### Author Topic: Help with mortage math - convince me not to make a big payment  (Read 988 times)

#### jennifers

• 5 O'Clock Shadow
• Posts: 86
• Location: Madison, wi
##### Help with mortage math - convince me not to make a big payment
« on: August 25, 2017, 07:14:13 AM »
I'm buying a house. The price is \$195,000, and I'm putting 20% down. So my mortgage will be for \$156,000. The interest rate is 3.8% and monthly payment is \$726.
After down payment and closing costs I'll have \$89,000 in cash left.
I was thinking of doing an extra large payment towards the principal right away. I *think* this will save me lots of money in interest long term, but not sure if it's really that great of an investment. Ideally I'd do a \$56,000 one time payment.  Looking at an amortization table, doing a 56,000\$ one time payment will save me \$200 a month in interest starting out.

Other facts:
I'm not huge on stock market investing. I have both my 401k and IRA in stocks/funds so I'd prefer not to invest a bunch of cash in something high-risk.
I don't have any other debt to pay off.

What would you do in my situation? Any good calculator to show how much I would save overall with a big one-time payment?

#### Playing with Fire UK

• Magnum Stache
• Posts: 2630
##### Re: Help with mortage math - convince me not to make a big payment
« Reply #1 on: August 25, 2017, 07:27:25 AM »
If you want talking out of it, remember that a dollar is worth less and less every year. So you'll be paying \$56k in 2017 dollars when you could be paying it in 2037 dollars, which will each be worth less than a 2017 dollar.

Also, check whether you would get a lower interest payment by putting down a bigger deposit rather than making an overpayment (you would here, but our systems are different).

If you don't like stocks to the point that you are making the choice between putting the money in the mortgage or hiding it under the mattress or in a checking account then absolutely put it in the mortgage.

#### dandarc

• Magnum Stache
• Posts: 3564
• Age: 37
##### Re: Help with mortage math - convince me not to make a big payment
« Reply #2 on: August 25, 2017, 07:36:17 AM »
The "right" thing to do is to invest that money over the long term in something that will most likely yield far more.  A typical stock index fund, for example.

It sounds like that is off the table, and 3.8% > ~1% from a savings account.  Certainly not the worst use of the money, but sub-optimal.

We actually did do almost exactly this back in 2014.  Wound up with about \$50K larger mortgage than we originally intended due to a delay in closing on the "old" house.  When the transaction cleared a month later, made a \$50K extra principal payment.  Now, we were on the Dave-Ramsey plan and only just starting to learn about MMM then, but looking back, had we invested that, we'd have about \$10K more today.  And that was only 3 years ago.  We also paid off the remaining mortgage early, finishing this past June.

So, knowing what I know now, I would have pushed to do neither thing - not the extra \$50K, and no extra payments either.  Also would have looked at a 30 year instead of a 15 year.  But, luckily, we're in a LCOL area and the house is a small part of our financial world, and getting smaller every day.  The lower cash-flow is nice, but having the house paid off is actually costing us money.

#### jennifers

• 5 O'Clock Shadow
• Posts: 86
• Location: Madison, wi
##### Re: Help with mortage math - convince me not to make a big payment
« Reply #3 on: August 25, 2017, 07:49:59 AM »
Yeah, I was hoping to just get a 15 year mortgage w/ a lower interest rate, but delay in closing the old house (which was suppose to close a month ago) means I don't get the funds for a few more days. Annoying. I already paid a 500\$ fee to change the interest rate from 4% to 3.8%.

Anyone suggesting investing the money-- what fund would you suggest? VTSAX?  Maybe I can do half mortgage payment / half investment.

#### Playing with Fire UK

• Magnum Stache
• Posts: 2630
##### Re: Help with mortage math - convince me not to make a big payment
« Reply #4 on: August 25, 2017, 07:57:43 AM »
If you don't like stocks much, you might still like one of the Vanguard life strategy funds; you can pick 80%, 60%, 40%, 20% stocks with the rest bonds.