OT: mortgage payments

[RUfanSinceAnderson]

just opened a 30 year fixed rate a few months ago

Have more monthly capital now from a raise and want to pay this down quicker

Rates on 30 vs 15 are similar now

If I prepaid principal each month equal to the difference of the 15 and 30 year payments, do I end up in the same place or am I still paying lots more interest by having the 30 year

 

[LevaosLectures]

When rates are so low doesn't it make sense just to PTM?

 

[rutgersal_rivals139582]

My finance teacher in business school said the best thing to do is to invest the difference in the stock market, between the 30 year vs the 15 year, then at the end of 15 years, pay it off. This obviously assumes positive returns over the next 15 years.

 

[RUfanSinceAnderson]

My finance teacher in business school said the best thing to do is to invest the difference in the stock market, between the 30 year vs the 15 year, then at the end of 15 years, pay it off. This obviously assumes positive returns over the next 15 years.

Understand the financial advice but that wasn't what I was getting at. Do you know if they are equivalent or very close.

 

[saltpepperketchup]

You will save a ton in interest by doing this. Many will suggest investing the extra instead of paying down the principal. In theory one can make out better this way. It's a personal and emotional decision. The benefits of being debt free after 15 years vs 30 cant easily be quantified.

 

[RU85inFla]

There are plenty of online calculators out there.

 

[TonyLieske]

just opened a 30 year fixed rate a few months ago

Have more monthly capital now from a raise and want to pay this down quicker

Rates on 30 vs 15 are similar now

If I prepaid principal each month equal to the difference of the 15 and 30 year payments, do I end up in the same place or am I still paying lots more interest by having the 30 year

The short answer is yes, you will save the interest cost by paying down the principal faster. If the extra principal payment is exactly equal to what your payment would be under a 15 year mortgage then you will end up in the same place (roughly speaking).

 

[RU206]

as 85 said, try an online calculator

I went with a 15 yr so I know I will pay down the mortgage quicker. Some like to go with 30 yr and prepay. This way if they have a financial situation and need money they can make the lower mortgage payment on the 30 and have access to money.

 

[saltpepperketchup]

http://www.drcalculator.com/mortgage/

This is the best calculator I've found. You can model different payments to see how much you would save.

 

[RU in IM]

just opened a 30 year fixed rate a few months ago

Have more monthly capital now from a raise and want to pay this down quicker

Rates on 30 vs 15 are similar now

If I prepaid principal each month equal to the difference of the 15 and 30 year payments, do I end up in the same place or am I still paying lots more interest by having the 30 year

Assuming the same rate, you will get to the same place (i.e. Where you would be with a 15 year loan); if you paid the difference (15 year vs. 30 yr payment) as an addition principal payment. The loan would pay off in 15 years. However, 15 year rates are slightly lower, so if you plan to live in your house for a long time, you might want to refinance at a lower rate. Another option is getting a 15 year 1st lien fixed rate equity loan, as the closing costs are usually minimal (e.g: application fee), and if you look around (state banks in NJ), you can refi with this product at a lower rate. I did it recently.

 

[mdk02]

Assuming the same rate, you will get to the same place (i.e. Where you would be with a 15 year loan); if you paid the difference (15 year vs. 30 yr payment) as an addition principal payment. The loan would pay off in 15 years. However, 15 year rates are slightly lower, so if you plan to live in your house for a long time, you might want to refinance at a lower rate. Another option is getting a 15 year 1st lien fixed rate equity loan, as the closing costs are usually minimal (e.g: application fee), and if you look around (state banks in NJ), you can refi with this product at a lower rate. I did it recently.

However, keeping the 30 year and paying it at a 15 year rate allows you to go back to 30 year payment levels if you suffer a financial set back.

 

[saltpepperketchup]

However, keeping the 30 year and paying it at a 15 year rate allows you to go back to 30 year payment levels if you suffer a financial set back.

Agree with this especially since you just recently closed on the 30 yr. Don't refinance. Just pay extra principal, if you go that route. If you're strapped for cash down the line just stop paying extra and revert to the 30 year payment only.

 

[Bagarocks]

Accelerated payment mortgage.
Make half payment every 2weeks
Reduces a 30 year to 21 year, which greatly reduces yer interest. And ya can still do yer investin.

 

[Nit777]

Agree with this especially since you just recently closed on the 30 yr. Don't refinance. Just pay extra principal, if you go that route. If you're strapped for cash down the line just stop paying extra and revert to the 30 year payment only.

Agree with this answer totally.

Also, if you pay even more than the equivalent of a 15 year payment a few times a year (sort of like the line to pay every two weeks), the amortization will get cut to less than 15 years, or at least to the 15 years you would get if you had a 15 year loan up front.

You are probably paying say 4.15% for a 30 year loan and you probably could have received say 4.00% for a 15 year loan. You could refinance if the rates are the same, but all of the costs will probably be at least $10,000.

Just go with the plan to increase the payment to the 15 year level and stay with what you have.

Finally, be very careful about the pay minimum and invest the rest strategy. That is not human nature. There will be something that comes up every month that takes the "rest".

Plus, your investment decisions may be poor.

Just put it on direct pay at an amount which you can handle which is close to a 15 year amortization amount and forget about it.

Good luck!