Mortgages

Discussion in 'Mindless Banter' started by Erik, Feb 15, 2010.

  1. Erik

    Erik Admin

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    So I was playing with an amortization calculator yesterday based on the house I am living in now, what we owe, etc., and what I discovered was staggering.

    Now, my plan has always been to make extra principal payments on our house to 1) pay it down early and 2) save some money on interest (although they still get you since it's so heavily front loaded).

    This is what we were doing on our last place, but I haven't made any extra payments on our current place due to all the money we spent last year on renos and upgrades. So I'm about 8 months behind.

    So as it turns out, if I made no extra payments on our current house, I would be paying this thing off until I'm in my mid 60s!!! In addition to that, I would, over the course of the mortgage, pay approximately $235000 IN INTEREST!!!

    :faint:

    Holy cow!

    And we have a good current rate - about 4%.

    Dangnabbitz!

    It's calculated on a 35 yr term, and with accelerated biweekly payments it would be paid off in Year 30 - so a 5-year benefit.

    So fiddling around with the calculator, if we paid an extra $1000/month, total interest drops to $101000 - savings of a whopping $135000. Wow! And paid off in 13 years.

    * Actually it would be more savings and an earlier pay off date since when we refinance after 5 years our payments drop, but if you maintain the same payments that extra is paid on the principal. But for ease of example, we'll ignore that.

    So, to my actual plan and what I was doing on my old place, an extra $2000/month on the principal. Savings of nearly $175000 in interest payments and paid off in under 10 years. (again, actually faster since when we refinance payments drop again but we maintain what we're paying. I think more like 8).

    How insane is that? Now $2K is a lot to put down as extra but if you play with the calculator, you can see how much even a small amount of extra money makes a massive difference. $100/month on my mortgage, according to the calculator will save $28000 in interest - 100 bucks for $28K! And another 3+ years off the mortgage. Even a little makes a massive difference.

    I definitely want that $175000 for myself. :lol:

    So, does anyone else pay extra on their mortgage?

    Here's a calculator:

    http://www.capitaldirect.ca/financialtips/mortgage_loan.php
     
  2. Inatic

    Inatic Ya Gotta Wanna! Moderator

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    crazy eh!

    we pay extra when we can..
     
  3. jaleena

    jaleena Banned

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    Back when I had a mortgage, I did. I signed a 15 year note, and was on track to pay it off in a little under 10. The whole concept of holding debt is uncomfortable for me, moreso than the extra money lost on interest.
     
  4. TriciaE

    TriciaE My Sweet Clipper

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    I totally get what you're saying and when we had more money we'd put a little extra towards the mortgage.

    BUT I've heard and read that paying off your mortgage early isn't your best investment since you can write off your interest on your taxes.
    Things may be different in Canada.

    So what we would do is invest the maximum we could in our Roth IRA's every year, make sure our emergency money was at the right level, make sure any credit cards were paid and then dump any extra into the mortgage.
     
  5. jaleena

    jaleena Banned

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    The tax write-off is very individual. I never paid enough interest to be able to itemize.
     
  6. TriciaE

    TriciaE My Sweet Clipper

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    Yes, definitely individual and I'm certainly not qualified to give tax advice, but I just went to a short meeting on taxes for my business and the woman mentioned that most anyone with a mortgage can/should itemize.

    It's definitely something to check into.
     
  7. Erik

    Erik Admin

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    Mortgage interest is not tax deductible in Canada.
     
  8. carla

    carla Member

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    I don't pay extra but I just paid off the mortgage after 3 years. It was purely based on my husband's investing but in today's market, it might be something that would be an option. He bought 40 acres 8 years ago for a very good price. He then sold it a year later for three times what he paid. He turned around and bought 2 more land investments. 3 years ago we bought our house which was a short sale so it was a good price. We then used cash to make all upgrades over the course of 3 years to make it what we wanted. At the same time, we put the 2 land investments he bought on the market and they both sold just a little bit ago for a good profit. That money went to the mortgage on the house we bought 3 years ago and paid it off.

    I am in Florida and right now there is a lot of investments to be bought for very good prices. If you can afford to do that and sit for a few years, you can turn around an sell and make money to pay off the mortgage. I guess I just say that b.c that it what we did and it worked for us with just sitting on the investments for 3 years.
     
  9. TriciaE

    TriciaE My Sweet Clipper

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    That sucks.
     
  10. Original Kloe®

    Original Kloe® *sizzle*

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    All I know is I'm paying 1.95% interest on my mortgage and think it's superfun to finally own a dishwasher. YAY new home! :yayconfetti:
     
  11. Erik

    Erik Admin

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    Variable?
     
  12. Original Kloe®

    Original Kloe® *sizzle*

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    :nod:

    Best way to go! BMO did a study a few years back on mortgages-- findings were the same all the way down the line- variable will save you lots of money in the long run!

    Plus, the money I'm saving now every month with such a low rate, I can save, then make a balloon payment. :)
     
  13. Erik

    Erik Admin

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    I was variable for a while. I prefer to not have to watch the rates and locked in instead.
     
  14. Original Kloe®

    Original Kloe® *sizzle*

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    I prefer paying less money.... all while my dishes get done for me!!! :D

    I'm tellin you-- having a dishwasher has totally changed my life! I'll pay how ever much they want!!! :lol:

    The good news is, I can lock into a fixed rate at anytime--- and shockingly, the rate keeps going lower and lower! I can't imagine how much lower it will go!!! When I first applied (August 2009), the rate was 2.85%... now 1.95%! It's .3% below prime!!!! :icon_dance:
     
  15. mackie

    mackie With my hero, Brigitte Gabriel

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    I agree paying extra toward the principal is the wise thing to do. But for me its a question of 'do I want the money now or when I'm 189 years old?' :lol:

    Paying off early and getting rid of the mortgage altogether sounds like a good plan too. Even here, I don't think the tax breaks are worth the overall expense, for most. Having no mortgage payments and no interest sounds like a much better deal than a measily tax break. :shrug:



    Wow! 1.95% ???

    :lol:

    Really? Any time? Without penalty? That's unusual, isn't it?

    At any rate (no pun intended) congrats!
     
  16. RpH

    RpH I'm actually educated

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    What she said. My rate is 4.5% and we get 1/3 of the interest back on our taxes. So in essence, we're paying 3%. We are better off paying down something with a higher rate (like land). Early on, it's easy to throw in an extra payment or two but as the principal increases, a full payment is a chunk. I also never like 30 yr mortgages, I always stick to 15 or 20.
     
  17. Cindy Day

    Cindy Day Well-Known Member

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    more dittos especially on the bolded parts.
     
  18. Erik

    Erik Admin

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    15, 20, 25, 30 - doesn't matter when it's paid off after 8.

    :lol:

    I wish some of the interest was tax deductible here, but, it's not. You can 'work' that system by using something called the Smith Maneuver though as only interest on investment loans is tax deductible.
     
  19. Cindy Day

    Cindy Day Well-Known Member

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    Except the interest you have during those 8 years... that is still different.
     
  20. Erik

    Erik Admin

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    And the bottom line figure says it's irrelevant, since I SAVE $175K in interest. The accelerated pay off counters it massively in my favour. We only lock in 5 years at a time, not 15, 20, 25, or 30.
     

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