Can splitting mortgage payment help you shave 10 years from 30 year loan?

[Coronita]

I think this is a good suggestion but if I had a choice of putting extra money toward my mortgage payment at 6% or throwing it into an index mutual fund I would probably choose to throw it in the index fund. Historically the mutual fund will get you 10% and at a fixed rate of 6% I feel I benefit from the laws of compunding. ANything that I am missing in this logic.

 

Raybyrnes,

 

I guess it depends on how much churn your mutual/index fund does in terms of cap gains/dividends distribution. Although ideally it's 10%, reality is there probably will be some distribution at which you'll have to pay taxes. Hence, it's not really 10% gain versus 6%. I'm not sure exactly where my own cutoff is, but I think since my mortgage is 5.5% range, there's slightly more room for me to play this game. Still, I was counting on interest rates on tradition savings/cd's to go up as part of this, so that I would hold some amount in equities and some in short term CD's. But obviously with the fed rate cuts, kinda throws a wrinkle. So to be safe, I've started to pay more of my principle off each month. 

[Raybyrnes]

I am just using an example with 6% but I felt the the cap gains wash out with the deduction for interest. I just wanted to keep the example simple. I am certain we can complicate this with risk analyis, risk arbitrage and a lot of other variables.

Yes I understand that paying down the mortgage is risk free vs investing in the market carries risk premium. But if we are talking baout 10 years plus the risk seems to go down pretty dramatically.

[Raybyrnes]

I am just using an example with 6% but I felt the the cap gains wash out with the deduction for interest. I just wanted to keep the example simple. I am certain we can complicate this with risk analyis, risk arbitrage and a lot of other variables.

Yes I understand that paying down the mortgage is risk free vs investing in the market carries risk premium. But if we are talking baout 10 years plus the risk seems to go down pretty dramatically.

[Raybyrnes]

I am just using an example with 6% but I felt the the cap gains wash out with the deduction for interest. I just wanted to keep the example simple. I am certain we can complicate this with risk analyis, risk arbitrage and a lot of other variables.

Yes I understand that paying down the mortgage is risk free vs investing in the market carries risk premium. But if we are talking baout 10 years plus the risk seems to go down pretty dramatically.

[Raybyrnes]

I am just using an example with 6% but I felt the the cap gains wash out with the deduction for interest. I just wanted to keep the example simple. I am certain we can complicate this with risk analyis, risk arbitrage and a lot of other variables.

Yes I understand that paying down the mortgage is risk free vs investing in the market carries risk premium. But if we are talking baout 10 years plus the risk seems to go down pretty dramatically.

[NYCLurker]

It all depends on your loan!!!

I started my career as an actuarial student, and somewhere I still have my really scary textbook on actuarial mathematics — annuity pricing/amortization. A level payment fixed period annuity (e.g. mortgage) can be priced with any number of variables and the monthly payment (loan amount) will of course vary based on something as simple as whether the payment is made at the beginning, end, or middle of the month.
But your bank is usually not sitting around repricing your conventional mortgage (and on what date the interest due accrues) just because you sent them 2 checks instead of one WITHIN a given period.
Other types of loans, especially something like a line of credit with a recalculated daily balance, WOULD however benefit from multiple payments within a month.
But, now with electronic banking there is a bit more flexibility for regular mortgages. Chase for example allows you to make an online payment and specify either:
– pay your regular mortgage payment
– prepay a future regular mortgage payment
– pay additional principal within this period

[NYCLurker]

It all depends on your loan!!!

I started my career as an actuarial student, and somewhere I still have my really scary textbook on actuarial mathematics — annuity pricing/amortization. A level payment fixed period annuity (e.g. mortgage) can be priced with any number of variables and the monthly payment (loan amount) will of course vary based on something as simple as whether the payment is made at the beginning, end, or middle of the month.
But your bank is usually not sitting around repricing your conventional mortgage (and on what date the interest due accrues) just because you sent them 2 checks instead of one WITHIN a given period.
Other types of loans, especially something like a line of credit with a recalculated daily balance, WOULD however benefit from multiple payments within a month.
But, now with electronic banking there is a bit more flexibility for regular mortgages. Chase for example allows you to make an online payment and specify either:
– pay your regular mortgage payment
– prepay a future regular mortgage payment
– pay additional principal within this period

[NYCLurker]

It all depends on your loan!!!

I started my career as an actuarial student, and somewhere I still have my really scary textbook on actuarial mathematics — annuity pricing/amortization. A level payment fixed period annuity (e.g. mortgage) can be priced with any number of variables and the monthly payment (loan amount) will of course vary based on something as simple as whether the payment is made at the beginning, end, or middle of the month.
But your bank is usually not sitting around repricing your conventional mortgage (and on what date the interest due accrues) just because you sent them 2 checks instead of one WITHIN a given period.
Other types of loans, especially something like a line of credit with a recalculated daily balance, WOULD however benefit from multiple payments within a month.
But, now with electronic banking there is a bit more flexibility for regular mortgages. Chase for example allows you to make an online payment and specify either:
– pay your regular mortgage payment
– prepay a future regular mortgage payment
– pay additional principal within this period

[NYCLurker]

It all depends on your loan!!!

I started my career as an actuarial student, and somewhere I still have my really scary textbook on actuarial mathematics — annuity pricing/amortization. A level payment fixed period annuity (e.g. mortgage) can be priced with any number of variables and the monthly payment (loan amount) will of course vary based on something as simple as whether the payment is made at the beginning, end, or middle of the month.
But your bank is usually not sitting around repricing your conventional mortgage (and on what date the interest due accrues) just because you sent them 2 checks instead of one WITHIN a given period.
Other types of loans, especially something like a line of credit with a recalculated daily balance, WOULD however benefit from multiple payments within a month.
But, now with electronic banking there is a bit more flexibility for regular mortgages. Chase for example allows you to make an online payment and specify either:
– pay your regular mortgage payment
– prepay a future regular mortgage payment
– pay additional principal within this period

[Raybyrnes]

NYCLurker

That’s exactly the same as my options for my student loans. The only thing I have to do is indicate where I want the payments to go. My default is to pay down balance. But if I were a teacher who gets paid over 9 months and I didn’t want to make payments over teh summer I could pay in advance. Technology is awesome.

[Raybyrnes]

NYCLurker

That’s exactly the same as my options for my student loans. The only thing I have to do is indicate where I want the payments to go. My default is to pay down balance. But if I were a teacher who gets paid over 9 months and I didn’t want to make payments over teh summer I could pay in advance. Technology is awesome.

[Raybyrnes]

NYCLurker

That’s exactly the same as my options for my student loans. The only thing I have to do is indicate where I want the payments to go. My default is to pay down balance. But if I were a teacher who gets paid over 9 months and I didn’t want to make payments over teh summer I could pay in advance. Technology is awesome.

[Raybyrnes]

NYCLurker

That’s exactly the same as my options for my student loans. The only thing I have to do is indicate where I want the payments to go. My default is to pay down balance. But if I were a teacher who gets paid over 9 months and I didn’t want to make payments over teh summer I could pay in advance. Technology is awesome.

[as]

I am sending my mortgage payment twice a month and my mortgage company told me I can finish my payment 5 years earlier. I called them and requested to pay another $600 more every month. They sent me an amortization schedule. The schedule said I can save 110k on interest.
So paying twice a month is probably a better deal.

[as]

I am sending my mortgage payment twice a month and my mortgage company told me I can finish my payment 5 years earlier. I called them and requested to pay another $600 more every month. They sent me an amortization schedule. The schedule said I can save 110k on interest.
So paying twice a month is probably a better deal.

[Author]

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