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Early Mortgage Payoff
Old 10-17-2010, 04:29 PM   #1
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Early Mortgage Payoff

So I am a firm believer in paying off debt OVER investing. Don't get me wrong..my wife and I both invest 10% of our pay into our 401Ks, we both have a Roth IRA etc. We also both want to pay our mortgage off early. Here is how we have been doing it. I downloaded and bought the "Early Mortgage Payoff" calculator on the Retire Early website. It's pretty cool, about $20 bucks and it is very detailed and very accurate. Anyway, we have had our house for 3 years and we initially started off by paying $50 dollars extra towards the principal every month. Since then, every year, when we get our raises, we have increased the extra principal payment by $50 dollars...So Year 1 $50 extra, Year 2 $100, Year 3 $150 and so on and so on. We barely notice the money because we do it with our raises. So I punched this example into the calculator and our 30 year fixed rate loan of 6% will be paid off in a total of a little over 13 years. My question is, does anyone have a better way of donig this? I've read about MMAs and all that bull crap, and I will never try it. Anyway..Just curious. If you need any more details just ask. I will check this thread regularly.
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Old 10-17-2010, 06:16 PM   #2
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If you are happy with it.... great, but I think you paid $20 to much for that program....


You can do some very easy calculations in any workbook that will figure this out...

You don't say what your balance is, or how many more years... but I would look to get it refied with a 6% interest...

To me it is easy to just pay what you want to pay over the required amount and let the rest take care of itself... but if you do need to know when the end is near... as I said calculate with excel....

I do not understand what you mean by you have a problem with MMA accounts in connection with a mortgage...

Good luck on your mortgage... seems you will have it paid off in a lot less time than 30 years...
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Old 10-17-2010, 06:25 PM   #3
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Well..my interest rate is already 6%. I have about $159,000 and some change left on the balance. We are too scared to refi because we don't think our house will appraise for what we need it to and we don't want to waste $200 bucks on the appraisal. Also, I know I can calculate those numbers for free, but this calculator gives pretty detailed answers, and you can change the extra principal payment month by month..etc. Like I said, pretty detailed. I like crunching numbers when it comes to investments and loans, but I am in no mood to crunch all those numbers myself. Also...I have no idea how to use Microsoft Excel. In response to the MMA account..they are called "Money Merge Accounts," there is way too much to explain about it on here, but google it and you'll probably agree that they sound too good to be true and a little like scams. Thanks for the advice!
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Old 10-17-2010, 06:52 PM   #4
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Here's a free calculator on paying off your mortgage early:

http://www.bankrate.com/calculators/...alculator.aspx

Here are some threads about "money merge accounts"

Anyone here heard of...

New mortgage question- money merge acct?

You don't need to make anyone else richer by paying off your mortgage early. Put the money you would pay to the "money merge account" people toward the mortgage instead. Also, it looks like the first thing you do under a "money merge account" is open a home equity loan, so if you don't want to refinance, why would you want to get a HELOC?
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Old 10-17-2010, 07:30 PM   #5
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we don't want to waste $200 bucks on the appraisal.

Where can I get a $200 appraisal?!?

The ones I have seen are more like $400 to $450
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Old 10-17-2010, 11:04 PM   #6
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I liked my own "home brewed" method of paying off the mortgage. I paid mine off in four years by skimming off every extra cent from my bank account every 2-3 months and sending it in as extra payments to the principal. I would really get excited about how much I could come up with each time and this helped motivate me to LBYM, sell unnecessary possessions, and so on just to see how high I could get it. Then I would go to the mortgage calculator at Mortgage Calculator which allows a one-time payment, and using that calculator I could compute how much shorter my mortgage length had become. That was so exciting, especially at first.

I think that whatever method works with your own psychology is the best one to use, though, and it sounds like you have found a good method!
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Old 10-17-2010, 11:31 PM   #7
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So I am a firm believer in paying off debt OVER investing.
I think you're lecturing to a discussion board filled with posters who have discussed this ad nauseum black belts in this topic:
(FAQ archive) Should I pay off the mortgage or invest the money?

If paying off the mortgage is working for you, and perhaps with your situation that's the correct approach, then that's what you should do. But it's not necessarily the right approach for every situation.
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Old 10-18-2010, 06:01 AM   #8
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This past Friday, we refinanced at 3.75%, no points, 10 yr. fixed. At that rate, I'll be in no great hurry to pay it off, although if I sold some stock I could pay it off today. But, as Nords says, that's an individual decision for each of us.
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Old 10-18-2010, 07:46 AM   #9
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Where can I get a $200 appraisal?!?

The ones I have seen are more like $400 to $450
Have you talked with the guy who can actually do one for you? We found out that appraisal places tend to have two price tags, one for banks (in the $400+ range) and one for the little guys (our cost $200) --- same service.

To the OP, why not simply toss towards mortgage whatever minimum additional funds you decide to go with (e.g., $50, $100) + whatever extra you may have on hand (assuming it's not needed anywhere else). Than you can have fun with that calculator of yours and observe the effect that additional bit of $, over several payments, will have over the long term.
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Old 10-18-2010, 12:24 PM   #10
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Well..my interest rate is already 6%. I have about $159,000 and some change left on the balance. We are too scared to refi because we don't think our house will appraise for what we need it to and we don't want to waste $200 bucks on the appraisal. Also, I know I can calculate those numbers for free, but this calculator gives pretty detailed answers, and you can change the extra principal payment month by month..etc. Like I said, pretty detailed. I like crunching numbers when it comes to investments and loans, but I am in no mood to crunch all those numbers myself. Also...I have no idea how to use Microsoft Excel. In response to the MMA account..they are called "Money Merge Accounts," there is way too much to explain about it on here, but google it and you'll probably agree that they sound too good to be true and a little like scams. Thanks for the advice!

