Hey so I hear interest rates are real low right now, like in the 2s or something if you want to buy a house. Assuming you have one of these mortgages, do you make more than the minimum payment? I would think with such a low rate your money will go further if you make the minimum payment and then invest whatever other money you might have in something else. Then again, debt sucks so it might feel good to pay it off sooner than the scheduled 30 years.
What to do? Asking for a friend who might be in debt and hates debt.
You can do a 15 year mortgage too, but I donât think paying extra is that uncommon. You can pay it off entirely after a year or so if you want to and have the means.
I can do a 15 I guess. But then again I still want to be able to quit my job and do nothing if I need to but not get whacked with a higher monthly payment during time off. On the other hand itâs not like I plan on doing that all the time soâŚbut having the freedom and peace of mind would be nice.
Depending on how likely that is you could always just refinance, especially if you were paying at a rate of 15 year loan youâd build equity a lot faster than with a 30 year making the minimum payment
Yeah, but if he refinances from a 15 year at 2% to a 30 year at 8% his payment might actually go UP (depending on how much equity heâs built in the meantime.)
I recall being thrilled to get 7.25% when I bought my first house. My father recalls being thrilled to get 19 (point something) % when we moved in 1984.
When we refi-ed we decided on a 15-year. Got a lower rate and donât have to bother with figuring out how much âextraâ to pay each month. Just easier this way.
One thing you can often do if youâve been paying off extra is to recast the loan.
Recast = recalculate the payment based on your fixed interest rate, your actual loan balance plus a modest fee (maybe $500), and the term that would be remaining if youâd been making the minimum payments all along.
Like if youâre 6.5 years into a 30 year 3.5% mortgage and youâve been paying extra, recalc based on 3.5%, 23.5 years, and your actual loan balance plus $500.
You preserve the low interest rate you locked in, but lower your monthly payment.
With interest rates at ridiculously low levels, why would you shorten your term to only 15 or do something silly like pay back extra principal?
By owing money at a low low FIXED interest rate you give yourself huge protection against any inflation that happens in the future. Most lay people donât understand that fact. Actuaries should understand it.
I am not convinced the marginal interest rate discount on a 15 year loan vs a 30 year loan is enough to compensate for the extra interest rate risk protection offered by the longer Macaulay Duration on a 30 year loan.
I am not at all invested in risk bombs like options portfolios, crypto, or FOREX and I am not advocating them. But you donât think that a balanced, diverse ETF portfolio can beat 3% long term?
There are exceptions to the rule, but I think a fixed rate mortgage is good for most people, most of the time.
Consider it a leveraged investment.
Also note that unless youâre paying a lot of interest (or wasting a lot of money donating), itâs not tax-deductible anymore. (Thanks for screwing the Middle Class, Trump!)
We make the minimum payment, because thatâs all we can (allegedly) afford. No other reason. In fact, we are looking to re-fi, make our payments the same, and pull out some hard-earned equity to make some necessary improvements that might hit six figures (itâs an old house with an old pool).
I set up my direct withdrawal with a fixed amount extra principal monthly so the monthly payment was a round figure. Then they recalculated my escrow amount and changed the PITI amount that I paid but kept the fixed extra principal so instead of paying xx00 monthly now I pay xx17.30 monthly. Yes, I could go in and change the extra principal amount but it kinda ticked me off that they wouldnât fix the payment amount.
It wouldnât be, if we actually got to own our homes. But with property tax payments being due to the government, youâre really just renting always.
