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

buckeyefarmer · Mar 3, 2012

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

orange = payment that includes principal, interest & escrow.
Apple = payment is principal and interest.
You said in post 63 to get an amortization table from the lender since the online one's don't include escrow. An amortization table shouldn't show escrow. An amortization table is principal, interest, and balance. This will agree with an online amortization calculation, or one done in excel. If your lender also requires escrow, that get's added to your monthly payment, but the escrow part is not included in calculating your interest due, therefor the lenders amortization table had better agree with any other amortization table if done properly.

If you can pay extra principal early in the loan, it really helps. At the end of the loan, paying extra principal just helps pay the loan off earlier, but does not effect interest much, since interest is very low at this point.

tractchores · Mar 4, 2012

zzvyb6 said:
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.

I personally belong to this school of thought and the macro economic situation points to this... however there have been mitigating factors over the last ~10 years or so that have kept US inflation low (basically the monetary policy of countries like China). Eventually those policies will be impossible to maintain and we'll see a jump in inflation. So if you save the money be sure to keep that in mind. Real-estate is a good 'inflation proof' investment, though it's not that liquid. Cash generating real-estate (i.e. rent your house) with fixed interest debt is one of the best things you can have in a high inflation scenario and personally that's where the majority of my money is. Given the situation at hand you can calculate the various scenarios and know EXACTLY what each one will cost you and then make an intelligent decision. The liquid value of cash can be important if you're going to buy a new property or can't get liquidity in your current house. One way to mitigate that is to refi your current house and make a portion of the loan a home equity line that you can draw against should you need it. This way you can pay your house down (pay that line down) and should you need liquid cash for the new property you can use that line to get liquidity from your current property before selling it. I personally do this and it works out really well as you can get decent fixed rate credit lines up to a surprising amount. Personally in my case I make double payments against that line knowing that its a guaranteed return and that within 20 years I can get that money back out just by writing a check.

displacedPA · Mar 4, 2012

tractchores said:
Given the situation at hand you can calculate the various scenarios and know EXACTLY what each one will cost you and then make an intelligent decision. The liquid value of cash can be important if you're going to buy a new property or can't get liquidity in your current house. One way to mitigate that is to refi your current house and make a portion of the loan a home equity line that you can draw against should you need it. This way you can pay your house down (pay that line down) and should you need liquid cash for the new property you can use that line to get liquidity from your current property before selling it. I personally do this and it works out really well as you can get decent fixed rate credit lines up to a surprising amount. Personally in my case I make double payments against that line knowing that its a guaranteed return and that within 20 years I can get that money back out just by writing a check.

I understand this line of thought. Im curious if I refi and take out a line of credit until our house sells would I have to use that line of credit? In other words could I apply for it and not uses the extra line of credit if our house sells? use it just as a back up as liquid cash for a property purchase?

LD1 · Mar 4, 2012

displacedPA said:
I understand this line of thought. Im curious if I refi and take out a line of credit until our house sells would I have to use that line of credit? In other words could I apply for it and not uses the extra line of credit if our house sells? use it just as a back up as liquid cash for a property purchase?

I am not sure what you are asking. If you have a line of credit, and sell the house, I believe you HAVE to repay the loan. Because after all, the loan is based on the house as collateral, and if you sell the house......

kinda like ya cant sell a car if you have a lean on it without paying it off

tractchores · Mar 4, 2012

displacedPA said:
I understand this line of thought. Im curious if I refi and take out a line of credit until our house sells would I have to use that line of credit? In other words could I apply for it and not uses the extra line of credit if our house sells? use it just as a back up as liquid cash for a property purchase?

Typically you can have a line of credit with a zero balance and that's fine. Any balance would have to be paid back upon sale of the house. In my case once I pay mine down to zero I'll keep it there and my terms allow me to have the line of credit for up to 20 years at the agreed upon rate. The line of credit of course can only take you up to whatever LTV the bank allows (in my case I have a lot of equity and the property is very expensive so I can have a large line of credit without getting into trouble with the LTV).

LTV = loan to value ratio

MossRoad · Mar 4, 2012

buckeyefarmer said:
orange = payment that includes principal, interest & escrow.
Apple = payment is principal and interest.
You said in post 63 to get an amortization table from the lender since the online one's don't include escrow. An amortization table shouldn't show escrow. An amortization table is principal, interest, and balance. This will agree with an online amortization calculation, or one done in excel. If your lender also requires escrow, that get's added to your monthly payment, but the escrow part is not included in calculating your interest due, therefor the lenders amortization table had better agree with any other amortization table if done properly.

If you can pay extra principal early in the loan, it really helps. At the end of the loan, paying extra principal just helps pay the loan off earlier, but does not effect interest much, since interest is very low at this point.

I didn't say on line calculators don't include escrow. I said " As you have found out, they do not take into account escrow, etc..."

If you use an on line calculator to figure out that you will be making $500.00 a month loan payments and then you go to the lender and find out you are going to have to write a check for $750.00 each month it is a rude awakening.

displacedPA · Jul 8, 2012

rsewill said:
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.

So it has been few months here and we are still on track with things. However I think I need help on figuring out this bi-weekly payments are really going to help me. I ran some numbers in a 7 year time line. it looks like bi-weekely can save us 5200 aprox. over seven years at 5%. So my plan is to go talk to my local farm credit this week and inquire about a refii and getting a loan with bi-weekly payments. My current lender does not offer bi-weekly payments.. What we would save in interst if we get a rate like 3.75 would be placed back towards the house. This would then allow us to pay off the house in five years not seven.
Not sure if any of that makes sense it made sense in my head and on paper... any other advice?

Alan L. · Jul 8, 2012

Paying on the current house note is NOT a waste of money. However considering the economy AND if you know you will be purchasing another property it might make sense to purchase the other property before the price goes up and pay on both. Consider holding on to the current house until the market improves, then sell it. Some of the decision will be based on interest rates. If you have a relatively high rate, like 6% or more and don't want to refinance (since you might get out of it soon and you wouldn't have time to recover the closing costs) then it makes sense paying on the current house. The lower the rate, the more sense it makes to put your money elsewhere. However savings earns under 1% so it makes no sense to divert the payment from the house note to savings except to make the cash available for an opportunity.

Keep in mind that interest accrues only on the remaining balance. So if you owe $100,000 the interest for one month at 6% is $500. So if you pay $800 its allocated $500 to interest and $300 to principal. But if you pay $1,600 there is still only $500 applied to interest and $1100 applied to principal. Whatever payment you make is first allocated to interest and then to principal.

displacedPA · Feb 5, 2013

well our refi finally went throught today and we closed. 15year fixed at 3%. This is going to greatly help us pay off the house quicker. We will be set up for Bi-weekly payments as well. Thanks to those of you that recomended that. The will cut additional time off of our loan.