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Home Mortgage Advice

are you saying if you make 1.5-2 extra payments a year on a 30 yr, it is roughly equivalent to a 15 yr?

Which makes no sense at all since you're paying your mortgage for 26 years and paying gobs more interest over the life of the loan than you would on a 15-year amortization.
 
As long as there's no early payment penalty on your 30, there's nothing stopping you from paying it off in 15 years. At current rates there's little to no benefit to locking yourself into a 15.

Even if you know you won't be living in the house 10 years from now, with rates this low you might be able to rent it out and pay a company to manage it for less than the mortgage. You never know - but a 30 year gives you more options.
 
One additional thing is I'll be doing a decent amount of improvements to the place, with the most significant most likely being taking the 3 living rooms downstairs and taking out a couple of the walls to make it far more open.

What are the Pros/Cons of trying to include those in an increased mortgage amount?

Do you need the house to appraise as improved to have the money to make the improvements?
 
Thanks, DC. If you pay an extra 3-4 payments or so, you're knocking off your principle and paying it off much quicker than 30 years, around 15-18 years without locking in a higher monthly payment. Sure you're paying more in interest over the life of the loan. That's the price of flexibility. Can't see a single guy in his 20s wanting to lock down a 15 year.
 
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Thanks, DC. If you pay an extra 1.5-2 payments or so (I don't have the math in front of me), you're knocking off your principle and paying it off much quicker than 30 years, around 15 years without locking in a higher monthly payment.
Couple of points:
-rates on a 15 are usually much lower than a 30
-not all mortgages will re-amortize when you make an early payment
 
Thanks, DC. If you pay an extra 1.5-2 payments or so (I don't have the math in front of me), you're knocking off your principle and paying it off much quicker than 30 years, around 15 years without locking in a higher monthly payment.

i think you're off on this. at least for mine, if i made two extra payments every single year (beginning with the first month in which i bought the house), it takes 22 years. not 15. it doesn't make any sense at all why you would halve the time by making 1/6 of the extra payments. obviously it speeds things up, but not that much.
 
Thanks, DC. If you pay an extra 1.5-2 payments or so (I don't have the math in front of me), you're knocking off your principle and paying it off much quicker than 30 years, around 15 years without locking in a higher monthly payment.

Yep- locked in on a re-fi at 3.75% for 30 years this past spring and presently paying an extra $250/month towards principal while I can and hope to knock it down to the 20-22 year range.

The 30 year loan gives you more flexibility if/when times get tough.
 
I finalized a 30-year yesterday. Sucked to watch the rates jumping while I was looking for houses, but they still aren't bad.
 
Thanks for the corrections. You got me before I did the math above.
 
If you set up a bi-weekly payment plan on a 30 year mortgage (1/2 payment every two weeks), you will pay the loan off in under 24 years.
 
Thanks, DC. If you pay an extra 3-4 payments or so, you're knocking off your principle and paying it off much quicker than 30 years, around 15-18 years without locking in a higher monthly payment. Sure you're paying more in interest over the life of the loan. That's the price of flexibility. Can't see a single guy in his 20s wanting to lock down a 15 year.

Not to keep hounding on this, but out of curiosity I just did the math and you're still overstating it a little bit, although it does depend on the interest rate. The higher the interest rate, the more interest you're avoiding by making early payments.

For a 4% interest rate (which is probably on the higher end in the current environment), it would take six extra payments per year over the life of the loan to knock your term down from 30 to under 16 years. Four extra payments per year would bring you to just under 19 years. Three extra payments would bring you to just under 21 years.

But yes, a 15-year would have that all built in and your monthly payment would be almost 50% more (roughly six extra payments a year), taking away the flexibility you mention.
 
If you set up a bi-weekly payment plan on a 30 year mortgage (1/2 payment every two weeks), you will pay the loan off in under 24 years.

