Paying your home off early - any good strategies?

motion · 10-26-2011, 11:59 AM

I poked around my Wells Fargo online banking account and can see how I can setup extra payments to be credited to my mortgage every week, 2 weeks, monthly, etc. This is a great way to cut 8-12 years off of my mortgage by kicking in an extra X dollars per month. I have a 30 year fixed with 25 years remaining. My interest rate is 6.25%, which isn't great, but I'm self employed and unable to refinance.

Any other good strategies for accomplishing this that might be more intelligent?

porsche4life · porsche4life's Garage

Pay extra with every payment?

onlycafe · 10-26-2011, 12:15 PM

thirteen payments per year, or just the extra whatever you can do to be applied toward principle.

Rick Lee · Rick Lee's Garage

As long as they don't charge you for doing this, go ahead. The way we do it is just to make one extra P&I payment per year. We take the regular P&I amount, divide it by 12 and add that amount to each monthly payment. It knocks off the last 84 payments, which is nothing to sneeze at.

masraum · 10-26-2011, 12:20 PM

Assuming you have savings, and your bank doesn't charge for extra principle and allows you to specify that the extra goes to the principle, just pay as much extra as you can as often as you can.

stomachmonkey · 10-26-2011, 12:20 PM

Also if you can pay bi-monthly without fees.

We take the 13 months and divide it into 24 payments.

Crowbob · 10-26-2011, 12:22 PM

Any additional payment towards principal will significantly reduce your total interest cost. The more you pay and the sooner you pay the more you save. I can email my mortgage holder (the bank) and request they take more for one month or indefinately or whatever is good for me. I have automatic payments so I am not reminded every month how much they're screwing me. I typically drop a load of cash in the begining of each year after I've calculated what Obama thinks I should pay him in income taxes. The bank gets whatever is left over, if any. Thus everybody wins.

motion · 10-26-2011, 12:24 PM

Hey, you guys have all reiterated what I stated in my original post. I'm looking for new ideas, that might be a bit more advantageous...

id10t · 10-26-2011, 12:27 PM

The one thing to watch for... don't double the amount of your payment. Some banks just call that your next monthly payment early, and don't apply the full amount towards principle.

rnln · 10-26-2011, 12:31 PM

any loan broker here?
If the additional amount applied toward principle, will interest amounts change? That means your monthly payment amount will decrease? Or is it just simply reduces number of months you have left?

dmcummins · 10-26-2011, 12:33 PM

I paid mine off in 5 years. I had a spreadsheet that I could put in the extra amount I paid each month and it would update my balance, and number of payments left. It gave me some extra incentive to pay as much as I could early. I could see the amount of interest I was saving. It helped me get the wife on board by showing her the actually numbers each month.

I was paying 5% and at the time there was nothing that I could invest in that would give me a guaranteed 5%.

MysticLlama · 10-26-2011, 12:34 PM

Most of the time it simply reduces the amount of months left in the loan / time at the end.

If it was an interest only, then the payment amount would typically drop based on the principal reduction. Really hard to impossible to get a 30 year IO at this point though.

dmcummins · 10-26-2011, 12:35 PM

Quote:

Originally Posted by rnln

any loan broker here?
If the additional amount applied toward principle, will interest amounts change? That means your monthly payment amount will decrease? Or is it just simply reduces number of months you have left?

On my loan, and I expect most, you pay interest on the remaining balance of your loan. So anything extra applied to the loan reduces your balance and total interest paid.

red-beard · red-beard's Garage

Quote:

Originally Posted by motion

I poked around my Wells Fargo online banking account and can see how I can setup extra payments to be credited to my mortgage every week, 2 weeks, monthly, etc. This is a great way to cut 8-12 years off of my mortgage by kicking in an extra X dollars per month. I have a 30 year fixed with 25 years remaining. My interest rate is 6.25%, which isn't great, but I'm self employed and unable to refinance.

Any other good strategies for accomplishing this that might be more intelligent?

They are doing 15 year mortgages at 3.0-3.25%. We are getting ready to pull the trigger. My monthly payment will go up, $50 or so, and we'll cut 11 years off the mortgage.

And THEN we can start paying the thing faster...

motion · 10-26-2011, 12:49 PM

My income is high now, and so is my tax liability. I'm suspecting that paying a really significant amount extra each month... say, $1000, would be a good strategy. It would be 100% tax deductible (immediate tax benefit), so if I'm making less money 15 years from now, it would have more of a benefit now. I think that's sound reasoning?

motion · 10-26-2011, 12:53 PM

Ahhh, you're right... the extra payment goes to principal, not interest. My bad.

Rick Lee · Rick Lee's Garage

Motion, your principal payment is not tax deductible. It might be for a rental property as part of your overall carrying costs, but even that is only 50% deductible for someone at your income level. On your primary residence, paying down principal just makes the payoff day come a lot sooner.

stuartj · 10-26-2011, 01:16 PM

Make repayemnts with increased frequency. Fortnightly, weekly- even daily, if you can. Banks usually calculate daily and charge monthly.

Make sure your payment(s) are in advance not in arrears on each interest period.

These two small changes, if you do nothing else, make a difference

Rick Lee · Rick Lee's Garage

Motion, you should do your taxes as early in the year as you can and then figure out how much you need (and are allowed) to throw into an IRA retroactively (before 04/15) to lower your tax bill. I'm assuming you're an otherwise very savvy investor and get professional advice on this stuff.

BRPORSCHE · 10-26-2011, 01:21 PM

Quote:

Originally Posted by red-beard

They are doing 15 year mortgages at 3.0-3.25%. We are getting ready to pull the trigger. My monthly payment will go up, $50 or so, and we'll cut 11 years off the mortgage.

And THEN we can start paying the thing faster...

I just did that in excel, wow. Sure cut's a lot of time out and you only bumps your payment up a little.

How common is a 15 year fixed? It seems that 30 year fixed is the norm?