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

[LD1]

I missed this post before!!!
I bought the house and put 30k down as a down payment. The loan started in may of 2010.

rate is 5%

it seems as though I should maybe diversify and save some and pay a little more on the house. thoughts?

Still isnt adding up to me?? I cannot guve an honest answer as to what you should do (or what I would do if I were in your shoes) without being able to play with the #'s on a amortization table for a few minutes.

So with what you are saying....bought the house for 164k and put 30k down. Thats 134k. And 134k @ 5% over a 30 year loan is only a $719/month payment. And if started in may 2010, you would still owe 131k, not 26k like you said?

I really want to help you out, but without knowing the terms of the current loan, it makes it pretty hard.

But earlier in another post, you mentioned that in 5 years with NO extra payments, you would still owe 115k (only knocking 9k off in the 5 years for 50k paid), but if you started the loan 5/2010 @ 134k, and are currently @ 126k, that was 8k off in less than two years:confused2:

More details would help tremendiously, but just off the top of my head, 5% is pretty high by todays standards. Another option...have you considered a re-fi?? I just heard that third federal was advertizing 2.74% fixed rate on 10 year loan:thumbsup: That would make a payment of ~$1200 on 26k and be done in 10 years

 

[displacedPA]

I should say that I also have esscrow which I can canncel because I put more than 20% down on the house. That is what not adding up for you. My base payment is 704.00 with esscrow its 839.00/ I have the ballence at
126k because i have been paying extra as I can.

I still belive that I can keep paying it down more it will make it better for me in the end. I can take a home equity loan if I find a great peice of property. then sell my house and pay the remainder of the land with my house payment. Or I can wait to i pay it off then sell and use that money dirrectly for a land payment?

 

[MarkV]

Sounds to me that you are liquid enough and have good credit so I would look at refinancing. Today a 5% loan rate is high and the money saved on interest you can apply to your principal each month. You could also look at a 15 year loan I and would bet your payments would not be much bigger than they are now while saving a great deal of interest.

MarkV

 

[dmccarty]

Managing money is a balancing act based on decisions that have to be made with imperfect data...

- Build a nest egg.
- Start saving for retirement and the earlier the better.
- Take on as little debt as possible and pay off as soon as possible.

That sounds good but then life hits you in the face.

At this point, 12 years into our Big Land Owning life phase, we have managed to build a house, sell the old house, and make payments. :laughing::thumbsup:

The plan was to have the land loan paid off AND have a much larger nest egg but family health issues have made that impossible. However, we have gotten the land loan amount down quite a bit. It might be possible to pay off the land loan late in the year or maybe next year but it depends on what Life brings us next.

Our land loan is a business loan. I pay more each month than required. Each month the bank sends me a bill but the bill now saws I do not need to make a payment until late summer or early fall. :thumbsup: Paying down the loan is saving me interest on the loan which is substantial. While I might not have the cash in the bank, we have built up equity, and for this loan, the bank tells me I do not need to make a payment for many months. In effect, I have prepaid the payments and it is as if I have the money in the nest egg.

We had to tap our equity loan last year for health reasons. There is very little left on the loan and we have enough money to pay off the loan but every month I look at the interest paid, which is minimal, and figure it would be better to keep the cash. The hospital automagically sets up a zero percent loan if you exceed your insurance maximums which we did last year. We have the cash to pay off the hospital loan but it is zero percent and they will not take less if we pay the loan off early so we let it ride to keep cash in the bank.

In one case I would rather pay a few dollars a month on a loan to keep cash in the bank. The interest cost is buying us flexibility. In the other case, the hospital is loaning me money for free so I will take it because it is more flexibility for nothing. It is a balancing act.

If you are paying for retirement and since you have a nest egg, I would be looking to save money to buy land. Now is the time to buy. Is it a risk? Yes it is. But life is risk. Manage the risk and the money. If you wait 10 years to buy, you will be 10 years older. What will the land cost in 10 years? Is it worth loosing those 10 years of having fun with the land? In 10 years, Life might prevent you from ever owning the land. Would it be better to own the land for a few years and then have to sell compared to never having the land and the dream?

Our first plan after buying our place was to build a smaller house on one parcel. Then we would pay off that house, save up money, and build the dream house on another section of land. However once we ran the numbers, it would take us a 10-15 years, at best, to pay off the small home and then start saving for the dream house. We would loose the time in the smaller house compared to a dream house. Since our dream house would not be that much more expensive, we sold off the lot for the smaller house, to provide more cash to build the dream house. It is more money than we wanted to spend but it is still less than what many pay for a mortgage. It is a balance.

Paying down the principal of a loan is supposed to be the same as earning the rate of the loan. So if the loan is 8%, paying it down/off early is the same as earning 8% on your money.

Later,
Dan

 

[LD1]

I should say that I also have esscrow which I can canncel because I put more than 20% down on the house. That is what not adding up for you. My base payment is 704.00 with esscrow its 839.00/ I have the ballence at
126k because i have been paying extra as I can.

I still belive that I can keep paying it down more it will make it better for me in the end. I can take a home equity loan if I find a great peice of property. then sell my house and pay the remainder of the land with my house payment. Or I can wait to i pay it off then sell and use that money dirrectly for a land payment?

Now we are getting somewhere.

Here is what I have figured (warning...this will be a long post with lots of options. To some of you, this may seem boring). But I Have figured a $131,200 loan beginning on 5-1-2010 @5% to get a BASE payment of $704:thumbsup: That put you owing 127.5k currently. But you said you overpaid some already, So I adjusted to get 126k currently. And based on that, IF no more overpayments are made, your payoff would be 9-1-2039

So knowing that, lets explore some options.

