GotGoalz
Member
Cash: $ 3.95
Posts: 18
Joined: 03 Sep 2005
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| Hello All! |
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Hello all! I have paid all of my credit cards off and am doubling and sometimes tripling my mortgage pmts so I can be rid of that payment as well.
I have some really good questions and comments that I will post in the appropriate forums.
But for right now, I just wanna say hi!
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Sat Sep 03, 2005 11:57 pm |
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Rolo
Yo' Daddy
Cash: $ 309.70
Posts: 1551
Joined: 13 Mar 2005
Location: Colorado/Florida
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Hiya GG! Welcome!
Unless you have a high mortgage rate, don't pay it off earlier than you have to!
"Expect me when you see me."
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Sun Sep 04, 2005 12:03 am |
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GotGoalz
Member
Cash: $ 3.95
Posts: 18
Joined: 03 Sep 2005
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quote:
Originally posted by Rolo
Hiya GG! Welcome!
Unless you have a high mortgage rate, don't pay it off earlier than you have to!
That's what a co-worker of mine said. The way I'm looking at it, the quicker I pay off my mortgage, the more I will save in interest pmts (about $120,000 worth).
My co-worker says, don't pay it off because of my tax write off.
btw, my mtg. rate is 6.25% on a 20 years fixed and this is my 4yr paying on it.
What do you think?
Thanks.
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Sun Sep 04, 2005 1:10 am |
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Rolo
Yo' Daddy
Cash: $ 309.70
Posts: 1551
Joined: 13 Mar 2005
Location: Colorado/Florida
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| Re: Hello All! |
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quote:
Originally posted by GotGoalz
...so I can be rid of that payment as well.
Most people have an emotional element to having a mortgage; they just don't like it. I am not saying that you are one of them, but don't necessarily rule out the idea that it may be a factor. Leave emotion out of money.
quote:
Originally posted by GotGoalz
My co-worker says, don't pay it off because of my tax write off.
That is a pro for keeping the mortgage, but not necessarily a large one. Figure how much you save in taxes by 1. the mortgage interest itself, and 2. the deductions you have as a result of itemising (you probably won't have enough to exceed the standard deduction if you eliminate mortgage interest)
Next, compare how much you are saving in taxes to how much you are paying in interest. Let's say you pay $5K in interest and save $1K in taxes. Calculate your EFFECTIVE interest rate by using the difference--$4K-- as your total interest payment. You may actually be paying 6% interest, effectively.
quote:
Originally posted by GotGoalz
btw, my mtg. rate is 6.25% on a 20 years fixed and this is my 4yr paying on it.
Using the prior example of 6%, any payments--or I will call any INVESTMENT--into your mortgage will only effectively return 6% and only 6%. Do you think you can find a better investment? Yes, the stock market average is 10.4%, so, if you invest in an AVERAGE stock fund, you will earn 10.4%. Sure, the market fluctuates, but over a 20-year period (the life of the mortgage), it doesn't fluctuate that much.
The implication: paying that mortgage COSTS you 4.4%. Now, compound 6% over 20 years versus 10.4% over 20 years. Simplified, the difference is 44%, meaning you could have $10K or $44K at the end of 20 years. Ironically, by paying off your mortgage early, you have LESS money then and now (since you have no investment capital while you pay for your house).
To calculate with some precision how much this will cost you, we need exact numbers.
A. How much is your mortgage payment? i.e. $800
B. How much are your accelerated payments? i.e. $2,000
C. How many months are left on the loan? i.e. 244
I (Monthly investment contributions) = B - A (i.e. $1,200)
It (Total investment contributions) = I * C (i.e. $288,000)
Use the following calculator:
http://www.simplejoe.com/web-calculators/investment-program-calculator.htm
Plug B. into "Enter the amount you will invest each month"
Use 6, 10.4, and 15 for the interest rates
Leave the other two at zero.
With these example numbers, an average stock index fund will turn your $288K contributions to a final nest egg of $959,962...only $40K shy of being a millionaire.
"Fine and dandy", you might think, "I'll just invest $2000 starting four years from now, after the mortgage is paid off." However, investing $1200 starting now will give you about $100K in five years. $100K is better than zero, right?
Run your specific numbers (or post them here) to see the real impact.
To improve upon this plan, look into refinancing your mortgage for the full 30 years. It will lower your payments, thereby enabling you to invest more per month to have more money working for you. If you get a good rate and have the chutzpah, you can refinance with a cash-out and invest the cash to really make money off of other people's money.
"Expect me when you see me."
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Sun Sep 04, 2005 3:54 pm |
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