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Old 02-14-2008, 12:16 PM   #101
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Have you ever looked at an amortization schedule?
Even at 5%, you have paid more in interest than you have toward the principle until payment # 347 (almost 29 years).
Now, if you're putting at least the difference between a 30 year and a 15 year mortgage into retirement savings, I'd say that's OK. Otherwise, you're hurtin' for a while.
But, that's JMHO.
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Old 02-14-2008, 12:36 PM   #102
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Have you ever looked at an amortization schedule?
Even at 5%, you have paid more in interest than you have toward the principle until payment # 347 (almost 29 years).
Now, if you're putting at least the difference between a 30 year and a 15 year mortgage into retirement savings, I'd say that's OK. Otherwise, you're hurtin' for a while.
But, that's JMHO.
I just closed on my 4.625% 15 year fixed PenFed refi on Monday and was pleasantly surprised to discover that with my very first payment I will be paying more to principal than to interest.

Zero points, and a total of $788.40 in out-of-pocket fees. I ended up rolling those into a modestly higher loan amount and will be getting a few $K back at closing, which they are conveniently wiring into my checking account tomorrow (no wire fees either).

I am pleased as punch.

2Cor521
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Old 02-14-2008, 01:19 PM   #103
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I just closed on my 4.625% 15 year fixed PenFed refi on Monday and was pleasantly surprised to discover that with my very first payment I will be paying more to principal than to interest.

Zero points, and a total of $788.40 in out-of-pocket fees. I ended up rolling those into a modestly higher loan amount and will be getting a few $K back at closing, which they are conveniently wiring into my checking account tomorrow (no wire fees either).

I am pleased as punch.

2Cor521
Ditto that! My mortgage payments (we joined primary + secondary) also dropped by $360/month.
And the payment where the principle is halfway paid off is #106 (or 8 yrs & 10 mths).
I saw that right away (more going towards principle than interest), when I ran the numbers in my amortization calculator (self-built).
That statement holds true for any 15 year mortgage that is @ 4.629% or lower.
For the same effect on a 30 year mortgage, you'd have to have a rate of 2.3125% or lower.
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Old 02-14-2008, 05:07 PM   #104
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Have you ever looked at an amortization schedule?
Even at 5%, you have paid more in interest than you have toward the principle until payment # 347 (almost 29 years).
.
that can't be right.
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Old 02-14-2008, 06:00 PM   #105
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I think the lower interest rates and shorter loans may be better... but on my 6.375% 30 year fixed, I would have paid 24.6% more in interest than in principal by the time it was paid off. I had a $128K loan, which would have cost me $159,478 in interest over 30 years. I paid it off in 4 years, though irregular lump sums added to my regular payments. Instead of $159,478 in interest, I paid just $17,401 in interest.

Sorry!! I couldn't help but crow and gloat!! I loved "cheating" the mortgage company out of their interest like that.
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Old 02-14-2008, 07:18 PM   #106
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I paid it off in 4 years, .... Instead of $159,478 in interest, I paid just $17,401 in interest.
And the OTHER side of that coin is...?

-ERD50
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Old 02-14-2008, 09:00 PM   #107
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And the OTHER side of that coin is...?

-ERD50
Oh, the "OTHER" side... I have read your arguments over and over and over, and I read similar ones before I made my choice to pay off my house. I read and evaluated those arguments, and read and evaluated those of many, many others who disagree with you, examined my individual financial plan, and my decision was undeniably clear. Like many/most others on the ER forums (other than you), I absolutely, without a doubt know that for me, paying off the house before ER is and was the correct and in fact, the only reasonable decision in my case. I guess that's the "OTHER" side.

Sorry if you can't stand my gloating and glee!
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Old 02-14-2008, 09:17 PM   #108
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Yep you've guaranteed a huge portion of your retirement spending risk at a low cost to your earning potential.

And by poll, the majority of the people on this site agree with that assessment.

But for those who wish to margin loan their home for the next 30 years in the plausible hope of earning a little more money to leave behind...go for it!
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Old 02-14-2008, 09:19 PM   #109
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Yep you've guaranteed a huge portion of your retirement spending risk at a low cost to your earning potential.

And by poll, the majority of the people on this site agree with that assessment.

But for those who wish to margin loan their home for the next 30 years in the plausible hope of earning a little more money to leave behind...go for it!
Absolutely! I have no problems with any gloating, glee, and irrepressible happiness that ERD50 may be feeling these days. His life and financial situation are different from mine, and I'm sure he has made the choices that make him feel the most gleeful, as well.
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Old 02-14-2008, 10:34 PM   #110
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Have you ever looked at an amortization schedule?
Even at 5%, you have paid more in interest than you have toward the principle until payment # 347 (almost 29 years).
.
I could not believe this when I first read it, so I pulled out my payment schedule and it is almost but not quite this severe (pmt #339), so I guess I've lost my challenge and must sacrifice a timeout.
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Old 02-15-2008, 06:42 AM   #111
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I could not believe this when I first read it, so I pulled out my payment schedule and it is almost but not quite this severe (pmt #339), so I guess I've lost my challenge and must sacrifice a timeout.
Jazz,
Did you use a 30 year mortgage? Did ya have a rate that was different than 5%? Or did you pay some extra on the mortgage already?
If not, you might want to check a regular amortization schedule, like this one (or any other one you can get to off of a Google search): Amortization Calculation
I've checked several different ones (including one that I wrote myself), and they all show up the same.

