House Payment Question

kaleyandjason · March 2010

I just have a quick question about our house payment. We bought this house in December of '08 knowing (or hoping anyway) that we would only be here 5 to 8 years. It was a rental before we bought it. Which meant that our property taxes would be higher until July of this year. This year they go back down to a single family home. It should cause our house payment to go down $75 to $100. My question is, would you just keep paying what you have been paying, putting the extra toward principle or would you take that extra money and put it in savings or some other kind of investment account?

mofe · March 2010

I would continue to keep paying the same amount. We pay extra monthly on our mortgage. I did an amortization schedule on our home and it's amazing how much you save by sending in a little extra.

hawkilady · March 2010

Unless your mortgage interest rate is lower than what you earn on a savings/investment account which is highly unlikely, I would put it towards the principle. Just make sure it truly goes to principle and not interest on the house (you usually have to specify or they apply it to both).

That would help make me more disciplined in paying it too. We'll be in a similar situation because our interest rate is set to drop 2 points on June 1st because of our ARM reset and I plan to continue paying the same payments and just increasing the principle payment by the difference in interest.

mamie329 · March 2010

I'd probably pay more toward principal. When we were in our last mortgage meeting, my loan officer told us if we paid an extra $100 a month, it would decrease our mortgage by something like six years!

ETA: Ask the ladies on MM -- they're much smarter than I am about this!

keb270 · March 2010

I agree with the pp. You can afford the amount since it is what you have been paying, so why not continue to pay that same amount? It will make a HUGE difference in the long run, trust me!

Leigha12 · March 2010

Unless you have some amazing investment opportunity with 10% return, keep putting it toward the principle. In this economy, savings accounts are useless except to put a hold on money. Return rates are pitiful.

Junebug060609 · March 2010

If I could afford to keep doing the higher payment, I would...unless I had some other debt that was charging me a higher interest rate.

kaleyandjason · March 2010

Oh, I know how bad they are. I work for a bank and people get so p*ssed when I tell them what our CD and IRA rates are right now. I don't know why they take it out on me, I didn't make up the rates, but anyway.

I figured we would just keep paying the same amount. We pay a little bit more every month than just the regular payment. But, an extra $100 dollars would def. make a dent.

Thanks girls!

kaleyandjason · March 2010

Junebug060609:
If I could afford to keep doing the higher payment, I would...unless I had some other debt that was charging me a higher interest rate.

Luckily we don't have any debt, right now. We will have to start paying back my student loans some time next year.

shagadelk7 · March 2010

Do you have any other debt? If so, pay that debt off first. I am sure if you have a car loan or any other credit card payment the APR on that is higher than your APR on your mortgage. I would put the extra money towards that, and then when the other debts are done being paid off, apply it to the principle of your mortgage.

shagadelk7 · March 2010

Haha I wrote that without reading your last response. If you don't have any other debt whatsoever, then I would build an efund to where you want it to be, put a little in savings, and then apply it to your mortgage. If you already have a efund and enough in savings to where you're satisfied, apply it to your mortgage.

stephriz · March 2010

shagadelk7:
Haha I wrote that without reading your last response. If you don't have any other debt whatsoever, then I would build an efund to where you want it to be, put a little in savings, and then apply it to your mortgage. If you already have a efund and enough in savings to where you're satisfied, apply it to your mortgage.

I agree with this. Pay off higher interest debt, and build your emergency fund. If you have an emergency in the next 5 years, it would be easier to pull that money from your e-fund than to try to get it out of your house's equity.

Plus, if you only intend to stay in the house for 5-8 years, does it benefit you to pay extra on the house? At this stage, that money could go further being invested or in your retirment accounts.

chrissyvcm · March 2010

I'm going to have to go against what everyone else is suggesting. Since you said you have no other debt, I'd roll those payments into building your savings and e-fund. If this is a short term house for you anyway, it really doesn't benefit you all that much to pay down your principal. It's all a gamble anyway as to what posititio nyour housing market is going to be in when you decide to sell.

I would say though, that if your payment drops by $73.27, that you should be diligent and say "Ok, we're adding an additional $73.27 to our savings each month". Instead of allowing yourself an extra dinner out or a new pair of shoes.

Leigha12 · March 2010

chrissyvcm:

I would say though, that if your payment drops by $73.27, that you should be diligent and say "Ok, we're adding an additional $73.27 to our savings each month". Instead of allowing yourself an extra dinner out or a new pair of shoes.

What's wrong with new shoes!?!?

mamie329 · March 2010

Better plan: Send the extra to me. Refer to it as "mamie's new house fund"

chrissyvcm · March 2010

Leigha12:
chrissyvcm:

I would say though, that if your payment drops by $73.27, that you should be diligent and say "Ok, we're adding an additional $73.27 to our savings each month". Instead of allowing yourself an extra dinner out or a new pair of shoes.

What's wrong with new shoes!?!?

Not a d*mn thing! In fact, it's probably what I would do. But the question is what *should* she do, not what's likely going to happen with the extra money. Smile

Leigha12 · March 2010

Yeah, sadly if I were in her situation, the money would either go to shoes or vacation fund. But then again, this is why DH and I are in no position to buy a house!

whiteorchid09 · March 2010

Do you have an emergency savings plan started? If you have money saved up then I would say apply it to the principal. If you don't have any emergency money, then I would start building that up.

red daisy · March 2010

ditto Chrissy. Actually our mortgage payment went down by like $200 this year. We have been building the e-fund with it and it will also be used to pay down debt. Plus, my husband is probably going to go part time when the baby comes so it will help to supplement for his student loan payments. Like you, we are not planning on staying in this house long term so I'm not too concerned about paying down the mortgage.

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