The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: kilogulf on August 19, 2016, 09:47:50 AM
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Trying to lower my mortgage payment. My lender emailed me the attached chart below with 3 options. Option #1 saves me $184 per month. Option #3 is also enticing because for an extra $12.53 I can pay off the mortgage in 21 years. I can hear my wife now, "Are you crazy! We NEED the extra $184!" I love her, but she hasn't converted over to Mustachianism yet. I honestly don't know what the heck to do. What would YOU do, Mustache Nation?
Thanks!
Ken in Dallas, Tx
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Option 3 !! alll day!
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Well, it all comes down to what you really want. You start out by saying you're trying to lower your payment, but then you point out that you could pay off the debt much faster if you don't lower the payment. Which is the priority: the cash flow, or the faster payoff?
For me, the 0.5% savings pales in comparison to the investment potential of $184 monthly. If you invest the difference, your investment return only needs to match your mortgage rate for it to be a break-even deal. If your ROI is higher than the loan APR, you could pay off the remaining balance after the same 21-year period, AND still have leftover investments paying dividends. If, on the other hand, you suspect your anti-MMM DW would squander the extra cash on increased spending, then you might apply the "forced savings" theory and lock that equity away for a rainy day... by which time, hopefully, you two will have come to common ground on what is and isn't a good use of funds.
Another way to look at it: option 3 saves you $54k over 21 years. By comparison, $184 invested monthly for 21 years at 7% gives you about $99K... IF you invest it. :)
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Thanks Zephyr...I like the way you think!
$184 invested monthly for 21 years at 7% gives you about $99K
Can you show me how you calculated that out? Is there an online calculator that shows compounding like that? I've got my wife interested in investing the $184 but I have to pitch it with some solid numbers.
kilo
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https://www.investor.gov/tools/calculators/compound-interest-calculator
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Sweet. Perfect. I plugged in the numbers. $99,824.17 at 21 years. Bingo.
Of course, the very BIG ASSUMPTION is the 7%. The Market is due for a nice spanking at the moment. I know...I'm not supposed to fret over volatility...
kg
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Sweet. Perfect. I plugged in the numbers. $99,824.17 at 21 years. Bingo.
Of course, the very BIG ASSUMPTION is the 7%. The Market is due for a nice spanking at the moment. I know...I'm not supposed to fret over volatility...
kg
Of course, there's no guarantee. But you're investing for 21 years. The first few years, the Dow could go from 20,000 to 0 and back, and you'd just keep buying.