The other thing to note, is that if you have a 30 year mortgage (and pay it as scheduled), and the rate is more than 5.3039%, you will always pay more in interest than you will in principle.

That's why we (wife and I) really liked our 15 year @ 4.625%. From the very first payment, more is paid toward the principle than towards interest. Granted, if we didn't have to have one that would be the best.
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Old 02-15-2008, 07:18 AM   #112
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And, it gets even worse when the interest rate increases.

My parents bought a $12,000 house (back in 1965-1966) but the rate was 12% (or possibly 12.5% ... mom can't remember).
Guess what they put themselves in for. The amount of interest they paid was just a little short of 3 times ($32,447) the amount that they paid for the house itself. And they weren't paying more on principle than on interest until they had the loan for 292 payments (or 24 years and 4 months).
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Old 02-15-2008, 08:11 AM   #113
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I guess that's the "OTHER" side.
No, that is not the 'other side' I was talking about at all. You have explained your view of the emotional side and the risk assessment side before - I understand and accept that - no problem.

I was talking about the OTHER side of the financial coin. When you just say 'I saved $xx,xxxx in interest by paying the mortgage off in 4 years', it disregards the opportunity cost of the money you used to pay off the mortgage. It is a one sided view - THAT was/is my point.

The reason I keep jumping into these threads is that I think the posters are doing a disservice by presenting just one side of the financial equation. Paying off the mortgage might be the right thing for some (maybe even most) people to do, but it not some silver retirement bullet that leads to 5, 6, or 7 figure savings. Opportunity costs offset that savings, maybe even eliminate it (depending on how you approach the risk of invested money).

It is just plain wrong to ignore the opportunity cost. Right?

-ERD50
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Old 02-15-2008, 08:20 AM   #114
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No, that is not the 'other side' I was talking about at all. You have explained your view of the emotional side and the risk assessment side before - I understand and accept that - no problem.

I was talking about the OTHER side of the financial coin. When you just say 'I saved $xx,xxxx in interest by paying the mortgage off in 4 years', it disregards the opportunity cost of the money you used to pay off the mortgage. It is a one sided view - THAT was/is my point.

It is just plain wrong to ignore the opportunity cost. Right?

-ERD50
Absolutely! Well said and I believe everyone should look at it from both sides. And as you've stated before, their own unique risk tolerance.

If we couldn't afford to put at least 10% of our income away for retirement/savings, in addition to having a 15 year mortgage, that might definitely change our POV.
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Old 02-15-2008, 08:26 AM   #115
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Myself, I have never made any claim other than concerning my own, personal financial situation and I do agree that everyone should look at it from both sides.

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Absolutely! I have no problems with any gloating, glee, and irrepressible happiness that ERD50 may be feeling these days. His life and financial situation are different from mine, and I'm sure he has made the choices that make him feel the most gleeful, as well.
ERD50, I'm just SO glad that I am rapidly approaching ER with a paid off house, instead of having to be concerned about (or eat dogfood due to) the risk of investment, or even the risk of depending on an insurance company for annuity payments. The hard numbers (the NON-emotional side of this) tell me that in my particular situation, paying off the house was so much the better choice, and many others have decided that their personal financial situation would benefit from having a paid off home as well. I am very happy and gleeful to see my hard numbers working out just as my spreadsheets said they should. I am really puzzled not only by your inability to understand that these decisions depend on more non-emotional factors than interest, but also by how extremely defensive and even stressed you seem about your choices.
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Old 02-15-2008, 08:34 AM   #116
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Absolutely! I have no problems with any gloating, glee, and irrepressible happiness that ERD50 may be feeling these days. His life and financial situation are different from mine, and I'm sure he has made the choices that make him feel the most gleeful, as well.
I thought I was clear before, but I guess not - let me put it as succinctly as I can:

1) I don't think I've ever criticized your decision to prepay your mortgage. You have explained your case. It makes sense for you.

2) I have criticized how you present the financial analysis of pre-paying the mortgage. It's just wrong to ignore the time-value of money.

Based on #2, I do have trouble understanding your excitement over the pre-pay, but to each their own.

-ERD50

PS - this was not in response to your last post pls don't take in that context, - we need that ' a post was submitted' feature!
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Old 02-15-2008, 08:46 AM   #117
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I thought I was clear before, but I guess not - let me put it as succinctly as I can:

1) I don't think I've ever criticized your decision to prepay your mortgage. You have explained your case. It makes sense for you.

2) I have criticized how you present the financial analysis of pre-paying the mortgage. It's just wrong to ignore the time-value of money.

Based on #2, I do have trouble understanding your excitement over the pre-pay, but to each their own.

