sporting

Scenario,
If you have 100k left on the principle of your mortgage, and you have 110k liquid cash, would you pay off your entire balance or keep on paying the minimum or lastly pay your minimum + more/month?

Do you see any benefits in tax write offs at the end with keeping the mortgage?

Just would be interesting to hear some of your thoughts?

Scrib

It would depend on a number of factors for me. If that's all the cash I had on hand, I would not put it all into a final payment, as I'd want an emergency fund and be better positioned in cash given current market complexities. Also would make a difference if I was still working, retired, what other income I had coming, etc.

Interest on a 100K loan isn't all the much on an annual basis, but that also depends on where you are in the loan term... Interest in the first month of a 30yr loan, versus the last, big difference.

Given the above, I would not pay off the house, I'd keep the cash, make it work for me... Well, as best as you can in a market like this.

LaCostaRacer

Unfortunately sporting, you don't provide a lot of details on you loan- interest rate is an important missing detail as one example. Another important detail is if you're currently paying PMI on this loan.

With that said, I'm one of the few that actually paid off the house about 10 years ago. My reasoning was pretty simple: where can you get a 'risk free' investment that pays close to 9% return? I had a 6.25% interest rate back then and to net that after taxes I would need about 9%. Paying off the loan is 'risk free' because you're saving the interest that you would otherwise be paying anyway. Back then the 'margin' was about 2% where I could easily get a CD for 4.5% with my cash. Now the 'margin' is closer to 4% because you don't get much interest with your cash.

There are of coarse drawbacks which means you know longer have that pile of cash in your pocket. The other risk is if you see inflation coming up in the future, you could be paying with inflated Dollars in the future which makes it attractive owing a bank some money.

I have had zero regrets with that decision even now with 4% mortgages available. I only know one other party that owns their home free and clear and it's not even my Parents. We're a rare breed I guess.

Depending on the 'fiscal cliff' resolutions, there will be more people paying off their mortgages if there is no write-off for interest.

sporting

Thanks Scrib!

LaCostaRacer, there's not a lot of info because it was only a made up situation. I still have 7 years to go on mine @ 3.5 interest.

Professor

I'm pulling the trigger... About 14 years left on my mortgage. Doing a refi from 7.375% to 2.625% fixed (same period). I hate paying almost $3K in closing, but I'll be saving almost $600 a month in payments due to the refi, and I won't have to pay anything for Feb. 2013.

Of course my interest deduction for 2013 will be nothing, so I'll have to plan on my 2013 taxes pretty soon. I should have refi years ago, but just to lazy to do it.

gatrhumpy

iTrader: (1)

We recently refinanced also. We're hitting the refinance home run too (lower interest rate of 3.625 vs 6.625, 20 year term (had 24 years left), and lower monthly payment).

I plan on paying off the mortgage by the time I'm 40, in seven years.

Professor

By chance, did you use a regional bank or a national chain... Even though I had some fears, I used Quicken Loans and everything has been as promised and advertised.

The Dougler

iTrader: (1)

When I refi'd, I kept my payments on the same rate schedule as the first mortgage. So my payments are structured on an accelerated bi-weekly based on a 5.4% interest rate, when my real rate is 2.5%. I'm crushing the principle, it's a 25 year term that's down to 11. I should be able to speed that up further and come in at around 9 years I think. Which means I'll be done when I'm 36ish. I'm definitely not complaining.

gatrhumpy

iTrader: (1)

Suntrust.

khannie112

I wish I could refi - though my rates aren't TOO bad....4.5%. Problem is my house didn't appraise high enough and my loan is too much (and yes, I did put 20% down in 2010).

Now - to save on interest I am just paying more on principal per month and should finish my payments in 13 years as opposed to 28 years if all goes well and I don't lose a job or have unexpected expenses. I don't have a prepayment penalty so I am ok with that aspect as well.

Professor

Funny... that's where we got my daughter's 2009 Acura TSX financed.

stogie1020

What criteria should I compare if shopping for a refi?

Besides the interest rate...

The Dougler

iTrader: (1)

You should look at a few things. Firstly what is your existing mortgage rate, fixed or variable? any penalties for breaking it? If so what's that going to cost? How much time is left on your current term?

then I'd look at what's available today in terms of interest rates, amortization periods and fixed vs variable. After that determine your goals, are you looking to decrease your monthly payment and keep the same term or pay it of faster and keep the same rate. Assuming your looking to accelerate paying it off, refi at lower rate keep same payments get it over with faster.

Also consider do you require the certainty of a fixed rate or can your risk tolerance allow for variable? Given current economic situations I'm riding variable as I don't see bank rates going up in the near-medium term, but my payments are based on much higher rates so that if shtf I can either lock in, or my budgeting is prepared to handle higher rates (6-8%).

stogie1020

I have a good understanding of my current mortgage, but am looking to refi due to lower interest rates.

