Mortgage question

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 Joined: Sat Apr 07, 2018 2:25 pm
Mortgage question
I have a 30 year fixed mortgage. Is it better to over the pay the mortgage every month by say $1,000 or save up larger sums of money to put in at one time? Thanks!
Re: Mortgage question
Whichever you do  make 100% sure the overpayment goes to principal.BogleGoggle wrote: ↑Tue Aug 07, 2018 12:00 pmI have a 30 year fixed mortgage. Is it better to over the pay the mortgage every month by say $1,000 or save up larger sums of money to put in at one time? Thanks!
Re: Mortgage question
It depends on what you mean by "better." By how you likely mean it (which pays down the mortgage faster?) then paying the $1000/mo is better.
The reason is that every payment you make lowers the principal some and therefore reduces the interest on the next payment, thereby increasing the principal paydown on the next payment since the payment remains constant. For example you might have something like this (using made up numbers):
Month Payment Principal Interest
1 $1000 $194 $806
2 $1000 $197 $803
3 $1000 $200 $800
4 $1000 $203 $797
5 $1000 $206 $794
6 $1000 $209 $791
If you pay an extra $1000 this month, you immediately jump ahead, so to speak, in the above chart. If you notice months 15 the principal adds up to $1000. So by paying an extra $1000 today, you jump now to month 6you've effectively shortened your mortgage by 5 months, and will pay off $209 with your next payment rather than $194.
If you wait, you are paying interest on what you could have paid down in the meantime. Let's compare these two additional paydown sequences, both adding to $5000:
$1000, $1000, $1000, $1000, $1000
$0, $0, $0, $0, $5000
The second scenario will cost you more in interest because the $1000 that could have gone in month 1 now has four more months of interest, the $1000 that could have gone in month two now has three more months of interest and so forth. So ultimately, you pay more interest by delaying your payments.
Compound interest on your debt is like a river always working against you and the more you delay fighting it the more downriver you will be when you do.
On the other hand, paying earlier might not be "better" in the sense of "what's the best use of my finances?" If you have a low interest rate on your mortgage and have better investment options or are about to time out on a Roth contribution for the year, then do the other investment or the Roth and hit the mortgage when you are next able. If you want to maintain financial flexibility because there's some uncertainty in your life (new kid, new job, new house, whatever) then wait until you feel on firmer ground to go back to paying down the mortgage.
It all depends on the bigger picture, but in a vacuum, the earlier you can pay down interestbearing debt, the better.
The reason is that every payment you make lowers the principal some and therefore reduces the interest on the next payment, thereby increasing the principal paydown on the next payment since the payment remains constant. For example you might have something like this (using made up numbers):
Month Payment Principal Interest
1 $1000 $194 $806
2 $1000 $197 $803
3 $1000 $200 $800
4 $1000 $203 $797
5 $1000 $206 $794
6 $1000 $209 $791
If you pay an extra $1000 this month, you immediately jump ahead, so to speak, in the above chart. If you notice months 15 the principal adds up to $1000. So by paying an extra $1000 today, you jump now to month 6you've effectively shortened your mortgage by 5 months, and will pay off $209 with your next payment rather than $194.
If you wait, you are paying interest on what you could have paid down in the meantime. Let's compare these two additional paydown sequences, both adding to $5000:
$1000, $1000, $1000, $1000, $1000
$0, $0, $0, $0, $5000
The second scenario will cost you more in interest because the $1000 that could have gone in month 1 now has four more months of interest, the $1000 that could have gone in month two now has three more months of interest and so forth. So ultimately, you pay more interest by delaying your payments.
Compound interest on your debt is like a river always working against you and the more you delay fighting it the more downriver you will be when you do.
On the other hand, paying earlier might not be "better" in the sense of "what's the best use of my finances?" If you have a low interest rate on your mortgage and have better investment options or are about to time out on a Roth contribution for the year, then do the other investment or the Roth and hit the mortgage when you are next able. If you want to maintain financial flexibility because there's some uncertainty in your life (new kid, new job, new house, whatever) then wait until you feel on firmer ground to go back to paying down the mortgage.
It all depends on the bigger picture, but in a vacuum, the earlier you can pay down interestbearing debt, the better.
Re: Mortgage question
It's better to invest the sums of money according to your asset allocation model until you have enough to completely pay off the mortgage.BogleGoggle wrote: ↑Tue Aug 07, 2018 12:00 pmI have a 30 year fixed mortgage. Is it better to over the pay the mortgage every month by say $1,000 or save up larger sums of money to put in at one time? Thanks!
