Home Buying in 78240>Question Details

Larry, Home Buyer in 78240

if I added an extra $3000.00 to the back end of the each year , how will that reduce the length of a mortgage for 120,000.00 with 30% down at 5.6

Asked by Larry, 78240 Thu Nov 18, 2010

I plan on going back to work. I am retired and I make $2,284.00 a month doing nothing. I want to put down 30% on a $120,000.00 house.Hopefully the payment will be with the $500 to $600 range. If my paycheck from the job can cover the monthly expenses (mortgage ,food, utilities, insurances, gas)then that frees up the use of the pension check which could be used to attack the back end of the mortgage,Thus reducing the length of he loan.

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Agent’s answer
Doc Stephens gave a pretty well planned answer. You should be able to get somewhere around a 4.5% P&I rate with 30% down.

Look at getting a shorter term loan if you're wanting to pay off that mortgage quickly.

What I wanted to add was make sure you do the math before you start paying extra on that mortgage, while it seems smart it may not be wise. With an interest rate at say 4.5% that is pretty low. You would essentially be saving yourself 4.5 cents on the dollar for every dollar you add to the principal. Opt to pay off higher interes loans first such as credit cards, car loans etc that may have say a 17% interest rate you'll be saving yourself 17 cents in the dollar for every dollar you add to that loan.

And always look at investing that $250 a month into a ROTH or ROTH IRA or stocks which could yield you 10% or more on what you invest.

Adding extra principal payments made sense a few years ago when interest rates where higher in the 7% and 8% range it was a smart move with today's rates there are definitely smarter ways to invest your money than adding extra to your principal payments every month.

Do your research on this and remember it may sound smart but it may not be the wisest choice!
0 votes Thank Flag Link Fri Dec 17, 2010
Hi, Larry,

First of all, with 30% down, you should be able to beat 5.6%! Get a second opinion.

This is an interesting question, so I did the work to give you a complete answer. Because of federal loan regulations, I must tell you that I do not originate loans, and this is not a solicitation for a loan. It is just an estimate for purposes of illustration of the principle.

$36,000 down (30%) on a home that sells for $120,000 will reduce your loan balance to $84,000. The Principal and Interest payment (P&I) @ 5.6% for 30 years on a conventional loan would be approximately $482.23. Add property tax (2.6% of value on the average) of $260/month and Insurance (estimated @ .7% of value) of $70 per month for a total of $812.23 per month (PITI). If you ADD $250 per month for principal reduction ($3,000 per year), your loan will be paid off in 13 years and 8 months. So, if you get a competitive loan rate, you can save a whole year of payments.

I am told that you should be able to get an interest rate in the 4.5% range, even lower if you are a Texas Veteran. At 4.5% and taking the $57 per month difference and applying that also to your loan, you reduce your payoff to 12 years and 6 months.

Since you are in 78240, and our office is at IH-10 at Huebner, feel free to drop buy and discuss your options. I'll be happy to help you find the best, most efficient way to accomplish your goals.

Best regards,

Doc Stephens, REALTOR®
Keller Williams Realty
Web Reference: http://TellEllen.com
1 vote Thank Flag Link Thu Nov 18, 2010
(Assuming that you are on a 30 year fixed mortgage)

1. $3,000 annually is $250 each month. If you paid an extra $250 each month towards the prinicpal balance of your mortgage, assuming a Beginning Balance of $91,000 (70% of $120,000), an amortization term of 30 years, a fixed interest rate of 5.60%, and no pre-payment penalty: You will pay off your loan in 172 months (14.33 years).

2. If instead you pay $3,000 towards your principal balance each December, and assuming all of the same variables as above: You will pay off your loan in 218 months (18.17 years).

The difference is that by paying monthly, you are reducing the principal balance each month which saves you interest on each of the remaining months of that year.

Please let me know if you have any other questions, I will be more than happy to assist you.

--Micah Harper, Attorney/Realtor
Exquisite Properties
San Antonio, Texas
Web Reference: http://www.ExquisiteSA.com
1 vote Thank Flag Link Thu Nov 18, 2010
That is a great way to go reduce your balance on your mortgage can save you $xx,xxx over the years.

Best contact lender determine what works within your agreement pay off on your loan. they can provide you guidance... OR if not allowed place in a bank account with interest then pay off the home in one large lump sum.

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
972-699-9111
http://www.lynn911.com
1 vote Thank Flag Link Thu Nov 18, 2010
If you do the math on that.... and I hate you for making me do it... You will cut around 17 years and some change off of the back end of your mortgage... But... I will have to say the better move is to get a 10 or 15 year note. You will acomplish the same thing and your interest rates will be MUCH lower.. With your down payment being over 20%, you can expect a to lock a 15 year note in the high 3s as of today. The rates are going up... for the 3rd week in a row we have seen them rise a little at a time... but 5.6% is just not competitive at all. You can do much better than that.. If requested, I can refer you to a young lady that has never been matched or beaten when it comes to the rate.
0 votes Thank Flag Link Fri Dec 17, 2010
Check out
http://www.bankrate.com/calculators/mortgages/mortgage-calcu…

Don't use bank rate though to apply for mortgages. Use a local lender.
Web Reference: http://www.teamlynn.com
0 votes Thank Flag Link Thu Nov 18, 2010
Bruce Lynn, Real Estate Pro in Coppell, TX
MVP'08
Contact
You are a smart man, looking for ways to pay off your home early. Check with your lender on 15 year rates. Those are usually less than the 30 year and you could save more from the start., also, what ever payment you make right after closing (not your 1st scheduled payment) goes right to principal and not interest.
0 votes Thank Flag Link Thu Nov 18, 2010
Micah did a great job answering your question. Basically if you pay the additional amount towards your principal in more frequent intervalls you will greatly reduce the overall interest you pay. Each month the Interest on your mortgage is calculated based on the current principal balance times the periodic interest rate.
0 votes Thank Flag Link Thu Nov 18, 2010
Great move. To see how much you are reducing your loan term you would want to put in your new loan balance in an amortization calculator. There are a lot of them online. Plug in your new numbers and it will show you how much you have reduced your loan term by. Good Job.

Here is a link to a site I recommend to my clients to do the same thing.

http://www.bretwhissel.net/amortization/amortize.html
0 votes Thank Flag Link Thu Nov 18, 2010
Larry, your monthly payment should be under $500 for principal and interest based on the numbers you listed. However, you have to add in the homeowner insurance and the taxes. Depending on where the house is located the taxes and insurance could add $3-500 a month.
The interest rate sounds high considering the current market, check with at least 2 mortgage sources.
Ralph
0 votes Thank Flag Link Thu Nov 18, 2010
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