Wondering if there were any surprises for people in their refi, things they would asked if they were doing it again, etc...

Professor

Another re-appraisal... closing costs on something I already purchased... guess I need to trim the bushes on the first issue.

Do a lock on the interest rate. If will take a few days to get everything together, and despite opinion, if we sail over the financial cliff, IMO rates will go up.

Dr. Colorado

I liquidated a substantial amount of my personal portfolio recently because of the 2013 increase in capital gains taxes to 23.8% on my long-term holdings' profit . I used this cash to pay off most of my principal, should be paid in full within a couple months.

Jeff, I had a jumbo loan in 2008 at 6% which I refinanced over 2 years ago down to 4.625%. IIRC it cost <$2K and I didn't need a re-appraisal as I did it through the same bank. It took around 14 months to break even.

Good job!

Dr. Colorado

Fixed. Missed an important digit there

achenator

In a similar situation with my jumbo. Currently at 4.35%. I have a lease purchase contract on my old home that comes due in 20 months. I hope rates are still low enough then so I can take the proceeds (100k) of that sale and put towards the refi of jumbo so I can get under the conforming amount.

Congrats on paying off your home, always nice to eliminate a bill. I've got about 17 months to pay on my partnership loan (6k a month) and I can't wait to finish that out. I plan on putting most of that towards my mortgage and being 100% debt free ASAP.

LaCostaRacer

The mortgage interest deduction and what happens to it via fiscal/budget talks in Washington will affect a lot of people's decisions on paying off mortgage, refi-ing it, or simply keeping the current mortgage and prepaying principal.

For those of you with higher than market mortgage rates and no desire to go through the refi process, there are far worse things to do than pay some extra principal each month with the current loan.

There is no need to lock yourself into a bi-monthly mortgage or anything like that- just write a check for a larger amount or alter your auto-payment settings. Easy as pie- doing that over the 20 years was our secret to paying off the mortgage early. The benefit to doing this is you can always STOP prepaying if you need a little extra cash.

sporting

So if I wanted to, say put 12k extra once per year, would all that go to principle? Just wanted to confirm.

achenator

Yes it should but you may have to specify that's where u want it to go.

Dr. Colorado

Thanks bud. I reinvested half my personal portfolio into large cap index and tax managed vanguard funds and of course still have my defined benefit Roth 401k plan. Will pay off fcar next although have a pretty good 4% fcu loan there. For some odd reason, im highly motivated to pay off mortgage ASAP but dropping that coin on a car doesn't jive as well. Fcar maintains value better than other marquees at least.

My bank has no fee online principle reduction. Just select one time draft, $$ and note this $$ will be applied fully toward principle.

LaCostaRacer

Yes: when you do a one payment per year plan, think of this as opening a CD that is fixed for the remaining years of your loan which will be reduced with the extra principal.

So if you have 10 years remaining on current loan, you might have 9 years afterward with a 12k prepayment depending on loan amount and stuff- that's like opening a 9year CD that pays your mortgage's interest rate tax free.

It's better to do it on a monthly basis if you can since 12 prepayments of 1k are better than one 12k prepayment once a year- same reason that makes people do bi-monthly mortgage payments to pay off loan earlier.

sporting

^ Interesting, I don't think it would save me that much (significantly) doing it once per year versus increased in monthly...

TLDude876

iTrader: (7)

I have a mortgage/down payment related question so I figure I'd ask here rather than creating a new thread. In this economy and with current interest rates (I got 3.375 on a 30 year term), is it wise to put down as much as you can for the initial down payment? For me, it is a toss up between 5%(6.5k) and 10%(13k). The only major difference I see on paper is the fact that the PMI is $48 vs $65. Of course the interest on a principle will be more but that doesn't really matter in my case since I will be paying more than the stated monthly payments.

05_NBP_TL

iTrader: (1)

TLDude, yes your PMI will be less (the goal is to get rid of PMI payments). On my mortgage, I had to pass the 20% loan amount to get rid of my PMi payments. I also pay extra principle payments monthly to lower the total amount of the loan.

I took out a 30yr mortgage back in 07 and have almost 15 years left. I apply any extra money towards my loan when possible. I have also looked into refi but we are curently looking to buy another house, and it would take roughly 15 months for us to breal even after the refinancing.

When putting down the initial down payment, also consider having an emergency fund stashed away if ever needed (dont spend all your money up front). I didnt put anything extra down (just closing cost) and I was approved for 100% loan @ 5% fixed rate back in '07.

stogie1020

Anyone done a refi through Quicken?

seems like a good deal, but also like they are a refi mill...

Some negative reviews online...

doopstr

The thing I noticed about Quicken is the gap between the APY and the APR is pretty wide compared to other sources.

stogie1020

I was turned off by their high pressure tactics (with me), but if they are the same as everyone else in the end, no reason not to...

I guess I should check with my bank, etc...