Author Topic: Accelerated Mortgage Payoff  (Read 1609 times)

studlyrs

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Accelerated Mortgage Payoff
« on: October 01, 2019, 10:40:18 AM »
I don't want to get into the investing vs paying off the mortgage debate, I want the freedom of paying off my home.

I just refinanced to a 10 year loan with the hopes of paying it off early.  My question is about making additional payments.  From my research on the amortization calendars making a large one time payment yearly is more beneficial than paying that same amount towards principal every month.  Can anyone confirm this?

As a reference, a yearly payment of $6000 is more beneficial than 12 monthly principal payments of $500. 

Rough loan details, 150k loan, 10 yrs, 3.25 rate. 

affordablehousing

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Re: Accelerated Mortgage Payoff
« Reply #1 on: October 01, 2019, 10:45:03 AM »
Of course, making the big payment at the beginning of the year is better than spreading it out over 12 months.

Boofinator

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Re: Accelerated Mortgage Payoff
« Reply #2 on: October 01, 2019, 10:57:39 AM »
This would seem to be the case just looking at the amortization tables, but in fact the opposite is true. Using your example, if you save $500 per month, it would take you a full year to save up the $6000. So rather than paying $500 extra every month, you'd pay $6,000 at the end of the year (and not at the beginning of the year as presumed in your initial post).

The best way to pay off a debt is to put as much as you can into it as quickly as you can into it. (Assuming you don't have another investment strategy that would likely have a return higher than your debt's interest rate.)

Catbert

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Re: Accelerated Mortgage Payoff
« Reply #3 on: October 01, 2019, 11:15:23 AM »
Depends entirely on when you'd make the lump sum payment.   Earlier is always better

SwordGuy

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Re: Accelerated Mortgage Payoff
« Reply #4 on: October 01, 2019, 11:30:53 AM »
Depends entirely on when you'd make the lump sum payment.   Earlier is always better

This.  Pay extra as soon as possible.   You pay interest on what you owe, so the sooner you don't owe a dollar, the sooner you don't pay interest on it.