home loan question

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We have a thirty year morgage on our home we owe approx 58,000. at 4% interst rate the payments are low. we had to go with a thitry year loan to get the intrest rate....now the question I have been meaning to raise the amount we pay every month by 200.a month and split the payments to reduce the intrest and pay off early... our bank charges for this service 50.00 to set it up and 9.00 a month to split the payments...would it be a good idea to do this or save the money on our own and go into the bank yearly and make one large payment... I just don't like to pay the extra 9.00 a month to the bank and not to the principle...

-- ronda (thejohnsons@localaccess.com), May 25, 2004


You said you had to get a 30 year loan to get the interest rate. I assume you have a fixed rate mortgage. I do not understand that. Usually the longer the loan period the higher the rate. The bank has to take the risk that interest rates may move up in the future, so the longer loans have the higher rates.

Find out if your loan has a pre-payment penalty, if not you should be able to just make larger payments each month.(Make sure to specify the extra amount goes toward the principal.} That is what we have done for years, both on our previous place and the one we are in now. It does pay to pay ahead if you can, especially in the earlier years of the loan, but remember several other things before you stick all your extra cash into the house.

Make sure you have some money saved for a rainy day {6 months of mandatory payments on such things as power, fuel, auto expenses medical insurance, food etc..) If you have the cash on hand you can make the payments on these things , but if you have it all tied up in the house and you lose your job, or get hurt and can't work, you may lose the house to foreclosure. A good place to put this cash is in a money market fund. It is easy to get your money, and you don't have to wait to sell a stock, or wait for a cd to mature.

Another thing to consider is paying off any bills if you have any, such as automobiles or credit cards, because the interest rate on those things is considerably higher than your mortgage. Always pay off the highest interest debt first.

If you have access to your loan papers check out if the loan has a prepayment penalty or not. If you can't find it there call the mortgage holder. While you have them on the phone tell them you want to pay more each month and how is the best way to do this.

Hope this helps, feel free to e-mail me if you have any questions on what I wrote.

-- Bob in WI (bjwick@hotmail.com), May 25, 2004.

Do you have enough other income to write off the deductions for the house interest? If so, you could also look into buying a rental property. You could write off those expenses, and the renters would make your payments for you.

I agree, pay off autos and credit cards first--not only high interest, but not tax- deductible.

-- GT (nospam@nospam.com), May 26, 2004.

We do have all our outstanding debts paied off and have monthly bills down to about 600.00 a mo we also have another peice of property paid off, and a fair amount in savings. I don't think we would be intrested in a rental property as my DH isnt that handy. we are getting older and want to pay off early. Anyone with a home lone of any length can save money by splitting their payments to twice monthly. without paying a penny more than their monthly payment. ie. we would save about 7500. in intrest and reduce our payments by 5 yrs and 2 mos. on our loan I just don't like the attached fees.

-- ronda (thejohnsons@localaccess.com), May 28, 2004.

But why split the payments at all? Add the $200 in your regular payment, usually on the payment coupon somewhere there is a space to indicate that it is going to principle. It shouldn't cost you anything extra.

As to a rental, you don't have to be "handy", unless one LIKES doing that sort of thing. Many landlords with properties that are practically next door to them still choose to gladly pay for the property manager to deal with emergency calls at 2am, wait for the repair person, etc. All those expenses come out of the rent you charge your tenants, providing you buy the right property and deal with the right team of people (property manager and repair people). Trouble with managing your own properties is that you must be available to your tenants for repairs and such in a timely manner. If you dont' mind staying close to home, great, otherwise it can be a real pain. Just something to think about.

-- GT (nospam@nospam.com), May 28, 2004.

The reason that the payments are less is because there are 30 days in the month, not 28. You will be giving them 1 extra payment a month by the end of the year.

If you like, you COULD just give them the extra payment, providing there is no penalty involved. Read your mortgage paperwork again to see if there is.

-- Terri (hooperterri@prodigy.net), May 29, 2004.

OOOPS! I meant ONE MONTHS extra payment a year, of course!

-- Terri (hooperterri@prodigy.net), May 29, 2004.

We just pay extra ourselves every month on top of our payment. It works very well. I want to warn all those who are refinancing their homes to be sure and check the fine print to make sure that you can make extra payments before you sign the papers. It is better not to get yourself in a position where you have to pay for special arrangements or where the bank won't allow prepayment without a penalty. It is very important to read the fine print ahed of time.

Little Bit Farm

-- Little Bit Farm (littlebit@bright.net), June 09, 2004.

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