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

[LD1]

It is really easy for anyone to pull up an excell ammortization table. Anyone running excell 07 or newer already has the template. And you can play with different overpayment amounts and see the direct results.

Large overpayments early have a HUGE impact.

In the OP's example of 131,200 loan @ 5% for 30 years (360 payments) results in a $704/month payment. By simply paying an extra $704 for JUST the first 12 payments, cuts 22,000 off the total of the loan and knocks 47 payments off down to 313:confused2:

But doing so at say the 20 year mark, only saves ~4k in interest and only knocks off 18 payments by makeing 12 extra payments.

So extra money early really helps:thumbsup:

DisplacedPA:

Based on your last post, I would have to say do whatever you can to pay off the house ASAP. Because it appears you want more land than you can pay cash for. And thus you will be taking equity out until you sell your house and THEN payoff the equity loan.

Based on that and my above #'s of option 1 and 2 you have the following:
In 5 years, lets say your house is worth a nice even 150k

In option 1: you would have 50k banked and 36k equity. Total of 86K
In option 2: you would have 0 banked but 92k equity for a Total of 92K

In this case, I like option 2. ONLY because with the amout of land you want, you will have to finance or take out equity. Option 2 give you more capital and sooner:thumbsup:

Only way I would do option 1 would have been if you were looking for only 40-60k worth of land and would have been able to pay cash outright.

All that said, I really think you should look into a re-fi.

Because with that option 3, IF you re-fi now @ 126k and come up with the ~2k or so to close, and make the same $1544 payment as if you took option 2......
At the end of 5 years you would only owe 48k. Which would put you about 10k ahead of option 2 and it only would have cost the couple thousand to close.:thumbsup: and if you wait even longer than the 5 years, that 10k to the good will continue to increase:thumbsup:

 

[MossRoad]

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?

I meant that you can ususally get a house with land easier than you can get vacant land. And, you can usually get more acres of land with the house for less per acre as well.

 

[MossRoad]

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?

Also, I have mentioned before...

Get an amoritazation table from the lender. Do not rely on an on-line calculators. As you have found out, they do not take into account escrow, etc...

Then you can see just how many payments you can wipe off the mortgage by putting additional money towards the principle each month.

It is extremely important to make those "double" payments at the begining of your loan. Towards the end, it does little good. At the begining, it will save you tens of thousands of dollars!

 

[MossRoad]

It is really easy for anyone to pull up an excell ammortization table. Anyone running excell 07 or newer already has the template. And you can play with different overpayment amounts and see the direct results.

Large overpayments early have a HUGE impact.

In the OP's example of 131,200 loan @ 5% for 30 years (360 payments) results in a $704/month payment. By simply paying an extra $704 for JUST the first 12 payments, cuts 22,000 off the total of the loan and knocks 47 payments off down to 313:confused2:

But doing so at say the 20 year mark, only saves ~4k in interest and only knocks off 18 payments by makeing 12 extra payments.

So extra money early really helps:thumbsup:

I cannot agree with you any stronger! You are SO correct. No one tells young folks this stuff. Anyone that tells them not to make additional payments on the principal just does not understand how mortgage repayment works. :thumbsup: :thumbsup: :thumbsup: It could cost them tens of thousands of dollars in the future.

 

[ultrarunner]

I cannot agree with you any stronger! You are SO correct. No one tells young folks this stuff. Anyone that tells them not to make additional payments on the principal just does not understand how mortgage repayment works. :thumbsup: :thumbsup: :thumbsup: It could cost them tens of thousands of dollars in the future.

I remember the conventional wisdom back in school was to get the lowest payment possible and leverage as much as possible...

I never subscribed to that way of thinking...

Another thing bouncing around business school was the secret to success is OPM... other people's money.

Maybe this explains alot.

 

[zzvyb6]

There is another angle to this situation. Because of the surge in printing money by the Federal Reserve, (money not backed by value) inflation is fast approaching 10% and still climbing. In 10 or 20 years, the value of 'money' will be down by 50 to 90%. (Just like the 10 cent candy bars of 20 years ago now priced at $2.00). Your new Toyota or TATA minicar will cost $250,000.

