Home buying thread

Foler said:

I’m a first time home buyer from context. What you said never occurred to me - I did the math on 30 year mortgage and the interest paid was insane. I guess by making a bunch of early payments it would cut down on that but also open capital like you said in case of emergency?

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Yes, because the extra payments go direct to your principal loan. The interest payments on the 30yr look atrocious if you pay the normal scheduled payments. Your interest paid reduces dramatically with those extra payments sent in directly to principal balance.

Gravel said:

Yeah, I've never understood signing up for a 15 year mortgage when there's not really any penalty for early payment on a 30. And it protects you in the event shit hits the fan in your life and you suddenly can't make the payments on a 15. If you're the type to really min/max your finances, you take the 30 and invest the difference in something that makes more than your interest rate. You can then use the proceeds of that to pay off your mortgage early if you want.

And if you've got the cash to burn, why bother with a mortgage at all?

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here's my history

i bought in 08 w/ my (soon to be X) wife. great time to buy cost wise, rates not so much. I don't remember the rate, but we got a 30 year and had about 8% down payment.

maybe 3 years later, we refinance to a 15 year and get i think 2.75%, something less than 3. shortly after, we cross 20% paid down and drop PMI. this 15 year mortgage had a lower monthly payment than the previous 30 year pre pmi.

good times

2018 get a divorce, and buy out the xwife. she takes half the equity. found a lender that could do it quick, cash-out-refi rates suck. i think i was again paying north of 5% at 30 years. coming out of a divorce, i had no idea what I was going to afford so wanted as much wiggle room as possible. I think I owed more on my home at this time than when I originally purchased it 10 years prior. that may be an exaggeration but the divorce certainly set be back.

2020 I refi again and get 3% @ 20 years. 15 years was maybe 2.85%, not worth the requirement of an extra ~$500 a month. 30 years was 4 or 4.5%. that 1% or so, even if you are paying early will make a difference.

Lets assume there's a $400k loan.
at 4.5% & 30 years, that's a $2000 monthly note and you'd pay ~$330k interest over those 30 years.
paying $500 extra a month pays off the loan 9 years early and saves you $121k in interest

at 3% & 20 years, that's a $2200 monthly note and you'd pay $132k in interest. that saves you almost $200k in interest vs the $121k you savings and paid $300 more per month. no brainer here. If you paid an extra $500 a month on this plan, you'd save about $9k in interest over a required 15 year note @ 2.8%

at 2.8% & 15 years, that's a $2700 monthly note and you'd pay $90k in interest.

Obviously these numbers change a lot and we're all smart enough to plug these in to Mortgage Payoff Calculator . to me, the required monthly cost of a 30 and 20 year loan wasn't that big and i was comfortable w/ it, and the savings was big. going to a 15, being required to make that payment, and the savings not being that big a deal, i didn't go all the way to a 15.



Wells Fargo gives me a few options when I make a mortgage payment. I can make a payment early. Right now, I don't have a payment due till Jan 2025. I consider this part of my emergency fund. When I make a payment, i can also add extra $$ to go straight towards principle. since i hit 6 months ahead in my payments, I've just been making bigger extra payments to principle. when savings accounts were paying less than 1%, i intended to get to a year or more ahead in payments.

looking back 4 years ago, I could have afforded the $500 a month extra and been paying. but any interruption in my employment would have been disastrous.

Glad you did the math. I'll eat my hat on this one and say it can make sense.

I'm still of the mind that I'd rather take a 30 and invest the difference. But then, that's also easy when rates are sub-3% like what we got, versus 7-8% now.

Drinsic said:

The interest paid over a 30 year mortgage is going to look crazy with almost any interest rate, it's just a question of whether or not you think you can reliably earn a better return than that interest rate. If not, pay it off early.

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Also your expectations on inflation. If you get a good rate (not recently) and hold that loan over a medium to high inflation period (likely for the next decade) the real value of those future dollars is vastly reduced.

Gravel said:

Glad you did the math. I'll eat my hat on this one and say it can make sense.

I'm still of the mind that I'd rather take a 30 and invest the difference. But then, that's also easy when rates are sub-3% like what we got, versus 7-8% now.

