CCdaCE
Full time employment: Posting here.
- Joined
- Apr 3, 2006
- Messages
- 897
Another payoff the mortgage [-]debacle[/-] thread, but this time to model it to death, to be informed on a higher level.
The reason I'm beating the dead horse, is that I'm really having second thoughts/buyer's remorse about getting a larger mortgage compared to our first one. Tough to sleep at night being cash poor and house rich, and not knowing the effect of extra payments (and to get the wife off my back - not providing justification to her for sending extra to the mortgage). Glad to be rid of the old money pit.
I was wondering what savings any early payments have; whether I should pile money in now, or what effect waiting until kids are out of daycare in a year, or after a vehicle is paid off, etc. I couldn't figure out the equation after forgetting too much algebra and tinkering with a spreadsheet for awhile, so I Googled... turns out it's pretty straight forward (to me).
[(1 + R/12)^M]-1 where R is your mortgage interest rate, and M is the number of months left in your mortgage.
So, let's say, at the beginning of year 5 (or after 48 payments), you have 26 * 12, or 312 monthly loan payments left. If the interest rate is 4 percent. Calculate (1 + 0.04/12)^312 which is just over 2.82. Every extra dollar you pay now will save you $1.82 (2.82 – 1) over the lifetime of the mortgage.
Plugging in personal numbers, my factor is almost 2 and goes to under 1.5 after 5 years. Initial interest rate has a big effect on the slope of your curve! All fairly obvious perhaps, but, I wanted to actually calculate the effect. So, I'll plow it in now, and after a few years let inflation take its toll.
I thought this might be of use to others assuming you've already forecast inflation rates, mortgage rates, stock market returns and absorbed other run of the mill general personal finance and economic knowledge. Ahhh, boredom.
-CC
The reason I'm beating the dead horse, is that I'm really having second thoughts/buyer's remorse about getting a larger mortgage compared to our first one. Tough to sleep at night being cash poor and house rich, and not knowing the effect of extra payments (and to get the wife off my back - not providing justification to her for sending extra to the mortgage). Glad to be rid of the old money pit.
I was wondering what savings any early payments have; whether I should pile money in now, or what effect waiting until kids are out of daycare in a year, or after a vehicle is paid off, etc. I couldn't figure out the equation after forgetting too much algebra and tinkering with a spreadsheet for awhile, so I Googled... turns out it's pretty straight forward (to me).
[(1 + R/12)^M]-1 where R is your mortgage interest rate, and M is the number of months left in your mortgage.
So, let's say, at the beginning of year 5 (or after 48 payments), you have 26 * 12, or 312 monthly loan payments left. If the interest rate is 4 percent. Calculate (1 + 0.04/12)^312 which is just over 2.82. Every extra dollar you pay now will save you $1.82 (2.82 – 1) over the lifetime of the mortgage.
Plugging in personal numbers, my factor is almost 2 and goes to under 1.5 after 5 years. Initial interest rate has a big effect on the slope of your curve! All fairly obvious perhaps, but, I wanted to actually calculate the effect. So, I'll plow it in now, and after a few years let inflation take its toll.
I thought this might be of use to others assuming you've already forecast inflation rates, mortgage rates, stock market returns and absorbed other run of the mill general personal finance and economic knowledge. Ahhh, boredom.
-CC