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Suave | Is it wise to try to pay off a home loan quickly in order to save on interest ? |
I am planning on buying a home for 63,000 dollars I have about 35,000 dollars saved up in my bank account is it wise to try to pay off the house as quickly as possible in order to save on interest? I live at home with my parents so I am buying the house as an investment. I plan to put about 25 or 30 thousand down on the house and leasing out the house and I am going to try to pay it off in about 2 years....Is it wise to do this or should I just give a small down payment on the home and just save my money....Banks don't pay that much on interest 4 or maybe 5 % at most, but I would be gaining about 200-250 above my monthly payment on the loan if I gave a large down payment because my payments on the home loan would only be about 400 dollars and I would be renting out the home for about 650 dollars....Is it wise to put a large down payment and try to pay off the home quickly...Or should I just give a 20% down say about 12,000 dollars and then try to pay it off later when I've saved up? |
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6.1fishbob
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Putting down 20% sounds good. Most of your interest is paid at the beginning of a loan, and goes down gradually, so whatever your payment would be add an extra 20 dollars or more if you can. All this goes on the principle and you would be surprised how it can actually cut the life of the loan off considerably, possibly by several years. Save your money,there may be unexpected expenses you have to shell out while owning the home |
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mortgage help
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Put your 20% down, and use your money to buy more real estate. Before you know it, you will have multiple properties under your belt and be wealthy years down the road.
help@choicefinance.net |
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mmorganloans
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One way to help pay off a home and able to gain equity and build your credit score is to send and extra one to two hundred dollars a month towards your mortgage payment. By doing this it will take 6-8 years off your payment. But double check with the lender to make sure that there are no pre-pay penalties by paying your house off early. It could cost you anywhere from $3000-$5000 plus.
Are you looking into investing into more property? If you plan on buying more homes in the future and either sell or rent them out, keep payment on this home for at least 2 years. Make all your payments on time so that when you do go get another loan the lender's like to see that the mortgage was never late and it won't be too difficult for you to get a loan.
Some lender's will only give you up to 5 loans for properties for investments and some do not care. You can contact the HUD; Housing Urban Development, in your state for more info on home owning and investments.
Also, be careful if you are going to charge more money for rent on your mortgage; ex: your payment would be $400 and you want to charge $650 for rent. I know that where I live, if you charge rent more than the mortgage payments you have to claim the additional money to the IRS as income. I believe that it applies in the US, but I could be wrong. Contact the Attorney Generals Office in your area to get more info. |
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aaron
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As long as there isnt a prepayment penalty on your mortgage. |
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math_prof
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It depends on a lot of factors. Based on what you have said, I would probably put down the larger down payment. By paying down the principle more quickly you build your equity faster. |
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Chico Infierno
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Yes. Pay it off as soon as you can. |
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gri204
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It good to pay the larger amount, however make sure you have cover all your expenses before releasing such a large down payment. You will have instant equity in your property so you won't be losing anything. I view the profit from the rent as your net profit minus your expenses. You will receive an immediate return on your investment, especially if you already have a tenant for the house. Great job!! |
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Dave C
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I would find a good financial planner and a good mortgage broker. I put 20% down and finance the rest of the home, invest the rest of your cash. Read the following book or do some more research, heck Warren Buffet, Bill Gates, and most any mortgage broker keep their homes financed at 70-80% Combine Loan to Value (CLTV) and interest only loans at that.
Ordinary People, Extraordinary Wealth: The 8 Secrets of How 5,000 Ordinary Americans Became Successful Investors--and How You Can Too by Ric Edelman |
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Ken C
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Yes that is smart to pay down mortgage. Depends how much interest does savings pay. How much can U afford to pay down & how much interest does that save. |
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trigam41
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There's not much difference between putting the $35k down and using it to pay off a large portion of principal in a month or so (except for the interest accrued between funding and payoff).
Unless you can invest the money at a higher interest rate than the mortgage, I would put the $35k down. |
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You are loved
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Of course, it's extremely wise, your home is the most important investment you'll ever make and people have to work for so many years to pay off a house, the bank ends up making a killer on the interest, at the end of the day if you were to keep the loan for lets say 30 years (for regular conventional loans) you'd be paying twice the amount of the amount that was financed to you, the most fortunate people are the ones who own a home free and clear, like my mom, so by all means pay off your home asap, you won't make the bank rich and will have saved a lot of money. It's one of the wisest things to do if you have the means go for it!!
