The new math: paying down your loan makes sense

Pure propaganda! Walk away or be doomed! When Mortgage rates rise up to the roof, housing prices will collapse! All these homeowners are doing now is paying mostly their mortgage interest , in other word, the bank is their landlord! They think they are owning but until their mortgage is paid in full, they are actually renting!

sledge, that's a nice bit of wishful thinking on your part. Totally depends on how long owners are into their mortgage to determine if they're mostly paying interest or principal. I would also love to know when these rates will "rise up to the roof." What kind of rates are you envisioning? 10%? 15%? More?

A paid off home mortgage is the new BMW.

"Cecelia Kirchman happily added $250 to her payment when she refinanced last August."

Cecelia won't be too "happy" when she loses her job and is out of work for 22 months, and all those extra thousands she paid towards her mortgage have disappeared into the Bank Black Hole rather than padding her bank account for desperately needed living expenses.

One of the greatest benefit of re was the ability to leverage to 20x and benefit from inflation / fixed rate mortgage arbitrage. So being 100% equity in a deflating 'asset' is the new BMW of finance? Fktard. You can't have it both ways.

You wanna bj, gotta return the favor for the lady you fat fuck.

Only pay down with money you won't need for the duration of your ownership.

When you factor out investment properties and people who have no issue with cash out refis, fundamentally borrowers want to pay down their mortgage. When faced with a choice between 0% on bank deposits, 1% on CD'S and a gamed stock market, this remaining class of home owners sees paying down a mortgage as being the best option. Only underwater borrowers consider default as a good option the rest of us think about our borrowing cost of capital vs the risk free investment rate.

> A paid off home mortgage is the new BMW.

This will never be the case.
Why? B/c you can't overtly show it off to new people.
Same reason people don't save any money.
Why bother? No one else can see it.

"“It’s unbelievable,” said Kirchman, a marketing director for a financial-planning firm who lives in a ranch-style house in Frederick, Maryland, with her husband, Mark. “For very little more each month, I’m paying it off much more quickly.”

Isn't this just saying that compounded interest is so expensive, paying less of it makes sense?

Also, doesn't this contradict the "all about the tax deduction" sentiment?

"Also, doesn't this contradict the "all about the tax deduction" sentiment?"

Not really - you still get a tax deduction on the extra payments you make. I don't know a single person who has said it's "all about the tax deduction." Is it a nice thing to have? Of course. But it's not the sole reason to buy anything.

there is no tax deduction on extra payments that reduce principal.

I have an equity accerlerator on my mortgage and I did pay down considerably. One makes bi weekly payments.

But rates are very low. If one is not over 50, I don't see the advantgages to walking away from cheap money.

Does anyone remember mortgage burning parties?

"there is no tax deduction on extra payments that reduce principal."

yup... paying it faster means paying less in interest, which means less of a deduction....

granted, it always reminded me of claiming that making less has the benefit of lower taxes....

The dollar amount of the deduction is of course less since you are paying less interest. The gov't is still subsidizing the same percentage of your interest payment.

"yup... paying it faster means paying less in interest, which means less of a deduction...."

Over the life of the loan, sure, but for the tax year in which you make an extra payment or two, that money gets counted in your itemized deductions.

give it up. when you make an extra payment, its to pay down the principal, not to prepay the interest.

No. The extra payments are applied principal. The reduced principal balance results in reduced interest payments in succeeding months, so less of a deduction.

Oops, "applied *to* principal."

So if you want a bigger interest deduction just has for a higher coupon mortgage????

Bjw. If u want a higher deduction, I lend at 21% secured with ltv of 50% or $500psf. If it's a cpw c7 with views I'll lend at 60% LTv or $600psf.

Here's to wishing everyone higher rates so you can deduct more from the nasty govt!

Cheers!

Sorry, maybe I have it wrong. But if you're making an extra payment, your 1098 should show a higher amount than if you hadn't made the payment, no?

you may have it wrong?

no...you're wrong.

do you know the difference between principal and interest?

no

Sorry cc, can't read what you're saying. It's gray and tiny.

ab_11218, thanks - my mistake then. For whatever reason, I thought it wasn't 100% applied to principal.

Flmaozzzz. Here is the flip side. If I have $10mm in cash and I earn 2.5% last year, $250k and I am happy. Now If ir goes to 5%, I can either earn $500k making me twice as happy or I can spend $5mm and still be as happy as 2010 w67.

Remember boys and girls, as long as you hold the 30yrs to maturity you'll get your 5% for 30 yrs.

The flip side to that is, will you be able to hold onto the pos nyc coop for 30yrs? Now add, post the greatest nyc re bubble in history? Flmaazzzzz

Hey W67: Re your statement on the other thread about the souvlaki debacle. Yeah, they are kicking this particular can into the mother of all cul de sacs. This will not be pretty. Someone will have to pay up, just a question of who is the dumbest guy in the room. If they can't jigger the default issue and Germany ends up just pumping cash into the country as it "privatizes" the Greek economy, the fallout will be enormous. The media plays it that this is just a bunch of govt workers sore about losing their big pension jobs. But if it ends up that Germany --or another entity-- basically takes over the country without ever firing a bullet, there will be consequences. Deutsche Telecom already took a another piece of Greece telecom for next to nothing. The airports are being sold, The utilities will be sold. RE will be sold -- islands. Not to mention, Angela would be retiring if the German taxpayer bails out the system that created such largesse for Germany.

"Bjw. If u want a higher deduction, I lend at 21% secured with ltv of 50% or $500psf. If it's a cpw c7 with views I'll lend at 60% LTv or $600psf. "

Ha, I know. It's like wanting to make less to save on your taxes....