Then it's better to sit down and decide if it makes sense to pay off your mortgage (which depends on your mortgage rate, your financial goals, your lack of sleep at night, etc), or to stay invested and leveraged.
Re: Mortgage question
Better than what? This advice certainly doesn't apply to every situation.JoeRetire wrote: ↑Tue Aug 07, 2018 4:33 pmIt's better to invest the sums of money according to your asset allocation model until you have enough to completely pay off the mortgage.
Then it's better to sit down and decide if it makes sense to pay off your mortgage (which depends on your mortgage rate, your financial goals, your lack of sleep at night, etc), or to stay invested and leveraged.
Gill
...just “chiming in” as described by Livesoft
Re: Mortgage question
It's better than over paying the mortgage every month by say $1,000 or saving up larger sums of money less than the full mortgage to put in at one time.Gill wrote: ↑Tue Aug 07, 2018 4:37 pmBetter than what? This advice certainly doesn't apply to every situation.JoeRetire wrote: ↑Tue Aug 07, 2018 4:33 pmIt's better to invest the sums of money according to your asset allocation model until you have enough to completely pay off the mortgage.
Then it's better to sit down and decide if it makes sense to pay off your mortgage (which depends on your mortgage rate, your financial goals, your lack of sleep at night, etc), or to stay invested and leveraged.
And no advice applies to every situation.
Re: Mortgage question
Would it be acceptable to put $260/month extra towards a 30year mortgage? That’s my plan to accelerate it some.
Roth and 401k maxed.
Trying to see where BHers draw the line in an extra payment towards mortgage.
1000 per month seems high but I’ve done that before on another home.
Just curious
Roth and 401k maxed.
Trying to see where BHers draw the line in an extra payment towards mortgage.
1000 per month seems high but I’ve done that before on another home.
Just curious
Re: Mortgage question
I don't know.
Pay as much on the mortgage as often as you can.
Eliminate It
Sooner Than Later
Pay as much on the mortgage as often as you can.
Eliminate It
Sooner Than Later
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Re: Mortgage question
So, if your asset allocation model is 50/50 stocks and bonds .... and if bonds are returning 1 percent and your mortgage is 5 percent, you recommend investing 50% of your excess money in bonds for 30 years until you have enough saved up to completely pay off the mortgage?JoeRetire wrote: ↑Tue Aug 07, 2018 4:33 pmIt's better to invest the sums of money according to your asset allocation model until you have enough to completely pay off the mortgage.BogleGoggle wrote: ↑Tue Aug 07, 2018 12:00 pmI have a 30 year fixed mortgage. Is it better to over the pay the mortgage every month by say $1,000 or save up larger sums of money to put in at one time? Thanks!
Then it's better to sit down and decide if it makes sense to pay off your mortgage (which depends on your mortgage rate, your financial goals, your lack of sleep at night, etc), or to stay invested and leveraged.
Re: Mortgage question
This ^^rocket354 wrote: ↑Tue Aug 07, 2018 1:52 pmIt depends on what you mean by "better." By how you likely mean it (which pays down the mortgage faster?) then paying the $1000/mo is better.
The reason is that every payment you make lowers the principal some and therefore reduces the interest on the next payment, thereby increasing the principal paydown on the next payment since the payment remains constant. For example you might have something like this (using made up numbers):
Month Payment Principal Interest
1 $1000 $194 $806
2 $1000 $197 $803
3 $1000 $200 $800
4 $1000 $203 $797
5 $1000 $206 $794
6 $1000 $209 $791
If you pay an extra $1000 this month, you immediately jump ahead, so to speak, in the above chart. If you notice months 15 the principal adds up to $1000. So by paying an extra $1000 today, you jump now to month 6you've effectively shortened your mortgage by 5 months, and will pay off $209 with your next payment rather than $194.
If you wait, you are paying interest on what you could have paid down in the meantime. Let's compare these two additional paydown sequences, both adding to $5000:
$1000, $1000, $1000, $1000, $1000
$0, $0, $0, $0, $5000
The second scenario will cost you more in interest because the $1000 that could have gone in month 1 now has four more months of interest, the $1000 that could have gone in month two now has three more months of interest and so forth. So ultimately, you pay more interest by delaying your payments.
The sooner you pay the extra $1000, the sooner you never have to pay interest on that $1000 again.
Re: Mortgage question
Yes, that would be acceptable... perfectly acceptable. It is very much a personal preference thing... there is no line. Some of us say pay ahead and others say don't.mortfree wrote: ↑Tue Aug 07, 2018 5:40 pmWould it be acceptable to put $260/month extra towards a 30year mortgage? That’s my plan to accelerate it some.
Roth and 401k maxed.
Trying to see where BHers draw the line in an extra payment towards mortgage.