Tonda is incorrect you would never lose equity by paying off your home sooner, it has nothing to do with the market, the only way you would lose is if your mortgage loan comes with a hard prepayment penalty, which means you pay 6 months worth of payments for paying off the loan earlier than the term established, like 2 or 3 years, it doesn't seem that you'll be getting this type of loan anyhow, just wanted to clarify that, and what you are doing is very wise, try paying for things in full, I bought my car cash and I love not having those payments, the people in the finance dept. were mad and persistent, they said keep your money, for investments, blah blah, blah, I said no thanks, I already have that aside. They were mad, they make nothing of course. |
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Chris T
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I have a few different options. 1st the 35 grand you have, at what interest rate is it growing at? if you are make 10 to 12% you might not want to touch it. It is much different collecting 10 to 12% than paying 5 to 6%. Also if you are living at home w/ parents you should have your money in other money market accounts where it can grow more aggressively. 2ND if you correct the 1st part the comparison will not even compare. If you make 200 a month off the property only putting 20% down you will still be in a win win situation. It may not look like it now but the interest you pay will be tax deducible. And most of all if you are wanting to put down more money make sure to buy down your points to have a cheaper interest rate. Good Luck. |
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pebble
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My father actually just went through this. He inherited $250000 and owed 60000 on his house. He considered paying it off so as not to have that payment but after talking to a broker, decided to keep making his payments because the amount of interest he was being charged on the house is less than the amount of money he could gain on the same sum of money. His broker has put money into many different things some of which pay up to 10%. I don't remember exactly what his mortgage rate is but I do remember there was a lot of profit to be made by holding that sum of money and gaining interest on it over paying it off at once to save on interest. Talk to a broker, they will be able to help you decide what is best for you. |
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sarajane14207
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ALWAYS! |
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CowboyBill
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It is ALWAYS better to pay off and own a home/house vs being leveraged in finance. So-called high dollar money gurus will crunch numbers and throw stats at you all day trying to make you believe you should always remain in debt, i.e; "you need to finance a home for the tax write-off". God, how many times are we going to hear that one? If you are so interested in a tax write-off then calculate what the interest would be on a mortgage and donate that amount to the Red Cross or your church -- you get the EXACT benefit tax-wise yet no financial advisor ever tells you this. One more thing -- there is this this thing called 'risk management', and you HAVE to use this in your financial calculations when dealing with large numbers (like the purchase of houses). Less risk = more profit, always and forever.
Check out this guy if you haven't already: www.daveramsey.com. He is the genuine article when it comes to money and how to keep it. |
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DAVE B.,The Old Man
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as long as the interest you are paying on your loan is higher than what you can get in interest,yes pay off the loan as soon as you can . |
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Quociana L
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yes pay it off early. you will save on the interest and still make a profit off of the lease, unless you have some terrible tenants. its better to use the money to work for you now instead of giving it to the banks. |
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Xavier T
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Pay it off my friend you won't reget it. |
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zloar
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If you can invest your cash in things that would yield a greater return that what you save in interest payments, do that and make minimum payments. Otherwise do what you can to save on your loan interest. |
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♥○IMAGINE ○♥
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As wise as you are to be making such an investment I would recomend saving some money back for possible improvements and repairs. Houses can have hidden flaws and a smaller down payment could be better...If there are no repairs needed in a year or two you could make a large extra payment.
Actually the intrest is deductable on your taxes and finance planners discourage paying it off but it is up to you.
talk more with a banker and see what they advise...see what amount of loan you are qualified for and see how to boost your credit rating. Sometimes not having any credit cards can hurt you.
so I would suggest you seek advise from people with more experience. My brother has a few properties that he rents out and he considers them his retirement nest egg. the tenants pay the mortgage payments and the only down side is when two move out at the same month. then it is a strugle to get them rerented quickly.
Housing is a great investment...just be careful and be prepared for the cost of remodeling too. that can double the value of the home if you update the kitchen and bathrooms...If it were me I would pay a nice down amount and save half back for inprovements...a nicer house means higher rent can be charged.
