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Old 11-06-2013, 11:32 AM   #21 (permalink)
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Yeah, that's a whole different debate than what I have going on. If you plan on renting your current house, save up your cash for a good down payment.

I plan on staying where I am and by paying a large extra every month for the next 5 years (which is hard, but feasible) we can have the house paid off, and I will save $200K in the overall mortgage in interest. That's a lot of money to not give away. I'd rather forgo some "fun" now to have that money in my pocket down the road to have some serious fun later.
Have you researched the difference between getting ahead in payments and paying against principal? I work with a guy who rounds up to the next $100 every time he makes a payment. When we talked (a few years ago) he said he was something like 7 years ahead on payments. I didn't think anything of it then, but later found out that there are two areas that you can pay against when you pay more than you owe for that month.

I haven't looked at it myself because we aren't there yet, but Why would anyone make early payments instead of paying against principal? He's still going to pay the huge chunk for interest and will (as far as I can tell) end up paying it off early, but still pay (let's make stuff up) 350k on a 200k loan.
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Old 11-06-2013, 11:36 AM   #22 (permalink)
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Have you researched the difference between getting ahead in payments and paying against principal? I work with a guy who rounds up to the next $100 every time he makes a payment. When we talked (a few years ago) he said he was something like 7 years ahead on payments. I didn't think anything of it then, but later found out that there are two areas that you can pay against when you pay more than you owe for that month.

I haven't looked at it myself because we aren't there yet, but Why would anyone make early payments instead of paying against principal? He's still going to pay the huge chunk for interest and will (as far as I can tell) end up paying it off early, but still pay (let's make stuff up) 350k on a 200k loan.

You're exactly right. The banks will screw you if you don't specify. The money goes to principal, not as an extra payment.

When you sign your life away on a mortgage application, there is something in there usually that states that extra money will go towards your next payment as "default". So unless you specify, they will default to your next payment. Sucks right?

So I check every month we send extra in, and I have had to correct them in the past.

...

On the credit card front... well, just bought plane tickets to Florida and well, it may be a two monther to pay off. We'll see.
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Old 12-02-2013, 02:36 PM   #23 (permalink)
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I usually keep mine maxed over new years, I get the full figure back on my taxes.
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Old 12-02-2013, 03:00 PM   #24 (permalink)
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I usually keep mine maxed over new years, I get the full figure back on my taxes.
When is tax season in Norway? In the States, you could be 6 months into acruing interest by the time you get your refund.
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Old 12-02-2013, 04:54 PM   #25 (permalink)
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Originally Posted by Painthappy View Post
You're exactly right. The banks will screw you if you don't specify. The money goes to principal, not as an extra payment.

When you sign your life away on a mortgage application, there is something in there usually that states that extra money will go towards your next payment as "default". So unless you specify, they will default to your next payment. Sucks right?

So I check every month we send extra in, and I have had to correct them in the past.

...

On the credit card front... well, just bought plane tickets to Florida and well, it may be a two monther to pay off. We'll see.
I am generally fairly intelligent (so I've been told), but for the life of me, I still don't understand this distinction. When your interest is calculated at regular intervals, it is against the outstanding balance of the loan--principal and interest--no? Whether I specify next payment or principal, I'm still hacking away at the balance. I know that it does make a difference, I just don't understand how.

Also, side note, it's funny how little things can change your views on fiscal policy. Now that I've signed my life away on a fixed interest rate, I'm suddenly rooting for more inflation!!
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Old 12-02-2013, 05:22 PM   #26 (permalink)
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I am generally fairly intelligent (so I've been told), but for the life of me, I still don't understand this distinction. When your interest is calculated at regular intervals, it is against the outstanding balance of the loan--principal and interest--no? Whether I specify next payment or principal, I'm still hacking away at the balance. I know that it does make a difference, I just don't understand how.

Also, side note, it's funny how little things can change your views on fiscal policy. Now that I've signed my life away on a fixed interest rate, I'm suddenly rooting for more inflation!!
In a nutshell, early in your mortgage, you are paying 99% interest and 1% principal. As you go, those number move in opposite directions. Basically you pay the interest early.

If you make early payments and build that up, you are ahead of the game. If you pay against principal you will not ever get 'ahead' of your payment schedule, but you will run out of principal to pay against before your 30 years is up.

Did that help, or make things worse?
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Old 12-02-2013, 05:44 PM   #27 (permalink)
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Yup. Basically the first payment on a mortgage is 100% interest and the last payment is 100% principal. Any additional funds you toss into the principal category goes to taking payments off the back end of the loan. Well really you're paying down the principal directly so you owe them less and just wouldn't have to make those later loan payments.

It's an interesting game that "experts" have differing opinions on. Some say to pay the minumim because it might be smarter to do something else with that $ right now. After all you can pretty safely assume that $100 now is "worth more" than it will be 30 years from now. The question is what you do with it. If you're going to pay off credit cards or invest it it might be smarter to keep it. If you're going to blow it on something stupid it's probably better spent paying down your loan.

That's also why you really have to think carefully about a re-fi. If you're 5 years into a loan and do a re-fi, you start over with the first payment goes back to 100% interest.
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Old 12-03-2013, 10:10 AM   #28 (permalink)
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Well, I "technically" paid off the credit card!

I paid off what was owed on the bill. While I racked up more with some plane tickets for next year, that won't be due until the end of next month. No interest payments on that card!

So they must hate me. Not only do I pay it off and they don't get interest, I'm using my 2% back to pay down the balance on the card also.
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Old 12-03-2013, 01:09 PM   #29 (permalink)
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So they must hate me. Not only do I pay it off and they don't get interest, I'm using my 2% back to pay down the balance on the card also.
Possibly, but they are still making money on transaction fees, so all is good. It's the people with an open account that never charge anything that cost them money.

Also, 2% back on everything? That is pretty good. I get 2% back on dining but only 1% back on everything else.
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Old 12-03-2013, 01:13 PM   #30 (permalink)
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Originally Posted by desertT1 View Post
In a nutshell, early in your mortgage, you are paying 99% interest and 1% principal. As you go, those number move in opposite directions. Basically you pay the interest early.

If you make early payments and build that up, you are ahead of the game. If you pay against principal you will not ever get 'ahead' of your payment schedule, but you will run out of principal to pay against before your 30 years is up.

Did that help, or make things worse?
Actually, I think you have the conclusion sort of backwards. You want to pay against principal early on because it lowers the balance of the loan and reduces the number of payments you make and the total interest you pay over the life of the loan.

If you don't pay against principal, they merely credit the amount as a future payment, but the total number of payments and the interest you pay remains the same.
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