bright investing

7 responses to "Save thousands and years on your mortgage"

1. # Lazy Man and Money commented on October 15th, 2006:

   Depending on your interest rate, you may be able to put your money in better invests instead of paying off your mortgage. It’s not uncommon for people to have a 5.875% mortgage if they got in the last few years and have good credit. Because you can deduct the mortgage interest, it’s really about 4.23% if you are in the 28% tax bracket. Thus in that case you’d be better off opening up a CD that pays 5.5% or more. Imagine the thousands that the money would compound to in 30 years .

   Note: I may have some of the numbers wrong, but research the principle. I’m not a tax attorney or anything.

2. # Joe commented on October 15th, 2006:

   Excellent point. Even online savings accounts are paying over 5% interest (see Emigrant Direct, for example). Of course, there’s something psychologically appealling about being debt free.

   One more twist: if you’re stuck paying PMI (private mortgage insurance) because you have less than 20% equity, accelerating the payoff makes sense at least until you can ditch the PMI.

3. # Lazy Man and Money commented on October 15th, 2006:

   I agree about being debt free, but that’s something that’s still 24 years out by making an extra payment here or there. So if you are going to wait 24 years for that feeling, why not get the higher interest rate for 20-ish years and then pay it off entirely then. Plus taking a 20-25 year view, many people would be comfortable with a bit of a risk that could average them 8% or more. I just did a little quick math and money invested for 25 years at 8% interest would be worth double of the 5% interest over the same time frame.

   But yes, if you have a higher interest rate, PMI, or anything like that, make those extra payments when you can.

4. # Joe commented on October 15th, 2006:

   Great points, Lazy Man and Money. I had a co-worker who was actually paying a local 3rd party company for mortgage acceleration assistance, and she had about $25,000 in credit card debt. Crazy.

   Someone could even start a separate “pay-off-the-mortgage” investment account if they wanted to dedicate a certain amount of their investment dollars to paying off the house early. Then do like you suggest, and invest at 8 -10% (hopefully) until enough accumulates to pay off the mortgage in 20-25 years. Man, I love compounding.

   Thanks for the comments!

5. # Do It Yourself Mortgage Accelerator Plan | Lazy Man and Money pingbacked on October 15th, 2006:

   […] Joe of Bright Investing pointed out an article on mortgage accelerators.  I didn’t realize such things existed, but apparently the business is to set up electronic payments for you so that you pay off your mortgage early.  This is something that most people could learn to do in a half hour with most any bank, so it’s a pretty bad idea for anyone except the accelators. […]

6. # indexfundfan commented on October 16th, 2006:

   Yeah, these mortgage payment accelerators are ripped-offs if you have to even pay a cent for the program.

   If your mortgage interest is low, investing the money is probably more profitable. My mortgage is at a fixed APR of 4.75%. I would NEVER pay off early.

7. # Do It Yourself Mortgage Accelerator Plan | Lazy Man and Money pingbacked on October 28th, 2006:

   […] Joe of Bright Investing writes an article on mortgage accelerators. I didn’t realize such things existed. Apparently the business sets up extra electronic payments to aid you in pay off your mortgage early. Most banks allow you to do the same thing for free, so it’s a pretty bad idea for anyone except the accelators. […]