-ERD50
The "time value of money" is a lot of gobbledy gook when you are talking about a totally risk free use of that money for someplace I'll live in for life, versus an investment.

I have seen your argumentative tactics on this board before, especially with Twaddle, and I know that you will not give up on this and to tell you the truth, I do not respect you very much due to what I believe is your inclination to flood the board with hostile argumentation rather than to discuss. I think that most non-newbies here understand the non-emotional (as well as emotional) factors involved in CHOOSING to pay off a mortgage or not perfectly well, as it has been put forth on these boards numerous times. It is not that difficult for most people to understand the pros and cons of both decisions.

Personally I choose not to engage in argumentation (not discussion) and flamebait being put forth by a message board pitbull. I come to these boards for information, not to "be right" or seem like that on a message board. A person that needs that sort of validation probably feels pretty insecure and I guess I don't.

Now, if you will excuse me, I have an appointment to talk with my insurance agent about upgrading my insurance. I'm sure you can find something to do while I am away.
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Old 02-15-2008, 08:48 AM   #118
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Myself, I have never made any claim other than concerning my own, personal financial situation and I do agree that everyone should look at it from both sides.



ERD50, I'm just SO glad that I am rapidly approaching ER with a paid off house, instead of having to be concerned about (or eat dogfood due to) the risk of investment, or even the risk of depending on an insurance company for annuity payments. The hard numbers (the NON-emotional side of this) tell me that in my particular situation, paying off the house was so much the better choice, and many others have decided that their personal financial situation would benefit from having a paid off home as well. I am very happy and gleeful to see my hard numbers working out just as my spreadsheets said they should. I am really puzzled not only by your inability to understand that these decisions depend on more non-emotional factors than interest, but also by how extremely defensive and even stressed you seem about your choices.
Want2Retire,
I don't believe that you would do otherwise.

I think that ERD50 was merely stressing that one size doesn't fit all. Kind of like a Yin/Yang thing.

That's why I mentioned that being able to put at least 10% aside + shorter term mortgage worked for us. If that wasn't possible, we'd reassess, as I'm sure that you would.

I can't tell you how many people I talked to back in 1998-2000 that said sink everything you can into the stock market. Luckily we weren't in that boat that sank pretty well.
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Old 02-15-2008, 08:51 AM   #119
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Two additional points- if the extra payments to prepay (payoff mortgage) are a large payment over a short period of time (want2retire's example), paying off early makes considerable sense.

If the extra payments are low (compared to payoff balance) and over a long period of time, investing them wins out without much competition.

Consider this:
Two people, with a mortgage balance of 282k (30 yr fixed), payments of around $1550/month (P&I).

If one person was making extra payments around $1550/month (19k extra per year), the mortgage would be paid off extremely quickly. Reduced from 30 years to just less than 10. The 20 years they saved (at 3k per month) is worth more than the $1550 extra could have compounded in 30 years (in some cases).

If second person paid only $1550 two times per year (2 extra payments), payoff is in 226 months (just short of 19 years). In 19 years the $1550 extra payments would have compounded considerably more if invested (because that side of time equation is greater).

Depends on the rate of loan (5.75% in above case) and the rate of return. But the most important factor is the TIME of the loan and TIME the money is invested. Weighing the opportunity cost as a function of time is needed.

In my case, we can only afford to make 1-2 extra payments per year, so we have chosen to invest these in a taxable account specifically for paying off the mortgage. If this investment earns more than the 5.75% of our mortgage, we will be able to pay it off sooner than if we just sent the extra payments to the bank. In addition if we lose a job or something catastrophic happens, we can tap the investment to help pay bills.
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Old 02-15-2008, 08:53 AM   #120
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OK, here is my reply to that intermediate post:

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The hard numbers (the NON-emotional side of this) tell me that in my particular situation, paying off the house was so much the better choice
And I'm fine with that - but the hard numbers are not just the interest savings. That's why I jumped in - so many of these posts seem to say 'look at all this interest I saved!'. Period. There is the other side of that coin that is part of the hard numbers - the time value of money.


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I am really puzzled not only by your inability to understand that these decisions depend on more non-emotional factors than interest, but also by how extremely defensive and even stressed you seem about your choices.
The emotional side is fine - it's a personal decision. Here is my concern, and why I might appear a bit 'uptight' about this:

This forum has tons of excellent financial advice. Newbies and lurkers get a lot of good information here, as do I. I know you are being honest and well intentioned with your comments, but I think the one-sided statements on mortgage pre-pays is a disservice to people. It is just misleading to mention the savings w/o mentioning the cost.

I want people to know both sides when/if they make the decision. Is there something wrong with that?

Also for reference, while I do have a mortgage now, I'm really not 'hardcore' at ALL about whether one should or should not pre-pay a mortgage. I'm considering pre-paying mine right now. The only thing I am 'hardcore' about, is that the numbers part of the decision MUST include the time value of that pre-pay!

That shouldn't be controversial, should it?

For analogy fans - it's like saying, 'buy a new car that gets better mpg - you'll save money on gas!' Well, you need to consider the cost of that new car too, right?

-ERD50
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