Option 1: Put $840 in a savings accout for the next 5 years. At the end of the 60 months, you will have $50,400 banked. BUT would still owe ~114k on the mortgage.

Option 2: Put the $840 on the house. At the end of 60 months you would have saved NONE, BUT..... would only owe 58k on the house. SO...you would have knocked an additional 56k off of the loan but have ZERO in the bank. THUS, only saving $6000 in the 5 years.

So based on that, IF you want to buy a peice of land in 5 years, I'd vote to SAVE the money. Because IF you can pay cash for the new land and NOT have to pay higher closing costs (plus cash sometimes helps get a better deal), that might just save your $6000 back:thumbsup: But a lot all depends on how long before you are ready to buy, and how much land. If you are talking about buying $200k worth of land, and still would have to finance, saving the $50k isnt going to gain you a whole lot. But if just buying ~$50k worth of land, if you can save enough to pay cash, IMO that is the better of the two options.

Now lets walk through another option. IF you continue to pay $840 extra (840+704=1544 TOTAL) and you dont buy land, payoff would be in 7-1-2020, about another 8-1/2 years. 98 more payments of $1544 to be exact

Look into re-financing. I have been hearing a bank advertize 2.74% fixed for 10 years. You currently owe 126K. IF you can get that rate, and can come up with a few thousand to close, your payment would NOW be $1201/month. BUT...to compare apples to apples, pay an extra $343/month to get back up to the $1544 in the above example. And the payoff would be in 91 months and NOT 98. So you would save 7 payments @ 1544 (~11k) at the cost of whatever closing on the re-fi would be:thumbsup:


You have a lot of options avaliable to you.:thumbsup: But IMO, the determining factor in what option you take is going to be WHEN you want to jump on land. IF you can wait 91 months, I would re-fi (if you can get those rates) and PAY off the hose ASAP. Then buy the land and pay that off when the house sells.

IF you want land any earlier than that, Based on the #'s, I'd say to bank the $840 for the new land purchase. BUT only if we are talking $40-50k in land. If you plan on spending 200k on land, Pay the house off ASAP. And it looks like the quickest means to that end is a re-fi.

 

[displacedPA]

Now we are getting somewhere.


You have a lot of options avaliable to you.:thumbsup: But IMO, the determining factor in what option you take is going to be WHEN you want to jump on land. IF you can wait 91 months, I would re-fi (if you can get those rates) and PAY off the hose ASAP. Then buy the land and pay that off when the house sells.

IF you want land any earlier than that, Based on the #'s, I'd say to bank the $840 for the new land purchase. BUT only if we are talking $40-50k in land. If you plan on spending 200k on land, Pay the house off ASAP. And it looks like the quickest means to that end is a re-fi.

I apperciate you working the numbers over again.. I have not looked into refi.

I would only like to buy land that has the value of my current house. In the area im looking at land the price per acre is 5k. some is at 4.5k so at that i could afford 32acres. of course there are always other deals that may come up and I would like to find one of those.. maybe 60 acres for the price of 32 at 5k. :drool:

I feel as though i could go with either option you spoke of.

heres a senerio; If we find a great peice of property everything we want. I have 38k in equity now. If I save up 40 or 50k more and combine that with a home equity loan I could have 88k for a down payment on land that is valued at 164k. at which time I would try and sell our current home. Once we could sell our house i would pay off the land. of course this would require us to live in a trailer or something for a time being. The only part that scares me about this is im really sticking my neck out... hmm in the back of my mind i feel i should keep paying down the house for five years but honestly I would love to find a peice of land withing two years...

 

[MossRoad]

I apperciate you working the numbers over again.. I have not looked into refi.

I would only like to buy land that has the value of my current house. In the area im looking at land the price per acre is 5k. some is at 4.5k so at that i could afford 32acres. of course there are always other deals that may come up and I would like to find one of those.. maybe 60 acres for the price of 32 at 5k. :drool:

I feel as though i could go with either option you spoke of.

heres a senerio; If we find a great peice of property everything we want. I have 38k in equity now. If I save up 40 or 50k more and combine that with a home equity loan I could have 88k for a down payment on land that is valued at 164k. at which time I would try and sell our current home. Once we could sell our house i would pay off the land. of course this would require us to live in a trailer or something for a time being. The only part that scares me about this is im really sticking my neck out... hmm in the back of my mind i feel i should keep paying down the house for five years but honestly I would love to find a peice of land withing two years...

Don't forget the value of an old farmhouse that sits on land already VS building new on vacant land.

 

[zzvyb6]

There is a technicality to this 'double up' scheme. The optimum way to pull this off is to pay the mortgage amount per month and include an additional sum that represents the amount of principle included in next month's payment. This works really good (but slowly at first) because the amount of principle being paid off in the early years is pretty small.

You will continually have to get amortization statements from thebank to let you know what the next month's principle amount is, but there are on-line calculators that will do this, too.

So no, not good to double the payment, but good to pay the monthly amount and include the principle amount applied to next month's payment.

 

[displacedPA]

Don't forget the value of an old farmhouse that sits on land already VS building new on vacant land.

I would like to find a peice that has a old house on it but im not counting on it. whe you said value did you mean $ value or value as in a place to stay in the interum?

 

[MarkV]

There is a technicality to this 'double up' scheme.

So no, not good to double the payment, but good to pay the monthly amount and include the principle amount applied to next month's payment.

Not sure I understand what you mean ZZ. On my mortgage if I make a double payment per month the first one is my normal principal and interest but the second one goes to principal only. Next month I am paying on that much less principal so the payoff date comes sooner. The sooner the payoff the less interest paid.

MarkV