1000 per month seems high but I’ve done that before on another home.
Just curious
 teen persuasion
 Posts: 689
 Joined: Sun Oct 25, 2015 1:43 pm
Re: Mortgage question
I wrote out an amortization schedule for our high rate mortgage, to see how much effect we'd have putting infrequent large or frequent small extra principal payments. This made it clear that early payments were more powerful than waiting.
DH had received a small ($10k) inheritance, which we stuck in savings while we decided how to deploy it. Then DH was unemployed, and returned to school to switch to a new field, so as much as I wanted to put the cash on the mortgage, we kept it as cash for expenses. After we got thru that period w/o touching the $$, I felt safe putting that chunk plus a tax refund on the mortgage. That initial chunk moved our mortgage end date up 8 years!
I then earmarked each year's tax refund to mortgage prepayment, and tried to add enough to principal prepayment monthly to equal 13 months principal (easy in the early stages). We retired the mortgage more than 15 years early, but slowed the prepayment in the last year or 2, very little advantage then.
DH had received a small ($10k) inheritance, which we stuck in savings while we decided how to deploy it. Then DH was unemployed, and returned to school to switch to a new field, so as much as I wanted to put the cash on the mortgage, we kept it as cash for expenses. After we got thru that period w/o touching the $$, I felt safe putting that chunk plus a tax refund on the mortgage. That initial chunk moved our mortgage end date up 8 years!
I then earmarked each year's tax refund to mortgage prepayment, and tried to add enough to principal prepayment monthly to equal 13 months principal (easy in the early stages). We retired the mortgage more than 15 years early, but slowed the prepayment in the last year or 2, very little advantage then.
Re: Mortgage question
Yup, except I never said you should only look at your bonds and ignore all of your other investments. That makes no sense.pezblanco wrote: ↑Wed Aug 08, 2018 8:32 amSo, if your asset allocation model is 50/50 stocks and bonds .... and if bonds are returning 1 percent and your mortgage is 5 percent, you recommend investing 50% of your excess money in bonds for 30 years until you have enough saved up to completely pay off the mortgage?JoeRetire wrote: ↑Tue Aug 07, 2018 4:33 pmIt's better to invest the sums of money according to your asset allocation model until you have enough to completely pay off the mortgage.BogleGoggle wrote: ↑Tue Aug 07, 2018 12:00 pmI have a 30 year fixed mortgage. Is it better to over the pay the mortgage every month by say $1,000 or save up larger sums of money to put in at one time? Thanks!
Then it's better to sit down and decide if it makes sense to pay off your mortgage (which depends on your mortgage rate, your financial goals, your lack of sleep at night, etc), or to stay invested and leveraged.
Then, once you have saved enough to match whatever remains on your mortgage, sit down and think it over.
I suspect at that point many would find that the mortgage payments have become relatively insignificant, and that they would be better off financially keeping their money invested.
But if they still want to pay off the mortgage for whatever reasons, that's the right time to do it.
Re: Mortgage question
But why? Why would you buy bonds paying 1 percent while you are paying on a mortgage that is at 5% ? This makes no monetary sense.JoeRetire wrote: ↑Wed Aug 08, 2018 3:02 pmYup, except I never said you should only look at your bonds and ignore all of your other investments. That makes no sense.pezblanco wrote: ↑Wed Aug 08, 2018 8:32 amSo, if your asset allocation model is 50/50 stocks and bonds .... and if bonds are returning 1 percent and your mortgage is 5 percent, you recommend investing 50% of your excess money in bonds for 30 years until you have enough saved up to completely pay off the mortgage?JoeRetire wrote: ↑Tue Aug 07, 2018 4:33 pmIt's better to invest the sums of money according to your asset allocation model until you have enough to completely pay off the mortgage.BogleGoggle wrote: ↑Tue Aug 07, 2018 12:00 pmI have a 30 year fixed mortgage. Is it better to over the pay the mortgage every month by say $1,000 or save up larger sums of money to put in at one time? Thanks!
Then it's better to sit down and decide if it makes sense to pay off your mortgage (which depends on your mortgage rate, your financial goals, your lack of sleep at night, etc), or to stay invested and leveraged.
Then, once you have saved enough to match whatever remains on your mortgage, sit down and think it over.
I suspect at that point many would find that the mortgage payments have become relatively insignificant, and that they would be better off financially keeping their money invested.
But if they still want to pay off the mortgage for whatever reasons, that's the right time to do it.
