double house payments or save the money for a land payment?

[MWRR]

The OP didn't post his age and that would have a bearing on what I would do. When we first bought our land (the family farm) we were in debt up to our eyes and interest was 18%; we were in our early 20's and eager to work to get ahead. I may not ever have had the opportunity to buy the family farm again so I rolled the dice and went for it, sticking my neck out further than I would like to admit. It worked out great as land has went crazy here. I wouldn't take the chances today that I took when I was younger. I have far too much to lose now.

I agree that it could take a few years to find your ideal property. There is no benefit in putting the money in the bank; interest is close to nothing. The exception would be if there was a HIGHLY motivated seller wanting to sell quickly. It would be nice to have cash that could be accessed quickly. The value of your home has probably reached the bottom and will increase in value in the next few years. You could pay extra on your house and build equity which you could use for collateral should that ideal place come up for sale. If you have a good relationship with your bank you won't have any problem buying that piece of property if it should come up for sale. In the mean time you could save some 4-5% interest on your home.

 

[ultrarunner]

I can see it both ways and there is a lot of piece of mind knowing the roof over your families head is paid for.

A little over 7 years ago I bought a home and the seller carried back the loan 30 due in 7... so I was looking at a balloon or refi.

For 7 years... I was saving like crazy and also sold a rental before everything crashed...

As the date for the balloon came due... I thanked the sellers for extending me the credit... I put down 25%... and told them I would be paying them in full on the due date...

They are in their 80's and live in a retirement home and seemed a little disappointed... they said for 7 years my $2000 payment was hand delivered on the first and they liked it that way and many of their retirement community friends are having a hard time with the low bank rates...

The make a long story short... they offered to lower the rate to 4% and amortized the loan for another 8 years and I agreed...

I had fully planned to pay it off... but with the uncertain job situation these days... 25% of the company was let go last week... some with as much as 13 years on the job... I'm just as happy to keep my money and have the lower rate...

 

[rsewill]

Your situation indicates you could make bi-weekly (BW) payments which can save years of payments on a 30 year note. BW means a payment every two weeks or 26 payments per year. You need to make sure your lender will credit the payment immediately rather than 'holding' it until the end of the month and then applying it to your loan because then you save nothing. BW is different than bi-monthly which means a payment on the 15th and the end of the month (24 payments a year.) Bi-monthly saves you little and isn't worth the aggravation.

 

[smstonypoint]

Your situation indicates you could make bi-weekly (BW) payments which can save years of payments on a 30 year note. BW means a payment every two weeks or 26 payments per year. You need to make sure your lender will credit the payment immediately rather than 'holding' it until the end of the month and then applying it to your loan because then you save nothing. BW is different than bi-monthly which means a payment on the 15th and the end of the month (24 payments a year.) Bi-monthly saves you little and isn't worth the aggravation.

A numerical example of this point is provided here:Biweekly Mortgage Payments: Simple Interest Biweeklies vs Standard Biweeklies.

I interpreted the OP's situation differently. I thought he was set up on a monthly payment plan without prepayment penalty and was making additional principal only prepayments. That is a completely different situation.

Steve

 

[MossRoad]

Well as we all know the economy is not so great. I bought our home in 2010 it is a three acre lot with aprox. a 1300sq foot house. the house is in good shape and I have done lots of upgrades. kitchen, bathrooms added a Vermont castings wood stove. removal of popcorn ceilings ect. My wife and I would love to live house payment free someday. Our dream is to buy a piece of land aprox 28-35 acre live on the property in a old home on the property in fifth wheel or trailer until we can build our forever house.

I have been on a plan to pay the house down since day one. If I continue on the track I'm on currently We could pay off the house by 2019. I have had several ppl tell me don't make double payments its a waste of your money. I however see it as a means to an end. However I'm not even sure I could sell it for what I bought it for.
The price was not astronomical when I bought but currently valued thirty thousand less than I paid for it.
We also do not have any other payment or consumer debt. the only other payment I have is the tractor which I could pay off tom. but I took advantage of the 0% for 60.

I would like to be on a 3 or four year plan for buying a piece of property and being able to move there.

My question is should I keep making double house payments or should I take that monthly payment and some down money and go try and buy my piece of property? I will then be in double debt with a home and a land payment but I would try and sell the house asap after I bought the land..

Do you have an amortisation table for your mortgage? You should have gotten one. If not, request one from the lender. It will list each payment, how much goes to interest and how much goes to principle, escrow for taxes, etc...

Look at your first payment. Only a few dollars will go towards knocking down the principle owed and a HUGE chunk will go towards the interest. The lender gets paid first before your principle goes down. Then, with each monthly payment, look at the table. Your tiny principle payment goes up a little each month and the interest portion goes down until, finally at the end of your mortgage, your interest is payed off and you are done.

For example, we borrowed $18,000.00 for our first home. The mortgage payment was about $250.00 per month for 30 years. The first mortgage payment knocked about $2.00 off the principle (that's TWO dollars), and the rest went to interest. So we made the first payment of $250.00 and then we also put an additional $250.00 towards the principle (you have to specifiy that you want the additional money to go towards the principle!).

I'm going to type this in bold caps now because I am yelling to get my next point across.... so don't be offended....

THAT FIRST DOUBLE PAYMENT KNOCKED OFF 26 PAYMENTS FROM THE30 YEAR MORTGAGE!!!