I'd have the kitchen and bath update in my plans from the start.
and I would have a ten year payoff plan rather than your five years or less plan... In the end it is...What are you most comfortable with.
Some people like to have the house paid for just for the peace of mind and they care not for the deduction on taxes, so figure for ytourself what is most comfortable for you to do. |
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GRUMPY
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Yes, pay it off as quickly as you can. You'll save big money on interest. BUT also keep in mind that banks are in the busniess of making money. So as such make sure to READ ALL of the fine print. Some banks ADD penalties for paying off early. Doing so as they lose money they would make on interest. One thing you will notice is that 99 % of the monthly mortage is interest. VERY VERY VERY LITTLE goes towards the mortage itself. |
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jgmafb
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the faster you pay it off the faster YOU MAKE money.of course the loan company won't like it but,you will.
its like this;paying off a house that cost 20,000 means you're out 20,000.but,if the property is worth more then you're worth more,you may of just spent 20,000 but your net worth could be 50,000.now if you go buy several and try to pay them off in long term then the bal.is actually debt.don't try that concept until you have enough money to cover house debts from bad tenants,etc... |
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Polymath
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Do you have credit cards, a car loan, or other interest debt that could be higher than a home loan? Pay that off first, more bang for your buck.
If you are buying a house as investment property, that interest is deductible against income, which is also good. This doesn't mean that you shouldn't pay off the loan, but it might help you with your priorities for the money you have saved.
My strategy would be to put 20% down, and having the rental income cover the payments. Then I keep a nest egg aside to cover repairs or legal expenses (what if you get sued?)
Banks don't pay much interest, but you might want to consider putting some savings into a stock or bond index in order to diversify, and create better gains. Keep some in a money market or savings account in case you need it.
If you are risky and unafraid of going bankrupt, you could also buy a second $60,000 house with the extra money and lease it. That way, you are buying two houses instead of just one. This is extrememly risky, and I wouldn't recommend this if you don't have the regular income to pay both mortgages without renters. But you can always roll the dice... |
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Dadof4Kiddies
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I have been paying extra money ($2000) towards my principle every month. It will be paid off in less than a year. I will be 26 with no debt and a house paid for. AND I saved about $90,000+ in interest! |
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theophilus
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It's wise to pay off any debt as quickly as you can. Interest on any debt is higher than what you would earn on an investment. And even though the house would be considered an investment, or asset, the mortgage is still a debt. |
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Shashi
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House Value : $ 60000
Dwn Pmt: $ 10000
Loan Amt: $ 50000
Rate Of Interest: 7.00% on reducing balance
In case the repayment is taken over 15 years the monthly repayments shall be $ 449.41 and total interest paid $ 30,894.54
In case the repayment is taken over 10 years the monthly repayments shall be $ 580.54 and total interest paid $ 19,665.09
In case the repayment is taken over 5 years the monthly repayments shall be $ 990.06 and total interest paid $ 9,403.60
In case the repayment is taken over 2 years (as you have envisaged in your question) the monthly repayments shall be $ 2,238.63 and total interest paid $ 3,727.09
The amounts of monthly repayments and total interest would be different in case you opt for a larger down payment.
Hope it helps in deciding |
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College Guy
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Pay it off as soon as you can. The interest in the loan will always be higher than the one in a savings account/cd/money market. |
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mss04
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The advice I usually give is do the 20% down and consider "How long will you be saving in order to save the additionsl 20k. about 80 to 100 months. I would keep the rest in your investments. Buy another house. |
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ladida
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It is fine to go ahead and try to pay as much as yopuo can if you have the money. But also try to make sure you have enough emergency money. When you are renting out the home, you have no idea how well the leasor is going to take care of the home, so there can be some damages. Interest is always money, y pay out money that you do not need to. Just make sure also that there is no penalty for early payment, etc. Any loan after a year or 2 will help build your credit score. Good luck! |
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Brad B
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If you have the money to do so, pay the house down as quickly as possible. |
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2eighty8
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Yes, put as much reasonable down as you can but make sure you still have enough to overpay the minimum payments. It's also another good idea to make a minimum payment every paycheque if it's reasonable to you. Bottom line, never pay the minimum. |
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