That's just another way of saying what Ph was saying. Bi-weekly is just a sneaky way of fitting in an extra payment every year. 12 months = 12 monthly payments. 52 weeks = 26 half payments = 13 monthly payments. It's actually better to pay the extra month up front on day 1 each year. Not to mention some banks figure you're stupid enough to actually enroll in a "program" for like $500 where they bill you every 2 weeks. It's just free money for them.

It's remarkable how much one payment affects the final dollar amount - hence the 5 year savings. There's a monthly number that would get you to 15 years - and often it's within $10-$30 of an actual 15 year loan monthly payment, especially at rates as low as they were recently. For most that small a difference is worth the flexibility.
 
I'm a fan of getting the lowest rate you can at the time and paying the most you can each month. I have an adjustable that is tied to the Libor rate that is about to adjust down again for the next year. It has never been above 4.25% in over 10 years. It went up .25% last year but is going down again this year. Sometimes I pay the regular payment and sometimes I throw a little extra at it. It should be paid off in less than 20 years from the original date. Borrow money at the lowest rate you can pay as much as you can while meeting your other commitments. I've learned over the years that being debt free is the best goal you can have when it comes to finances. That was a hard lesson to learn.
 
That's just another way of saying what Ph was saying. Bi-weekly is just a sneaky way of fitting in an extra payment every year. 12 months = 12 monthly payments. 52 weeks = 26 half payments = 13 monthly payments. It's actually better to pay the extra month up front on day 1 each year. Not to mention some banks figure you're stupid enough to actually enroll in a "program" for like $500 where they bill you every 2 weeks. It's just free money for them.

It's remarkable how much one payment affects the final dollar amount - hence the 5 year savings. There's a monthly number that would get you to 15 years - and often it's within $10-$30 of an actual 15 year loan monthly payment, especially at rates as low as they were recently. For most that small a difference is worth the flexibility.
The bi-weekly payment is a decent option for folks on a bi-weekly payroll. Your mortgage payment is almost always your largest monthly expense, so those folks even off their cash flow by paying half on each payroll (set it and forget it).

Only a fool would pay extra for the privilege of paying early
 
The bi-weekly payment is a decent option for folks on a bi-weekly payroll. Your mortgage payment is almost always your largest monthly expense, so those folks even off their cash flow by paying half on each payroll (set it and forget it).

Only a fool would pay extra for the privilege of paying early

I mean, paying extra whenever you do it is good. The earlier you do it the better. I'm just pointing out that it's dumb to pay a bank for their bi-weekly plan. And yet people do it all the time. And it's better to just make one extra payment in month 1 than it is to go bi-weekly.
 
Committing to Richmond for any duration of time sounds like a terrible idea if marriage/kids aren't incoming. Live, damnit.
 
Committing to Richmond for any duration of time sounds like a terrible idea if marriage/kids aren't incoming. Live, damnit.
Find a place to live for cheap and spend your money travelling the world.

Plus, Richmond's a pretty kickass place to live.
 
I mean, paying extra whenever you do it is good. The earlier you do it the better. I'm just pointing out that it's dumb to pay a bank for their bi-weekly plan. And yet people do it all the time. And it's better to just make one extra payment in month 1 than it is to go bi-weekly.

I believe I agreed with you on the idiocy of paying a bank for a bi-weekly plan. If the bank has online payments, you should be able to set up bi-weekly payment without paying extra for it.

WGAF what they bill you as long as you stay ahead of the schedule?

If someone has the funds to pay an extra payment in month one, it's indeed better.
 
I mean, paying extra whenever you do it is good. The earlier you do it the better. I'm just pointing out that it's dumb to pay a bank for their bi-weekly plan. And yet people do it all the time. And it's better to just make one extra payment in month 1 than it is to go bi-weekly.

And paying extra isn't good unless you're going to be there to reap the returns of not having a mortgage in year 24. That's far more of a sure thing than the return from selling.
 
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