So, if you have income that could be inflation proof (cost of living allowances, set your own prices for self-made goods, or printing your own money), then you will be paying back the loan over time in worthless dollars. Then you can be using today's money to build up an inflation proof reserve. That's why I feel buying land is a good choice (They stopped making it a long tme ago). Make sure that property taxes are aligned with your goals, too. I'd only buy agricultural land because property taxes here in my part of Michigan are going down or holding steady on ag land. They want you to panic and sell out so they can make some more McMansion subdivisions to make a LOT more property tax money. Residential property taxes are still going up big here in spite of home sale prices at 50% of value from 5 years ago, because the local government spending addictions have not been cured.

You could also consider buying certain "stuff" that will have value in the future. For example, scrappers are turnng a lot of cool metal things into future collectables.

just sayin'...

 

[buckeyefarmer]

Also, I have mentioned before...

Get an amoritazation table from the lender. Do not rely on an on-line calculators. As you have found out, they do not take into account escrow, etc...

Then you can see just how many payments you can wipe off the mortgage by putting additional money towards the principle each month.

It is extremely important to make those "double" payments at the begining of your loan. Towards the end, it does little good. At the begining, it will save you tens of thousands of dollars!

Don't mix apples and oranges. An amortization table from the lender had better agree to the cent to the on-line amortization calculator. escrow does not go into the equation, that's just your property tax money they hold to ensure your tax bill gets paid. If the lender adds this to your monthly payment, you have to subtract to get your principal & interest payment. One online one to play with is at Mortgage Rates Credit Cards Refinance Home CD Rates by Bankrate.com. they also have good mortgage advice.

 

[MossRoad]

Don't mix apples and oranges. An amortization table from the lender had better agree to the cent to the on-line amortization calculator. escrow does not go into the equation, that's just your property tax money they hold to ensure your tax bill gets paid. If the lender adds this to your monthly payment, you have to subtract to get your principal & interest payment. One online one to play with is at Mortgage Rates Credit Cards Refinance Home CD Rates by Bankrate.com. they also have good mortgage advice.

I don't see how that's mixing apples and oranges.

 

[newbury]

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. <snip>
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..

You should build up your available cash on hand AS SOON AS POSSIBLE.

Money SHOUTS, potential loans without cash don't talk as loud.

My basis is past experience. I originally believed in "don't borrow" "pay it off". Then I saw some of the "deals" I was missing because some sellers needed the $$ and interest rates are low. Even though I usually ended up borrowing the money at these hysterically low interest rates, when we've walked into a deal, and showed the buyer that we could pay cash or have enough cash to ENSURE financing they've been agreeable to "work with" us, instead of continuing to try and sell it.

In this economy there are some great deals out there. If your frugal and you've got the cash you can buy that implement that's been discounted 70% because the seller needs the $$. Or if you need to have 20% down to get a good interest rate.

Right now Navy Federal (for example) is offering a 30yr loan for 3.75%, for my house and that means I'm out of pocket about $625 (principal and interest) on a 170K house w/ 20% down. Interest rates can't go down more than 3.75%, but they can soar.
Most readers are too young to remember the rates in '84. They were up to 13% February 1984 Mortgage Rates, been there done that.

They can go back there again.
/edit - as long a you live frugal and don't borrow more than you can pay monthly

 

[LD1]

You should build up your available cash on hand AS SOON AS POSSIBLE.

Money SHOUTS, potential loans without cash don't talk as loud.

That would be fine IF he were going to be taking out a new loan for this new peice of property.

BUT...he isnt. Currently he is going to use a home-equity line to buy land, and then sell the house and pay off the home equity loan.

In a case like this, I'd rather have an extra 56k in equity than 50k in the bank.

And another thought....IF he doesnt get land when he is planning, and IF he doesnt re-fi....here are the options.

1. Put $840 on the principal like he wants. Only has 99 more payments and then he owes NOTHING on the house.
2. IF he puts that $840 in the bank, in 99 months he will STILL owe 103k on the house, BUT...will only have 83k in the bank.

I think paying off the loan ASAP is the smartest thing he can do