Question : 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?
- asked by Suave
All Answers:
Answer #1
Yes. Pay it off as soon as you can.
- answered by Level Eight
Answer #2
As long as there isnt a prepayment penalty on yourmortgage.
- answered by aaron
Answer #3
It is very wise to payoff fast..but you lose inequity. I would talk to a mortgage officer at thebank. Maybe 5yrs is a good amount to gain equity.
- answered by Tonda S
Answer #4
It depends on a lot of factors. Based on what youhave said, I would probably put down the largerdown payment. By paying down the principle morequickly you build your equity faster.
- answered by math_prof
Answer #5
I would find a good financial planner and a goodmortgage broker. I put 20% down and finance therest 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 anymortgage broker keep their homes financed at70-80% Combine Loan to Value (CLTV) and interestonly loans at that. Ordinary People, ExtraordinaryWealth: The 8 Secrets of How 5,000 OrdinaryAmericans Became Successful Investors--and How YouCan Too by Ric Edelman
- answered by Dave C
Answer #6
One way to help pay off a home and able to gainequity and build your credit score is to send andextra one to two hundred dollars a month towardsyour mortgage payment. By doing this it will take6-8 years off your payment. But double check withthe lender to make sure that there are no pre-paypenalties by paying your house off early. It couldcost you anywhere from $3000-$5000 plus.Are youlooking into investing into more property? If youplan on buying more homes in the future and eithersell or rent them out, keep payment on this homefor at least 2 years. Make all your payments ontime so that when you do go get another loan thelender's like to see that the mortgage was neverlate and it won't be too difficult for you to geta loan.Some lender's will only give you up to 5loans for properties for investments and some donot care. You can contact the HUD; Housing UrbanDevelopment, in your state for more info on homeowning and investments.Also, be careful if you aregoing to charge more money for rent on yourmortgage; ex: your payment would be $400 and youwant to charge $650 for rent. I know that where Ilive, if you charge rent more than the mortgagepayments you have to claim the additional money tothe IRS as income. I believe that it applies inthe US, but I could be wrong. Contact theAttorney Generals Office in your area to get moreinfo.
- answered by mmorganloans
Answer #7
It good to pay the larger amount, however makesure you have cover all your expenses beforereleasing such a large down payment. You willhave instant equity in your property so you won'tbe losing anything. I view the profit from therent as your net profit minus your expenses. Youwill receive an immediate return on yourinvestment, especially if you already have atenant for the house. Great job!!
- answered by gri204
Answer #8
Put your 20% down, and use your money to buy morereal estate. Before you know it, you will havemultiple properties under your belt and be wealthyyears down the road.help@choicefinance.net
- answered by mortgage help
Answer #9
i would say that your biggest mistake here isleasing.....i dont care how much money in advanceyou collect for a deposit.....your home (and yesit is yours) will not be taken care of the way youwant it to be kept....stains on carpet, holes inwalls/ceilings, general bug problems, unkemptlandscape....i just dont think i would trust $65Kto a total stranger!....i'd put the $12k down andthen in 6 months pay a curtailment continue andpay another until youve exhausted the originalfunds
- answered by cookiesmom
Answer #10
It is fine to go ahead and try to pay as much asyopuo can if you have the money. But also try tomake sure you have enough emergency money. Whenyou are renting out the home, you have no idea howwell the leasor is going to take care of the home,so there can be some damages. Interest is alwaysmoney, y pay out money that you do not need to.Just make sure also that there is no penalty forearly payment, etc. Any loan after a year or 2will help build your credit score. Good luck!
- answered by ladida
Answer #11
There's not much difference between putting the$35k down and using it to pay off a large portionof principal in a month or so (except for theinterest accrued between funding and payoff). Unless you can invest the money at a higherinterest rate than the mortgage, I would put the$35k down.
- answered by trigam41
Answer #12
I have a few different options. 1st the 35 grandyou have, at what interest rate is it growing at?if you are make 10 to 12% you might not want totouch it. It is much different collecting 10 to12% than paying 5 to 6%. Also if you are living athome w/ parents you should have your money inother money market accounts where it can grow moreaggressively. 2ND if you correct the 1st part thecomparison will not even compare. If you make 200a month off the property only putting 20% down youwill still be in a win win situation. It may notlook like it now but the interest you pay will betax deducible. And most of all if you are wantingto put down more money make sure to buy down yourpoints to have a cheaper interest rate. Good Luck.
- answered by Chris T
Answer #13
I would check the housing market, if you areseeing a rapid rise in prices in your area, try topay off and sell as early as possible.
- answered by Kainoa
Answer #14
It's wise to pay off any debt as quickly as youcan. Interest on any debt is higher than what youwould earn on an investment. And even though thehouse would be considered an investment, or asset,the mortgage is still a debt.
- answered by Erudite
Answer #15
My father actually just went through this. Heinherited $250000 and owed 60000 on his house. Heconsidered paying it off so as not to have thatpayment but after talking to a broker, decided tokeep making his payments because the amount ofinterest he was being charged on the house is lessthan the amount of money he could gain on the samesum of money. His broker has put money into manydifferent things some of which pay up to 10%. Idon't remember exactly what his mortgage rate isbut I do remember there was a lot of profit to bemade by holding that sum of money and gaininginterest on it over paying it off at once to saveon interest. Talk to a broker, they will be ableto help you decide what is best for you.
