Re: Mortgage interest ignorance
[Re: midlander]
#6724453
01/11/20 10:37 AM
01/11/20 10:37 AM
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Joined: Sep 2010
Posts: 6,587 NC, Orange Co.
QuietButDeadly
trapper
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trapper
Joined: Sep 2010
Posts: 6,587
NC, Orange Co.
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Here is a hypothetical mortgage loan:
200,000.00 Loan 4% interest rate 30 year term no insurance or taxes figured in
Monthly payment - 954.83 Total paid back - 954.83 X 360 payments = 343,739.38 200.000.00 principal and 143,739.38 Interest.
You pay back way more than 4% of 200,000.00 which is only 8,000
Your savings or stock investment return would have to be extremely high to come out ahead of the compound interest you are paying out.
Life Member: NCTA, VTA, NTA, TTFHA, MFTI Member: FTA NRA NWTF
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Re: Mortgage interest ignorance
[Re: midlander]
#6724459
01/11/20 10:39 AM
01/11/20 10:39 AM
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Joined: May 2010
Posts: 28,978 potter co. p.a.
pcr2
"Twerker"
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"Twerker"
Joined: May 2010
Posts: 28,978
potter co. p.a.
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Appreciate all the different opinions..thanks no doubt,i gotta get workin but its a great read.
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Re: Mortgage interest ignorance
[Re: white17]
#6724470
01/11/20 10:45 AM
01/11/20 10:45 AM
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Joined: Sep 2010
Posts: 6,587 NC, Orange Co.
QuietButDeadly
trapper
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trapper
Joined: Sep 2010
Posts: 6,587
NC, Orange Co.
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Flipper, why not pay off the mortgage and put 10% in your pocket...seems better than 6% to me. Because IF he pays off the mortgage he may not have any capital left to invest. Opportunity cost is the term in this instance. He has the opportunity to make 10% in the market or save 4% by paying off the mortgage. The 6% difference is the opportunity he has sacrificed by paying off early. The problem with this thinking is that he is actually paying a lot more than 4% because it is compounded. And, once it is paid off, he would have 100% of what used to be the mortgage payment to invest.
Last edited by QuietButDeadly; 01/11/20 10:47 AM.
Life Member: NCTA, VTA, NTA, TTFHA, MFTI Member: FTA NRA NWTF
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Re: Mortgage interest ignorance
[Re: QuietButDeadly]
#6724484
01/11/20 10:50 AM
01/11/20 10:50 AM
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Joined: Nov 2010
Posts: 1,418 USA-WI
Kre
trapper
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trapper
Joined: Nov 2010
Posts: 1,418
USA-WI
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Here is a hypothetical mortgage loan:
200,000.00 Loan 4% interest rate 30 year term no insurance or taxes figured in
Monthly payment - 954.83 Total paid back - 954.83 X 360 payments = 343,739.38 200.000.00 principal and 143,739.38 Interest.
You pay back way more than 4% of 200,000.00 which is only 8,000
Your savings or stock investment return would have to be extremely high to come out ahead of the compound interest you are paying out. This is essentially debtors prison. You need 20% down and no more than 15 years. However, in this case it would probably make sense to pay as much as you can.
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Re: Mortgage interest ignorance
[Re: QuietButDeadly]
#6724495
01/11/20 10:59 AM
01/11/20 10:59 AM
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Joined: Mar 2007
Posts: 35,169 McGrath, AK
white17
"General (Mr.Sunshine) Washington"
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"General (Mr.Sunshine) Washington"
Joined: Mar 2007
Posts: 35,169
McGrath, AK
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Here is a hypothetical mortgage loan:
200,000.00 Loan 4% interest rate 30 year term no insurance or taxes figured in
Monthly payment - 954.83 Total paid back - 954.83 X 360 payments = 343,739.38 200.000.00 principal and 143,739.38 Interest.
You pay back way more than 4% of 200,000.00 which is only 8,000
Your savings or stock investment return would have to be extremely high to come out ahead of the compound interest you are paying out. Not really. Bankers use what is called the rule of 72...just as a rule of thumb when considering an investment. If you have $200,000.00 and invest it for 30 years...as in your example.... you need only earn a nominal rate of return of 2.4% compounded annually, to more than double that initial 200K...to $407,407.20 So the rule of 72 says.....72 divided by 30 years, equals 2.4 % needed to double your investment
Mean As Nails
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Re: Mortgage interest ignorance
[Re: white17]
#6724505
01/11/20 11:07 AM
01/11/20 11:07 AM
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Joined: Feb 2010
Posts: 19,719 pa
hippie
trapper
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trapper
Joined: Feb 2010
Posts: 19,719
pa
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Here is a hypothetical mortgage loan:
200,000.00 Loan 4% interest rate 30 year term no insurance or taxes figured in
Monthly payment - 954.83 Total paid back - 954.83 X 360 payments = 343,739.38 200.000.00 principal and 143,739.38 Interest.
