Question by dog whisperer: Mortgage and retirement?
I have a serious question about my mortgage. i must start by saying that I am almost 50. I refinanced my home to a 30 yr fixd rate. I was in one of those adjustable rates….. I owe about 90K, the house is worth 145K. I have NO other debt! i want to know what you think about paying down the mortgage? I need to understand how a mortgage works. I think I know that in the beginning of the loan, it’s almost all interest. Then as it get paid down over the years, it goes to more principal thasn interest. At what point do you start adding payments to your principal to help pay it down? And will this lower your payments? Because the interest is based on the principal? I hope someone understands this and can explain some things to me. I am just kind of freaking out here because of my age. And don’t want to have to pay the mortgage payment at the end of the 30 yrs! Hell, I may not be working! Or even alive at that point! So what advice does anyone have?
Best answer:
Answer by Gem
Paying extra now will pay down the principal faster, and thus shorten your loan.
Seems to me like I read that one extra payment a year, cuts nearly 5 years off your mortgage.
Unless you refinance at a later date, your payment will not be reduced as fixed term mortgages have a set payment for the life of the loan, no matter what part of the payment goes to principal or interest.
The more you pay off the principal, the less you end up paying in interest.
Even though we are broke, and we have higher interest revolving/credit cards loans, I still send a few extra bucks a month to my mortgage.
Why? Because I hate the banks and I hate working harder so that a bank (or any other mega-corporation) can make more money off me.
So, if you have the money to pay extra now, do it. It will save you thousands in the long run.
Add your own answer in the comments!
First, check your loan document, make sure you don’t have a prepay penalty. If you do, budget that into paying off your mortgage.
Because of the loan amount (principle) is higher, that is why you pay a lot on interest & a little on principle. When you have more of the principle paid off you will see more and more of your payment going towards the principle. When you send in extra money towards the principle- make sure you mark “extra $ to principle.” Or send in a separate check with “PRINCIPLE PAYMENT ONLY” written on the memo line. If you pay on line, make sure there is a box to check. Doing this will not make your payment go down, it isn’t like a credit card payment.
I suggest you take a look at the calculator in the source area to see how much faster it will pay off if you put add $500 per month or $100, etc.
I also suggest you get on a strict written budget and read The Total Money Makeover by Ramsey to reach your goals of retirement. If you want to retire in 10 years and have no mortgage, an extra $500/month should put you do your goal if you have about 6% interest rate.