That's over two years of payments off the end of the loan.
The next month we made another double payment and knocked off about 22 more payments.
We did it again and again....
By making double payments we paid off a 30 year mortgage in 5 years.
So, if you add everything up, we paid $500.00 per month X 12 months = $6000.00 X 5 years = $30,000.00 on an $18,000.00 loan.

That may sound bad. But look at it this way....

Had we paid it in 30 years, we would have paid $250.00 per month X 12 months = $3000.00 X 30 years = $90,000.00 on an $18,000.00 loan.


Now does it really make any sense to not pay them off sooner? :confused2:

 

[smstonypoint]

For example, we borrowed $18,000.00 for our first home. The mortgage payment was about $250.00 per month for 30 years.


Now does it really make any sense to not pay them off sooner? :confused2:

Based on my calculations, you must have taken out your mortgage back in the late 1970s/early 1980s when mortgage rates were sky high. If your numbers are correct, you were paying 16% or so in interest.

The savings aren't so dramatic in a low interest rate environment.

Steve

 

[sfloggie]

Moss,
Well written. We are doing so now.

We purchased our home in April 2008 with a 30 year, but will have our home paid off in 2015. Then I retire to the farm (literally).

This, as you said, is by paying an additional house payment toward the Principle each and every month.

Well done.
Jim

 

[MossRoad]

Based on my calculations, you must have taken out your mortgage back in the late 1970s/early 1980s when mortgage rates were sky high. If your numbers are correct, you were paying 16% or so in interest.

The savings aren't so dramatic in a low interest rate environment.

Steve

You are corrrect!
That was 1985 and we paid 3 points to get the interest rate down to 12.5%. There was also money removed from the payment for property tax escrow account in there.

The point is, regardless of how much you owe, you still owe. And the longer you take to pay it back, the more you will pay in interest.

Lets say the OP puts $600.00 in the bank every month instead of paying down the principle on his mortgage. So he gets $600.00 X 12 months = $7,200.00 in a year. In the bank you are lucky to get 1%. Cost of living increases about 3% each year (remember that food and gasoline are not figured in government cost of living increase reports). At the end of the year his money in the bank has lost 2% of its buying power.

Had he had put that down monthly on the principle on his mortgage, even at today's rate, how much will he save off the end of his mortgage? Without seeing his amortization table, I have no way of knowing. However, my guess is, it would be in the 10s of thousands of dollars VS losing 2% in value that year. :thumbsup:

 

[MossRoad]

Moss,
Well written. We are doing so now.

We purchased our home in April 2008 with a 30 year, but will have our home paid off in 2015. Then I retire to the farm (literally).

This, as you said, is by paying an additional house payment toward the Principle each and every month.

Well done.
Jim

Thanks. Same to you! :thumbsup:

We paid off our first home in 5 years. Got a blanket mortgage on that first home and 20 acres of rural land so we needed zero money down. Paid off the 20 acres in about 5 years. Got another blanket mortgage on that first house and our second house with no money down. Sold the first house and dumped that money on the 2nd house and were on track to pay that off in 5 years, but my father passed away and left us enough to pay it off in 3 instead of 5. But we would have made it on schedule in 5. With the money that we did not spend on paying all that mortgage interest, we sent our kids to good Catholic schools, saved a good chunk for their college funds, saved for our retirement, took some very good vacations, bought some decent used cars, a tractor, etc.... all on average wages for our area. We've been in the black since the day we said "I do" and have doubled our net worth approximately every 7 years for the past 32, with a slight "adjustment" in 2008! :laughing: But we are back on track. :thumbsup:

Technically, we still have a mortgage. It is a home equity line of credit. It gets us a mortgage exemption with the local property taxes that saves us hundreds of dollars each year. Last year we paid less than $40.00 in interest on it. That is THE only reason we carry that mortgage. So while we are not technically debt free, I consider us debt free for about the last 15 years or more. :licking:

 

[displacedPA]

You are corrrect!
That was 1985 and we paid 3 points to get the interest rate down to 12.5%. There was also money removed from the payment for property tax escrow account in there.

The point is, regardless of how much you owe, you still owe. And the longer you take to pay it back, the more you will pay in interest.

Lets say the OP puts $600.00 in the bank every month instead of paying down the principle on his mortgage. So he gets $600.00 X 12 months = $7,200.00 in a year. In the bank you are lucky to get 1%. Cost of living increases about 3% each year (remember that food and gasoline are not figured in government cost of living increase reports). At the end of the year his money in the bank has lost 2% of its buying power.

Had he had put that down monthly on the principle on his mortgage, even at today's rate, how much will he save off the end of his mortgage? Without seeing his amortization table, I have no way of knowing. However, my guess is, it would be in the 10s of thousands of dollars VS losing 2% in value that year. :thumbsup:

I ran all the numbers last night and it makes more sense to pay the house off.
If i add and additional principle payment each month of 839.00 I will not have quite paid it off in 5 year more like 7. However at the end of five years I will owe 60K or so. and have saved 84K in intrest

To pay off the house in five years completley we would have to make out normal 839 per month payment and add an additional 1600 towards principle. this could be done and would make me sleep better at night know the house was ours. This would strap us considerably though... if could be done thought.... We would also save 95K in intrest
What would you guys think is better? between the two above options? or do you have another option?

After the end of that five years I could really start saving. if I found a peice of property by lets say year four I think I could take a home equity loan as a down payment get the land then sell our house and use that money to pay for the land cash... that is my goal at least. Then we have no payments we may have to live in a fith wheel or something on the property for a year but man could i save some money in a years time with no house payments!!!