You pay back way more than 4% of 200,000.00 which is only 8,000
Your savings or stock investment return would have to be extremely high to come out ahead of the compound interest you are paying out. Not really. Bankers use what is called the rule of 72...just as a rule of thumb when considering an investment. If you have $200,000.00 and invest it for 30 years...as in your example.... you need only earn a nominal rate of return of 2.4% compounded annually, to more than double that initial 200K...to $407,407.20 It's been quite a few years since I had a mortgage, so this may not be as today....... My mortgage payment was heavy on interest at the beginning and towards the end, it was almost all principle. My statement had right on it this much of payment is interest and this much on principle. At the beginning like I said, it was heavily interest so I didn't see the up-side of paying it off once most of my payment was principle towards the end.
Last edited by hippie; 01/11/20 11:08 AM.
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Re: Mortgage interest ignorance
[Re: midlander]
#6724519
01/11/20 11:21 AM
01/11/20 11:21 AM
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Joined: Sep 2010
Posts: 6,587 NC, Orange Co.
QuietButDeadly
trapper
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trapper
Joined: Sep 2010
Posts: 6,587
NC, Orange Co.
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The difference is in interest is simple versus compounded. The 4% and 6% discussion is on a short term simple basis. You can not compare that to a 30 year compounded 2.4%. It is not comparing apples to apples. Most folks can not see past next month much less next year and certainly not the next 30 years. Especially from an investment perspective.
Life Member: NCTA, VTA, NTA, TTFHA, MFTI Member: FTA NRA NWTF
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Re: Mortgage interest ignorance
[Re: QuietButDeadly]
#6724538
01/11/20 11:30 AM
01/11/20 11:30 AM
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Joined: Mar 2007
Posts: 35,169 McGrath, AK
white17
"General (Mr.Sunshine) Washington"
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"General (Mr.Sunshine) Washington"
Joined: Mar 2007
Posts: 35,169
McGrath, AK
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The difference is in interest is simple versus compounded. The 4% and 6% discussion is on a short term simple basis. You can not compare that to a 30 year compounded 2.4%. It is not comparing apples to apples. Most folks can not see past next month much less next year and certainly not the next 30 years. Especially from an investment perspective. No. Both your example on the mortgage costs and mine on the investment results use compound interest. The difference in the total is because in your example of the mortgage, the interest is calculated on a declining balance every period. In my example the interest earned is on an increasing balance every period. I agree that most folks don't consider the long term
Mean As Nails
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Re: Mortgage interest ignorance
[Re: midlander]
#6724542
01/11/20 11:34 AM
01/11/20 11:34 AM
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Joined: Dec 2017
Posts: 6,223 Kansas
Pawnee
trapper
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trapper
Joined: Dec 2017
Posts: 6,223
Kansas
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Not sure about the tax bit sounds a little goofy. I have a great rate on mine and there’s no way I’m paying it off early when I can use my money somewhere else making more money. Might be wrong but that’s how I do things. Also I make them set all my loans up where the principal is paid up front instead of decreasing interest for the duration of the loan. Makes your payments higher in the beginning but saves a significant amount of interest money paid compared to a regular house or land loan. Some banks won’t do it and most have never heard of it.
Everything the left touches it destroys
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Re: Mortgage interest ignorance
[Re: hippie]
#6724544
01/11/20 11:34 AM
01/11/20 11:34 AM
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Joined: Mar 2007
Posts: 35,169 McGrath, AK
white17
"General (Mr.Sunshine) Washington"
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"General (Mr.Sunshine) Washington"
Joined: Mar 2007
Posts: 35,169
McGrath, AK
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Gotcha White.
Banker lady, neighbor who knew our family when we were still crapping our pants told me, if your gonna pay extra on principle, do it early, nog at the end. Of course, until I had the means yo pay more, I saw on my statements why she advised that.lol Exactly ! And if you are going to make extra payments be sure your bank knows they are applied to PRINCIPAL ONLY. Otherwise they will take a bite of interest too.............assuming you are just making your next payment early.
Mean As Nails
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Re: Mortgage interest ignorance
[Re: Green Bay]
#6724572
01/11/20 12:02 PM
01/11/20 12:02 PM
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Joined: Sep 2013
Posts: 10,404 Northeast Oklahoma
Mike in A-town
trapper
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trapper
Joined: Sep 2013
Posts: 10,404
Northeast Oklahoma
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Getting out of all debt should be a major priority for every wage earner. As Dave Ramsey says "Debt is Dumb." Maybe it's just me... But peace of mind is the single greatest incentive to be debt free. I hate being beholden to someone, especially where money is concerned. I would like to see property taxes abolished for the same reason. My property taxes are dirt cheap here... I pay a day and a half's wages a year. But if I didn't pay for a few years the county could steal my house over basically a week's wages... And I sure don't get much for what I pay, even if it's only a day's wages. I didn't buy my property to rent it from the @&#$ county over my lifetime. Mike
One man with a gun may control 100 others who have none.
Vladimir Lenin
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