Stratgery for paying off mortgage early.

[Rick Lee]

I used to work in this biz, but I just don't know how to compute this one.

We are 5.5 years into our current 30 yr. fixed mortgage, but have always paid an extra $500/mo. toward principal. So the balance is dropping fast. Our current rate is 4.25% and, while I've always planned to have this knocked out in 15 years, I'm now thinking of refinancing into a 7/1 ARM and knocking it out before the first adjustment. That rate would be 2.65%.

If current P&I is $1508 and new P&I with 7/1 ARM is $959, but we continue to make our current payment, which would then be $900 extra per month, how to compute how fast we'd have it paid off?

[rusnak]

You might be mixing your equations. Start at the beginning. It's a simple TVM (Time Value of Money) calculation that you can do with any financial calculator using the amortization functions.

[Rick Lee]

In that case, I need to find an online calculator that let's me enter my balance, amortization term, interest rate and monthly payment and then let it show me how many months it takes. Don't know where to find that one.

[Sooner or later]

Dave Ramsey has a calculator. My guesstimate shows it would be paid off on Oct of 2032

https://www.daveramsey.com/mortgage-payoff-calculator

[masraum]

Nevermind.

[rusnak]

First, draw out a cash flow tree, from CF0 to CFn

That way you don't get confused. You have two payments going simultaneously, just tease them apart so that you track the original loan, and commencement of second take out loan separately.

[rusnak]

Originally Posted by masraum

Wouldn't we need to know the remaining balance to compute how quickly it would be paid off?

In the old days, they used amortization tables. Now that can be done in fractions of a second with either Excel, or any number of HP or TI calculators.

[smadsen]

The principal you're working to would be most helpful, and the new loan amort period (i.e.15, 20, 30 years).

You're lender should be able to gin up an amortization schedule, unless it's a broker working out of mom's basement.

[Sooner or later]

I backed into his new loan amount and came up with 240,000 for 30 years (my guess at term) at 2.65% to get the new P&I of 959.

That Ramsey link has exactly what he needs.

[Rick Lee]

Will look into that Ramsey link when done with dinner.

Current balance is $230k, call it $237k for the new loan amount.

The 7/1 ARM has a 30 yr. amortization.

[Sooner or later]

About 17 1/2 years early.

[widebody911]

I refi'd a about 5 years ago to 3.26%. My P&I is $930 but I still pay the $1100 I was paying before. I owe a little over $100k.

What's funny-sad is I keep getting offer letters for this program where they will "let" you make an two 1/2 payments a month instead of one, but it costs $10 a month. On top of that, the payment doesn't take effect until the 2nd of the two payments, so they're basically sitting on your money for 2 weeks. And you pay an extra $10 for the privilege!

[Rick Lee]

Originally Posted by widebody911

I refi'd a about 5 years ago to 3.26%. My P&I is $930 but I still pay the $1100 I was paying before. I owe a little over $100k.

What's funny-sad is I keep getting offer letters for this program where they will "let" you make an two 1/2 payments a month instead of one, but it costs $10 a month. On top of that, the payment doesn't take effect until the 2nd of the two payments, so they're basically sitting on your money for 2 weeks. And you pay an extra $10 for the privilege!

I've gotten those too. That's insane. Anyone can set up bi-weekly payments on their own, pay extra every month or just pay one extra P&I payment per year - no fee required.

[Sooner or later]

[masraum]

about 14 years

[Rick Lee]

Thanks, but unless it's done by seven years, there's no point in going with a 7/1 ARM.

[masraum]

Originally Posted by Rick Lee

Thanks, but unless it's done by seven years, there's no point in going with a 7/1 ARM.

that's what I was thinking
If I extrapolate it looks like to get it paid off in 7 years, you'd have to pay an extra 2500/month on top of the 959. What's really kicking your rear is that the P&I gets reset back to payment #1, so 959 payment and P=116 and I=843.

If you've got excel, this makes it pretty easy.

https://www.wikihow.com/Create-a-Mortgage-Calculator-With-Microsoft-Excel

[Sooner or later]

Originally Posted by Rick Lee

Thanks, but unless it's done by seven years, there's no point in going with a 7/1 ARM.

We don't know what rates are going to be in 7 years so there is no real answer.

Keep in mind that rates have dropped significantly and if bond rates continue to fall a 30 year fixed could see 3% in a month. Avg is 3.34 today, down a tenth from last week. Coronavirus is YOUR friend.

[biosurfer1]

Originally Posted by widebody911

I refi'd a about 5 years ago to 3.26%. My P&I is $930 but I still pay the $1100 I was paying before. I owe a little over $100k.

What's funny-sad is I keep getting offer letters for this program where they will "let" you make an two 1/2 payments a month instead of one, but it costs $10 a month. On top of that, the payment doesn't take effect until the 2nd of the two payments, so they're basically sitting on your money for 2 weeks. And you pay an extra $10 for the privilege!

I've had a couple mortgages over the years and they all offered something like that which is dumb..except for one, who actually DID apply the payments when received, and if I recall correctly, would have paid off the loan about 20 months early. Thats a crazy difference and just shows how much interest factors into a 30 year mortgage.

[MBAtarga]

I've heard what I think is a rule of thumb - pay 1/2 a mortgage payment every 2 weeks. You are applying money towards principal earlier, but also over the course of 1 year, you've made 26 payments (of 1/2 the amount) which amounts to an extra months payment every year. I believe that pays off a mortgage 7 years early.