You shouldn't have asked.
You shouldn't have asked.
non sunt in coeli, quia fvccant vvivys of heli
Eh, because we can. We make extra principal payments. We should probably just throw that in savings, though.
I'm assuming someone with a "sizeable chunk in savings" (as she mentioned they have) has the equity (>80%) or ability to pay down to 80% LTV in order to refinance. You can refinance today for 4.25% up to 5.25% for a 15 or 30 year fixed.
Paying down your mortgage is a long-term investment, because you reap the benefit when you sell or pay-off. Making extra payments is locking in a long-term investment of today's interest rates. I'm not sure anyone strives for 4-5% long-term returns (minus the interest tax deduction that you will later miss out on).
In today's economy, cash is pretty much king because you have so many investment opportunities (including the general stock market), which I'm pretty sure is going to return you more than 5% long-term.
Last edited by PlayaDelWes; 06-14-2010 at 09:27 AM.
Refinancing wouldn't be a great option if she were planning on leaving the home soon. I like that we're talking about becca as if she weren't here.
This was pretty much my reasoning. We're not really building up any equity by making our normal payments. Who knows what's going to happen in 5 years?Regardless of the interest rate, the first 10 years of a mortgage payment pretty much all go to interest.
And Wes, I'm pretty sure my definition of sizeable is different than yours. We could refinance, but the overall savings wouldn't necessarily exceed the refinance fees.
And I'm done talking about money now!
But serioulsy, that sounds high. Give me a few figures and I'll tell you exactly what it should be.
I had $65, then I bought four Neil Young tickets.
So, I'm rich.
Ron Paul 2012!
Death Cab for Cutie/Magik Magik Orchestra
some other bands
I take home about $6k per. Then I fuck it.
Hey look, someone else who caught half of a Suzie Orman conversation.
Just because it’s ‘guaranteed’ doesn’t mean it’s worth it. And it may not be taxable, but it removes a tax deduction that is equal to the tax liability you’d realize on an equivalent gain on another taxable investment. Also, when you pay down your extra principal, you don’t have access to that anymore. What happens when interest rates rise or the market rallies or you really need that cash for a personal emergency? It’s not available.
Bottom line is that if you can afford to put in $200 extra payment each month, you can probably afford to make a lot of other smarter investment decisions.
- If you have 80% equity and you haven’t refinanced in the last 18 months, you probably should and you will reduce your monthly payment by hundreds of dollars
- If you have been in your home a few years, you could refinance into a 15 year mortgage to get an even lower rate
In both of these scenarios, you end up saving interest on THE ENTIRE PAYMENT, not just the extra principal you’d be paying down.
- Those who are saying the Stock Market ‘isn’t doing all that well’ (compared to a ‘guaranteed 4.5% return) are full of it. Putting $200 per month into a very conservative index fund has reaped greater returns than the 4.5% annuity you’re getting by locking principal down in your mortgage.