in the bank would work assuming that it was growing faster than your mortgage was growing (meaning the earning interest rate would have to be better than the mortgage interest rate).

Bill's post above brings up some good points, but I am curious what rate of return one would need to offset the tax advantage differences between investing and having a mortgage. My initial guess is that one would be wiser to invest the extra $100 into a retirement fund instead of mortgage, assuming that was an option.

If I'm missing something someone please let me know.

[Al P]

By paying the $579,190.95 in interest you get to reduce your taxes owed (28% bracket) by $162,173.46 and by paying the $533,810.02 interest your taxes owed are $149,466.80 so you save $12K in taxes by not paying that $10,000. So when you take the $12K tax savings and add it to the ($42,901.09 - interest owed on $32,901)...you come out really damn close (within a few hundo) to $45,380.93 which is what you saved by paying the $10K.

Personally I'd rather have the $10K be liquid than tied up in the house.

[suzzer99]

Lately this thread has become how should I put it... Indy-tastic.