Re: Mortgage question
You are still paying the interest rate on the outstanding balance. The only difference is your balance is smaller at the end so the absolute value of the interest you are paying is smaller.teen persuasion wrote: ↑Wed Aug 08, 2018 9:24 amI wrote out an amortization schedule for our high rate mortgage, to see how much effect we'd have putting infrequent large or frequent small extra principal payments. This made it clear that early payments were more powerful than waiting.
DH had received a small ($10k) inheritance, which we stuck in savings while we decided how to deploy it. Then DH was unemployed, and returned to school to switch to a new field, so as much as I wanted to put the cash on the mortgage, we kept it as cash for expenses. After we got thru that period w/o touching the $$, I felt safe putting that chunk plus a tax refund on the mortgage. That initial chunk moved our mortgage end date up 8 years!
I then earmarked each year's tax refund to mortgage prepayment, and tried to add enough to principal prepayment monthly to equal 13 months principal (easy in the early stages). We retired the mortgage more than 15 years early, but slowed the prepayment in the last year or 2, very little advantage then.
Re: Mortgage question
One actual or potential downside of paying extra principal on a mortgage is that this is a one way street. Once you pay down principal  you must continue the regular monthly payments for the full extent of the mortgage  or until you sell/refinance.
 teen persuasion
 Posts: 689
 Joined: Sun Oct 25, 2015 1:43 pm
Re: Mortgage question
riverguy wrote: ↑Wed Aug 08, 2018 4:42 pmYou are still paying the interest rate on the outstanding balance. The only difference is your balance is smaller at the end so the absolute value of the interest you are paying is smaller.teen persuasion wrote: ↑Wed Aug 08, 2018 9:24 amI wrote out an amortization schedule for our high rate mortgage, to see how much effect we'd have putting infrequent large or frequent small extra principal payments. This made it clear that early payments were more powerful than waiting.
DH had received a small ($10k) inheritance, which we stuck in savings while we decided how to deploy it. Then DH was unemployed, and returned to school to switch to a new field, so as much as I wanted to put the cash on the mortgage, we kept it as cash for expenses. After we got thru that period w/o touching the $$, I felt safe putting that chunk plus a tax refund on the mortgage. That initial chunk moved our mortgage end date up 8 years!
I then earmarked each year's tax refund to mortgage prepayment, and tried to add enough to principal prepayment monthly to equal 13 months principal (easy in the early stages). We retired the mortgage more than 15 years early, but slowed the prepayment in the last year or 2, very little advantage then.
I was looking at how much progress we could make on paying off the mortgage, that is, how fast we moved the payoff date per prepayment. The rate was 9.75%, so prepayment vs investing was pretty obvious, but I was trying to get to the point we could shift from mortgage to increased investing (beyond capturing a match). At the end, the choice was whether to put $10k in refunds to pay off the mortgage immediately, or let it ride one more year on regular payments and instead use the refunds to open Roth IRAs for both of us  begin investing one year earlier. That was also the year our oldest began college, so I wanted to hang onto the cash rather than tie it up prepaying the mortgage, at least until I saw how college expenses played out.
So at each point I was looking at the best use of the money.
Re: Mortgage question
This is not a question which has a single answer; see Paying down loans versus investing on the wiki.BogleGoggle wrote: ↑Tue Aug 07, 2018 12:00 pmI have a 30 year fixed mortgage. Is it better to over the pay the mortgage every month by say $1,000 or save up larger sums of money to put in at one time? Thanks!
If you are sure that paying down the mortgage is a good idea, then you might as well make the payments as soon as you have the money, in order to get the maximum interest benefit. If you aren't sure, then you should invest the money that would be the extra payment, and then you can decide later whether it makes sense to make a larger payment against the mortgage later. (If interest rates have risen in the interim, it might be better to hold the money in a bond fund and keep the mortgage.)
Re: Mortgage question
As most have noted there is no best answer.
Either you value liquidity or you don't
Either you save the excess money or you don't
I think most people are served best by not having a mortgage once they retire. In retirement most people want as little fixed expenses as possible and as much discretionary expense as possible. In bad times you can cut back your discretionary spend. You can never cut back your fixed expenses.
Either you value liquidity or you don't
Either you save the excess money or you don't
I think most people are served best by not having a mortgage once they retire. In retirement most people want as little fixed expenses as possible and as much discretionary expense as possible. In bad times you can cut back your discretionary spend. You can never cut back your fixed expenses.

 Posts: 540
 Joined: Fri Dec 11, 2015 12:40 pm
Re: Mortgage question
depends on your goal! It's just math!BogleGoggle wrote: ↑Tue Aug 07, 2018 12:00 pmI have a 30 year fixed mortgage. Is it better to over the pay the mortgage every month by say $1,000 or save up larger sums of money to put in at one time? Thanks!