Author Topic: Mortgage payoff early vs. reduce monthly bill  (Read 1431 times)

sarah12578

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Mortgage payoff early vs. reduce monthly bill
« on: August 25, 2016, 04:41:09 PM »
Hi, Looking to potentially be SAHM for a while, and looking to reduce expenses.  I'd also like to get the mortgage paid off before term.  Right now, have about $365,000 left at 4.1% for 27 years.   Let's say I have a big chunk of change ~50k to throw at it, is it better to pay off principal to shorten loan term, or to reduce monthly bill (and then pay more when we can afford too), or do a combination of the 2?

v8rx7guy

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Re: Mortgage payoff early vs. reduce monthly bill
« Reply #1 on: August 25, 2016, 04:54:58 PM »
Dropping $50K on the principle is not going reduce your mortgage payment... that number is set.  You could use a portion of that $50K to refinance at a going rate of something like 3.500% which could lower your payment by maybe $100-$150/mo.  You could use all of that $50K to refinance and the rest to put more cash in and potentially reduce your mortgage by something like $300/mo.

cchrissyy

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Re: Mortgage payoff early vs. reduce monthly bill
« Reply #2 on: August 25, 2016, 04:55:26 PM »
if your goal is to reduce expenses now, not 20 years from now, then you'd better find something else to do with that money. 
You have a very unusual mortgage if paying it down extra has any impact on anything other than moving forward that 27-year payoff date.

tweezers

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Re: Mortgage payoff early vs. reduce monthly bill
« Reply #3 on: August 25, 2016, 05:04:48 PM »
If you recast your mortgage you would lower the payment.  There isn't a huge fee to do so (last I looked, it was free at US BAnk), and your mortgage reduction must usually be at least 10% of the loan.

https://www.thebalance.com/mortgage-recast-vs-refinance-315658

Dicey

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Re: Mortgage payoff early vs. reduce monthly bill
« Reply #4 on: August 25, 2016, 08:46:57 PM »
Start with a re-fi to get that rate down as close to 3.5 as you can while you're still working. I'd even consider resetting the clock to 30 years if you get 3.5 or better. This will lower your payments. Then I'd trot over to jlcollinsnh for instructions on how to invest that 50k in a taxable account. If, in the future, you have trouble making the payment, sip a little from the taxable account to make up the difference.

With mortgage rates this low, your loan is a wonderful hedge against inflation. Keep saving and investing and eventually you will have more than enough to pay off your house in a lump sum. You'll be so excited about how much money you have working for you that you won't want to pay that sucker off, but you could. In the interim, you've been able to maximize your flexibility.