- answered by pebble
Answer #16
Do you have credit cards, a car loan, or otherinterest debt that could be higher than a homeloan? Pay that off first, more bang for yourbuck.If you are buying a house as investmentproperty, that interest is deductible againstincome, which is also good. This doesn't meanthat you shouldn't pay off the loan, but it mighthelp you with your priorities for the money youhave 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 orlegal expenses (what if you get sued?)Banks don'tpay much interest, but you might want to considerputting some savings into a stock or bond index inorder to diversify, and create better gains. Keepsome in a money market or savings account in caseyou need it.If you are risky and unafraid of goingbankrupt, you could also buy a second $60,000house with the extra money and lease it. Thatway, you are buying two houses instead of justone. This is extrememly risky, and I wouldn'trecommend this if you don't have the regularincome to pay both mortgages without renters. Butyou can always roll the dice...
- answered by Polymath
Answer #17
yes
- answered by Candy Mamii
Answer #18
Of course, it's extremely wise, your home is themost important investment you'll ever make andpeople have to work for so many years to pay off ahouse, the bank ends up making a killer on theinterest, at the end of the day if you were tokeep the loan for lets say 30 years (for regularconventional loans) you'd be paying twice theamount of the amount that was financed to you, themost fortunate people are the ones who own a homefree and clear, like my mom, so by all means payoff your home asap, you won't make the bank richand will have saved a lot of money. It's one ofthe wisest things to do if you have the means gofor it!!Tonda is incorrect you would never loseequity by paying off your home sooner, it hasnothing to do with the market, the only way youwould lose is if your mortgage loan comes with ahard prepayment penalty, which means you pay 6months worth of payments for paying off the loanearlier than the term established, like 2 or 3years, it doesn't seem that you'll be getting thistype of loan anyhow, just wanted to clarify that,and what you are doing is very wise, try payingfor things in full, I bought my car cash and Ilove not having those payments, the people in thefinance dept. were mad and persistent, they saidkeep your money, for investments, blah blah, blah,I said no thanks, I already have that aside. Theywere mad, they make nothing of course.
- answered by Intellect
Answer #19
if you have the moeny. and make sure you haveenough money for food and some othe stuff.
- answered by lil_viet_soja
Answer #20
ALWAYS!
- answered by sarajane14207
Answer #21
As opposed to a loan shark, yeah!
- answered by vanamont7
Answer #22
Really depends on how much risk you are willing totake. A 30 year loan will cost you at least 2.5times the price that you paid. On the face of it,that looks bad, but you must consider yourfinancial situation. Money you collect as rent istaxable, but the house is depreciable over it'suseful life. This is a complex issue to addressin general terms, but I do this: Save 6 months ofyour salary for a rainy day , and invest the rest.If you pay it off, consider owner financing andsell it. Renting is risky.
- answered by Ken M
Answer #23
Yes, put as much reasonable down as you can butmake sure you still have enough to overpay theminimum payments. It's also another good idea tomake a minimum payment every paycheque if it'sreasonable to you. Bottom line, never pay theminimum.
- answered by two_eighty_eight
Answer #24
Pay it off my friend you won't reget it.
- answered by Xavier T
Answer #25
It is ALWAYS better to pay off and own ahome/house vs being leveraged in finance.So-called high dollar money gurus will crunchnumbers and throw stats at you all day trying tomake you believe you should always remain in debt,i.e; "you need to finance a home for the taxwrite-off". God, how many times are we going tohear that one? If you are so interested in a taxwrite-off then calculate what the interest wouldbe on a mortgage and donate that amount to the RedCross or your church -- you get the EXACT benefittax-wise yet no financial advisor ever tells youthis. One more thing -- there is this this thingcalled 'risk management', and you HAVE to use thisin your financial calculations when dealing withlarge numbers (like the purchase of houses). Lessrisk = more profit, always and forever.Check outthis guy if you haven't already:www.daveramsey.com. He is the genuine article whenit comes to money and how to keep it.
- answered by CowboyBill
Answer #26
The advice I usually give is do the 20% down andconsider "How long will you be saving in order tosave the additionsl 20k. about 80 to 100 months. I would keep the rest in your investments. Buyanother house.
- answered by mss04
Answer #27
You should figure out this scenario with a yourtax guy. Factoring the added income over andabove state taxes (if you have) and mortgage.Youmay end up paying in Federal and state taxes orother. Get all your overhead costs and misc costpredictions and sit down with your tax guy...theirusually very good with such and will give you wiseadvice. ;)
- answered by cheshire
Answer #28
House Value : $ 60000Dwn Pmt: $ 10000LoanAmt: $ 50000Rate Of Interest: 7.00% onreducing balanceIn case the repayment is takenover 15 years the monthly repayments shall be $449.41 and total interest paid $ 30,894.54In casethe repayment is taken over 10 years the monthlyrepayments shall be $ 580.54 and total interestpaid $ 19,665.09In case the repayment is takenover 5 years the monthly repayments shall be $990.06 and total interest paid $ 9,403.60In casethe repayment is taken over 2 years (as you haveenvisaged in your question) the monthly repaymentsshall be $ 2,238.63 and total interest paid $3,727.09The amounts of monthly repayments andtotal interest would be different in case you optfor a larger down payment.Hope it helps indeciding
- answered by Shashi
Answer #29
I have been paying extra money ($2000) towards myprinciple every month. It will be paid off in lessthan a year. I will be 26 with no debt and a housepaid for. AND I saved about $90,000+ in interest!
- answered by DeadDwarf
Answer #30
I think you should take all of this advice andthen make an appointment with a financial plannerwho specialized in real estate investments and paywhatever the fee is. Also, I have always paid atleast one extra mortgage payment a year, with awritten note that expressly stated that amount wasto be applied to the Capital only, therebyreducing the amount that remains to have interestapplied on. Year after year, it quickly adds up
- answered by Rosie
Answer #31
It is always best to put down the biggest downpayment that you can and pay off any loan as soonas you can if there are no penalties.
- answered by Troy
Answer #32
Simple answer... If you need a tax write off, keepthe home loan. |
