On a $250k 30 year @ 5% you pay $1,342 a month with $1,041 going to interest and $300 to principal.

Principal vs Interest = out around payment 261.

If you throw an extra $112 a month which equals a 13th payment you get

Pay off Date Total Payments Total Interest Paid
With Original Payment: December/2039 $483,139.46 $233,139.46
With Increased Payment: September/2035 $446,354.55 $196,354.55

If you toss $224 for 2 extra payments a year you get

Pay off Date Total Payments Total Interest Paid
With Original Payment: December/2039 $483,139.46 $233,139.46
With Increased Payment: August/2032 $421,065.56 $171,065.56

The biggest benefit in paying extra is paying off the loan early. Paying down the balance actually gets you less of a tax deduction AND you're out more $$ each month than you have to be. But when your P&I is $1500 a month and you knock the loan out in 23 instead of 30 years, that's $126k you're keeping in your pocket. That's real money.

Exactly, i'm 3 years in a 30 year mortage

If i drop 10 K now, i win 5 years and make a nett 20 K profit
If i pay off 10 K 25 years into the mortage, i'll barely win a year and a half, and about 500 profit

Next year i gotta grit my teeth and maximize my ROI
The sooner , the better.

In my case it's a bit different, as i want to bring down my monthly payments and not shorten the 30 years.

I'll loose a bit of profit, but i'll gain margin in case something happens to my income. I'm single, single income.. Gotta have as much margin as possible.
Besides, i can deduct mortage interest from taxes.. so there is "some" advantage to keeping the mortage around (but with a low monthly)

Need to figure out how to build the formulas to calculate it but using Jimmy math, (I'll explain Jimmy another time) the interest tax deduction is nothing.

Using the $250k @5% for 30, your 1st interest payment is $1041 and payment 12 is $1027. It takes 14 1/2 years of payments for your interest to get to half of the first payment.

Total 1st year interest on 12 payments is $12,416.24, with a 13th payment it's $12,385.00

The extra payment will reduce your yearly tax benefit by $30.

It's nothing.

I think the whole interest decreasing benefit is a moot point. Its like saying a 4% loan is better than a 3% loan, because you get to write off more. The question is, when to apply the interest deduction at what stage of your income-generating life.

A moot point in dollar terms, probably.

But cash flow wise, you've given up the extra money paid for that payment, along with the $30 tax break dollars, and you don't recoup that until the payoff or refi.

It's a big bonus in saved interest money, way better than the tax savings, but that's all a way down the road benefit.

And even at the end when you pay it off early, you may have saved the tens or hundreds of thousands in interest on paper vs full term, but you only get it back at the rate of not having that mortgage payment for the remainder of those years, so it comes back incrementally.

(That may make no sense other than in my head *shrug*)

welcome to my world, I have been self employed most of my working yrs.

How about letting your business pay the mortgage, it comes off your gross leaving you less net.

When they invented liars loans yrs ago, I died and went to heaven, it always chapped my keester knowing that if you were working for me you could get a 1-1.5 % loan cheaper because you had a job even thou I was paying your salary I was always screwed.

Now because I have over 70% equity in m house and I always work with the same loan Co., no problems.

Don't get caught up in the interest deduction scam.

I'll use stomachmonkey's example loan.
"On a $250k 30 year @ 5% you pay $1,342 a month with $1,041 going to interest and $300 to principal."

Assuming you are in a 22% tax bracket you are paying the bank $1041 per month to avoid paying the federal government $230 per month. That's right. You are spending $1041 per month to save $230 per month. Sort of a false economy IMO.

Now if you have to have a mortgage because you cannot buy a house for cash (I certainly couldn't) you want to take the deduction because it is available and sort of free money since you are forced to pay the bank anyway. But it seems foolish to use this as a reason to not pay off your loan early if you can.

This is just my opinion and yes I am paying my house off faster than the 30 year time period of my loan. My preferred method of paying off faster is to set up automatic payments with me specifying the amount and where the extra is to be applied(principal). It happens automagically each month so I don't have to do anything but check my loan statements every quarter to make sure it is still happening according to plan.

Currently, I am considering a refinance since I think I could lower my interest rate meaning I could make the same payments and be dropping down an extra couple hundred off the principal per month. I could probably swing a 15 year loan for the balance I have left but I plan to get a 30 year loan and pay it off at the faster rate. If it all goes South and Huntsville turns into the Allentown of the tech world I could still swing making the payments by dropping back to the regular payments for a 30 year loan until the local economy picked up.