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There's no real need to do the math. 99.9% of people will never actually invest the difference and it's not actuarial science figuring out the difference in risk and cost between a 30 yr at 7% and a 15 year at 6%.

Americans especially are so hilariously full of shit when they talk about leveraging debt to make their money "work" for them. If they weren't, risk and debt averse weirdos like me wouldn't be in the top 2% of net worth while aggressively paying down debt and NOT throwing that money into the market over a time period that has been notoriously bad for doing exactly that because of the returns in the market over that time frame.

Seananigans said:

You guys keep using this phrasing, but I'm confused where else the extra money would go other than principal balance. In a situation where you're making the minimum required payment on time each month, those payments are paying off interest, there's nothing but principal left if you're paying extra.

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Where else would it go? Are you familiar with the word "scruples" and the lack thereof bankers in America have had, historically?

Sanrith Descartes said:

I believe he is assuming if you didn't specify it to go to principal that they were just assign it to the next payment paid in advance.

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This.

Most banks will automatically go towards principal. But I've heard of some doing the above.

Khane said:

Americans especially are so hilariously full of shit when they talk about leveraging debt to make their money "work" for them. If they weren't, risk and debt averse weirdos like me wouldn't be in the top 2% of net worth while aggressively paying down debt and NOT throwing that money into the market over a time period that has been notoriously bad for doing exactly that because of the returns in the market over that time frame.

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Maybe I'm weird, but I did. I could have bought my house in cash but chose to stay diversified and went for a 60% down payment instead. I am relatively cheap and wildly debt-averse in basically every other aspect, though. I kept the difference in the market and have ended up a similar 2%-er.

Sanrith Descartes said:

They don't set it aside. They just credit your account with the next payment as being made.

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(Edit: My first post was confused.)

This sounds wrong unless the terms of the mortgage somehow preclude early repayment. Simply counting towards your next payment doesn't accelerate you along the amortization schedule and you'd end up paying 30 years of interest over some shorter time period resulting from the accelerated repayments. Less time should result in less interest.

Seananigans said:

This doesn't illuminate anything for me, I must be a fucking retard.

So let's say my regular monthly payment is $1,000 and that accounts for Xn principal and Yn interest (the ratio will differ month to month, n signifies the scheduled month on amortization schedule).

Month 1 - I pay the $1,000 and it is split according to X1 and Y1 ratio. Principal reduces by X1 and Accrued interest drops to $0. Interest then begins accruing again the following day and after 30-31 days Y2 interest has accrued.
Month 2 - I pay $2,000. The first $1,000 is split according to X2 and Y2 ratio. I do not understand how the extra $1,000 has anywhere to go other than principal. Only Y2 interest has accrued since Month 1's payment, there is no extra interest to pay currently. How could it "pay down interest for the next scheduled payment" if there is no interest accrued yet? Interest will accrue for the next 30-31 days but it will also be less than Y3 because you're reducing the principal amount below what was initially expected for the Y2 to Y3 period (assuming the money doesn't just sit doing nothing for a month).

I read some of that article and other parts of it seemed equally retarded which leads me to believe it was written by a retard.

Or maybe I'm the retard, who knows. I seriously do not understand though, how there's any scenario that NOT using the extra money to pay down principal is not blatant theft. If you've paid off the accrued interest there is literally nothing else to put the money toward.

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He's just saying that your $1400 might held for x3 y3 at the time the third payment would normally be due unless you specify that it's supposed to go to principal. If it is counted towards principal, that should accelerate you along the amortization schedule as you expect.

This is (sadly) vastly beyond the level that most people think about mortgages so yes, most writing on mortgages is by and for retards.

Seananigans said:

Ok then that’s the scenario I outlined that he responded to with the article. I suggested the bank just sets the money aside doing nothing for one month then applies it to that next month’s payment. Which is theft.

Amazing that that is allowed.

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It's only theft if they do that with money you've specified should go to principal. If you didn't specify that, you've left a grey area where they have to pick one way or the other. Then you'd have complaints that someone tried to pre-pay before they went on vacation, the bank took that as principal, then penalized them for missing the payment. On reflection, and given the frequency with which people probably accelerate mortgage payments, it's probably the lesser evil. Just be clear with what you're trying to do with the money.