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Posted by Mike on March 18, 2008, 5:12 pm
Hello, I have a question regarding early payoff of mortgages, and the
payments.
If I have a mortgage (110k) and monthly computed interest and
principle payments are
(briefly) shown on this amortization schedule..
Due Date Int. Princ. Def.Int.
Pr-Def Int Outstanding
4/01/2008 $610.36 $102.02 $0.00
$110,453.33 $110,453.33
05/01/2008 $609.79 $102.59 $0.00
$110,350.74 $110,350.74
06/01/2008 $609.23 $103.15 $0.00
$110,247.59 $110,247.59
07/01/2008 $608.66 $103.72 $0.00
$110,143.87 $110,143.87
08/01/2008 $608.09 $104.29 $0.00
$110,039.58 $110,039.58
09/01/2008 $607.51 $104.87 $0.00
$109,934.71 $109,934.71
10/01/2008 $606.93 $105.45 $0.00
$109,829.26 $109,829.26
11/01/2008 $606.35 $106.03 $0.00
$109,723.23 $109,723.23
12/01/2008 $605.76 $106.62 $0.00
$109,616.61 $109,616.61
If on 4/01 I were to pay the $610.36 + 102.02 (int and principle due)
PLUS make an
additional principle-only payment of 624.07 (sum total of 05/08 up to
and including 10/08 principle
payments), doesn't this effectively knock 6 months off my mortgage and
accelerate this
amortization schedule so that I am pretty much, on 05/08, making the
payment that I would
have made on 11/08?
Am I reading this right, that I can knock six months off my mortgage
right now for $624?
Thanks for any help,
Mike
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Posted by on March 18, 2008, 5:49 pm
> Hello, I have a question regarding early payoff of mortgages, and the
> payments.
[current interest payment $610 and principal payment $102]
> Am I reading this right, that I can knock six months off my mortgage
> right now for $624?
Yes. That's 6 months worth of principal. You could knock
off the entirety of your remaining mortgage payments by
paying off *all* the remaining principal. Same idea.
Note that over time, the principal portion gets larger.
6 months worth of principal right now might be $624,
but the next 6 months worth of principal will be somewhat
higher. Your last 6 months of $712 payments will be
almost entirely principal. If you had only 6 months
left on that mortgage and wanted to speed it up by 6
months, you'd have to come up with the entire remaining
balance - which at that point will be approx $4200,
not $624.
Look at the far end of your amortization schedule.
--
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Posted by Mike on March 18, 2008, 7:21 pm
> Yes. That's 6 months worth of principal. You could knock
> off the entirety of your remaining mortgage payments by
> paying off *all* the remaining principal. Same idea.
>
> Note that over time, the principal portion gets larger.
> 6 months worth of principal right now might be $624,
> but the next 6 months worth of principal will be somewhat
> higher. Your last 6 months of $712 payments will be
> almost entirely principal. If you had only 6 months
> left on that mortgage and wanted to speed it up by 6
> months, you'd have to come up with the entire remaining
> balance - which at that point will be approx $4200,
> not $624.
Okay, I just wanted to make sure I understood the concept right... it
seemed right, but it seemed too easy.
Thanks,
Mike
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Posted by joetaxpayer on March 18, 2008, 8:12 pm
> Okay, I just wanted to make sure I understood the concept right... it
> seemed right, but it seemed too easy.
>
> Thanks,
> Mike
Look at it this way. If you compound the $102 for 30 years at 6.7%/yr or
so, it grows to $712. i.e. if you invest it at exactly the rate of your
mortgage, you'll have it match that last payment.
Joe
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Posted by John A. Weeks III on March 18, 2008, 9:57 pm
In article
> > Yes. That's 6 months worth of principal. You could knock
> > off the entirety of your remaining mortgage payments by
> > paying off *all* the remaining principal. Same idea.
> Okay, I just wanted to make sure I understood the concept right... it
> seemed right, but it seemed too easy.
It isn't as easy as it might seem. That money you avoid paying
is not a savings. In fact, if you can invest your prepayment
amount in something that returns more, like the stock market
over time, prepaying can actually cost you far more than what
you save. You also give up some of the tax deduction.
-john-
--
======================================================================
John A. Weeks III 612-720-2854 john@johnweeks.com
Newave Communications http://www.johnweeks.com
======================================================================
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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
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