You misunderstood my quote... since you HAVE a 6% interest rate, I would get it refied to a lower rate...

Better

But, if you can not do that because of market conditions... well, never mind.

I have not looked at your money merge account, but if there is a fee involved I would not do it. Most people mean money market account when they use MMA.


Edit... OK quickly looked up the merge accounts and sounds crazy to me... if you want to use your whole paycheck to pay down the mortgage... then go right ahead, no special account needed...
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Old 10-18-2010, 03:50 PM   #11
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I am not a big fan of making extra mortgage payment unless -- if you had to -- you have a lump sum of money somewhere and you could pay it off entirely. The reason is that you just never know what will happen. What if you lost your job, had a financial catastrophe, etc. and couldn't pay the mortgage and your home was foreclosed. All those extra payments would just go down the drain. I know no one every thinks that it could happen to them but I've certainly seen it happen.

If it was me, I would be saving up the extra until I could pay off the mortgage entirely. (Of course, if you already have the money to do that set aside somewhere then I could see making extra payments).
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Old 10-18-2010, 07:57 PM   #12
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What if you lost your job, had a financial catastrophe, etc. and couldn't pay the mortgage and your home was foreclosed. All those extra payments would just go down the drain. I know no one every thinks that it could happen to them but I've certainly seen it happen.
Well, to take the other side of the debate, that's why a lot of us have home equity lines of credit. But those generally have a floating rate and an accelerated payback (compared to a 30-year fixed-rate mortgage). Even worse, we saw a lot of those HELOC "contracts" get reduced or even frozen during 2008-9, just when people needed them most.
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Old 10-19-2010, 11:09 AM   #13
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I am not a big fan of making extra mortgage payment unless -- if you had to -- you have a lump sum of money somewhere and you could pay it off entirely. The reason is that you just never know what will happen. What if you lost your job, had a financial catastrophe, etc.
Isn't that what an emergency fund is for?

If you're concerned that your emergency fund is insufficient, then that's a symptom that maybe you should be directing extra cash toward padding it out some more.

But surely there's a point where your emergency fund is "enough," isn't there?

Your comment above suggests that you can never have a big enough emergency fund, and that any extra money should go toward growing it ever bigger, instead of paying down your mortgage.

The same logic can be applied to saving for retirement. Why would you risk locking money away in a tax-sheltered account? "What if you lost your job, had a financial catastrophe, etc.?"
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Old 10-19-2010, 05:14 PM   #14
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I am a fan of getting out of debt also. Paying off your mortgage sooner mitigates the impact of several risks you face (if the events happen).

I think it a smart move and you seem to be balancing your savings goal while getting out of debt.
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Old 10-20-2010, 02:19 PM   #15
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We are paying down our mortgage by a variable amount each month. We just take whatever is left at the end of the month and add it to the payment for the next month. I have an excel sheet that tracks the payments. Shows how much we've shortened it and saved in interest. That is very motivating.
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Old 10-20-2010, 02:25 PM   #16
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mouse, we paid ours off early, but didn't use a calculator--just looked up the balance each time I made a payment and noted that.
Excel is easy to use if you take a few minutes to just wander around in there, too!
I made payments when we got paid--whatever was left after paying bills and leaving enough for living expenses for 2 weeks--whatever was left got sent to the bank!
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Old 10-20-2010, 02:35 PM   #17
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Uh, my CU has a web interface that shows my loan amount and payoff amount, as well as a feature to make a payment anytime I want, in addition to the usual PITI set on the first of the month. No muss, no fuss...

Well, okay, some fuss...
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Old 10-20-2010, 03:06 PM   #18
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When I started saving money it was actually not in order to FIRE but to avoid paying a massive amount of mortgage interest over the years by buying my first house in cash. It took me several years before I realized that I could use the money to FIRE instead.

Today my decision of whether to rent or buy is simply determined by whether the NAV based on equivalent rents exceeds the sales price. If it doesn't I can now buy the house in cash and this would simultaneously reduce my cost of living.
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Old 10-20-2010, 03:19 PM   #19
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I "should have" 12 years left on a 15 year mortgage that was originally $185K. However, I have paid extra each month and had a couple large lump sum payments. For instance a few month back I cashed out a mutual fund and put $54K down. So as of now I have like $92K left on the loan and am paying an additional $700 per month (which is really stressing the budget).

Trying to find a calulator that will tell me exactly how long till it is paid off but can't find one that enables me to exactly model my situation. Not a big deal as I am just obsessing needlessly over this. I can figure out a pretty decent estimate myself using Excel.

I do have an emergency fund of 8 months of expenses in a money market account and some more stock options that I could use to pay the mortgage further down if necessary. Most of the advice I read tells me not to do that because the liquid cash on hand is invaluable in case of job loss. Still I think about it all the time. I desperately want to be out of all debt and think I would feel better with a paid off house and no cash than I do right now. I have grown to realize that is an emotional response though and not one based in reason. Still I find myself questioning myself on this all the time. For instance I have about $75K in available balance on credit cards that I feel like I could always use in a true emergency.
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Old 10-20-2010, 03:22 PM   #20
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sky, we ran down our emergency fund to enough for only a few months, but we had two relatively stable jobs at the time. Now, I might not make the same choice, but I understand the desire.
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