Madison MoneySports - Personal Finance Thread

[Tyler.M]

I have all of your bad decisions beat. I'm $400,000 in debt and make $58,000 per year working 80 hour weeks. Hope it makes everyone feel a little better about their life choices.

Tyler - hot damn. I'll be your special date for a celebratory dinner. Hit me up.

Anytime honey bunny. 

That's insane, but I'm assuming once you are able to practice on your own, it'll be a lot different. Obligatory comment that we should definitely pay education expenses for doctors, my God.

[little baby jesus]

I drove 33W on my first day off in weeks the other day; did it at 7am when no one was around. Used the 135 and MY GOD was it glorious.

[Tyler.M]

I drove 33W on my first day off in weeks the other day; did it at 7am when no one was around. Used the 135 and MY GOD was it glorious.

y u no invite me

[Kaan]

I have all of your bad decisions beat. I'm $400,000 in debt and make $58,000 per year working 80 hour weeks. Hope it makes everyone feel a little better about their life choices.

Tyler - hot damn. I'll be your special date for a celebratory dinner. Hit me up.

Obligatory comment that we should definitely pay education expenses for doctors, my God.

i mean its way more complicated than just paying for education... litigation in general, do you pay the $400k doctor bill or just rehab the entire education expense part and pay that "lower" bill.. etc. but lets not turn this into politics... 

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We "finally" paid down our FHA loan enough for PMI to go away. by the time the interest rates and property values aligned to refinance and make it go away... it was cheaper to just pay it down and keep the remaining years on the mortgage. 

Once we got rid of PMI i guess the company took us seriously (i tracked it down to the month)... we got an offer to do a program to pay half 15 days early and the other half on time, something about speeding up our pay off? anyone have any experience with that? 

either way, with paying over and now rolling our PMI amount into an over payment, we should be paid off in 10 more years... just in time to participate in the "catch up" retirement programs when you are over 50 and all that jazz. 

now to keep to the budget and roll my next two raises into retirement property... or maybe just an enclosed trailer with a nice diesel (priorities)

[CaptainHenreh]

Once we got rid of PMI i guess the company took us seriously (i tracked it down to the month)... we got an offer to do a program to pay half 15 days early and the other half on time, something about speeding up our pay off? anyone have any experience with that? 

So, it's basically just an interest game, because banks calculate your interest at a regular interval (usually daily) so if your balance is lower when they do the calc, you...pay less interest.

I'd ask, though, instead of Half on the first, say, and half on the fifteenth, if you could make payments just a flat every two weeks. Most of us get paid every two weeks (not bimonthly) and while we kind of THINK of a month as four weeks long, it isn't. over the span of thirty years, or even ten, this makes an enormous difference.

Think of it like this:

Let's assume a 30 year mortgage, blah blah, whatever APR, that's 360 monthly payments. That's how they'll split it up. If you do it twice a month, that's 720 half payments.

But if you pay every two weeks... how long does it take you to get to 720? 52 weeks in a year. 26 payments a year, your mortgage is paid off in July of your 27th year, even if your bank doesn't offer you any kind of savings on interest.

But if your bank DOES (and most do), then boy howdy are you gonna save some money.

Let's take a look!

Let's say you after all is said and done buy a house with a $200000 mortgage, at a 3% interest rate (hey not bad, good for you!).


Loan length: 360 Months
Your monthly payment: $843.21*
The total interest you will pay over the life of the loan: $103,554.90 (fuuuuuuuuuuuuuuukkkkkk)
Total cost of your loan: $303,554.90. i say gaw DAMN.


But hey, you get paid every two weeks. Why not pay your mortgage every two weeks?

Loan Length: 317 Months
Your biweekly payment: $421.60 (aka, half your monthly payment)
Total interest you will pay over the life of the loan: $89,796.71
Total cost of your loan: $289796.71

Savings paying every two weeks: $13,757.29

Ain't compound interest a bitch? And that's not even getting into throwing another hundo on top of that $421 (as long as you can apply it to the principle) that will save you like, another ten grand and a few years on your loan.

So kaan, ask if you can make biweekly payments. You're basically slapping a whole extra month's payment every year, and with proper budgeting no heartburn at all.

(This works for cars too, you just don't pay for 30 years on cars.)



*Lots of people's monthly payments include personal property tax escrow, homeowners insurance, and potentially mortgage insurance (for your lender lol, not for you silly boy) and obviously you won't get any benefit on your interest by paying extra on that. I'm just talking the loan service payments.

[Kaan]

Once we got rid of PMI i guess the company took us seriously (i tracked it down to the month)... we got an offer to do a program to pay half 15 days early and the other half on time, something about speeding up our pay off? anyone have any experience with that? 

So kaan, ask if you can make biweekly payments. You're basically slapping a whole extra month's payment every year, and with proper budgeting no heartburn at all.

oh yeah, it should be pretty easy on the budget overall. Its almost asinine how much PMI and all that stuff adds up... i'll call the company about the program and see... i'll take the extra 10 months off the life our current loan. uncle sam already hammers us, might as well pay off the house and really take it hard.

[Apoc]

Make sure to pay attention to mortgage interest caps on your taxes. You may not be close, but the impact is lessened if you can't deduct the interest you pay on the extra payment (might be all principal, depending). Also make sure they're actually paying the principal every two weeks versus holding the money and paying it monthly. Lastly, there are sometimes fees for prepaying or switching to biweekly, so make sure you're not spending money to try and save money.

I did the math and determined I could build wealth faster by not paying ahead and putting that money in the market. In Rex's example, I could make more than the $13.8k over 25 years by keeping that one extra payment a year and investing it. A single $1,000 payment compounds to almost $10k over 30 years (8% return) and you're doing an extra payment every year. Interest rates being ~half of annual rate of investment return helps a lot. You're basically borrowing money at 3-4% and using it to make retirement income at 8%. That said, some people just want to pay off their mortgage... but I don't fall in that camp.

[Kaan]

Make sure to pay attention to mortgage interest caps on your taxes. You may not be close, but the impact is lessened if you can't deduct the interest you pay on the extra payment (might be all principal, depending). Also make sure they're actually paying the principal every two weeks versus holding the money and paying it monthly. Lastly, there are sometimes fees for prepaying or switching to biweekly, so make sure you're not spending money to try and save money.

I did the math and determined I could build wealth faster by not paying ahead and putting that money in the market. In Rex's example, I could make more than the $13.8k over 25 years by keeping that one extra payment a year and investing it. A single $1,000 payment compounds to almost $10k over 30 years (8% return) and you're doing an extra payment every year. Interest rates being ~half of annual rate of investment return helps a lot. You're basically borrowing money at 3-4% and using it to make retirement income at 8%. That said, some people just want to pay off their mortgage... but I don't fall in that camp.

thats good info to chew on... thanks!

[CaptainHenreh]

Make sure to pay attention to mortgage interest caps on your taxes. You may not be close, but the impact is lessened if you can't deduct the interest you pay on the extra payment (might be all principal, depending). Also make sure they're actually paying the principal every two weeks versus holding the money and paying it monthly. Lastly, there are sometimes fees for prepaying or switching to biweekly, so make sure you're not spending money to try and save money.

I did the math and determined I could build wealth faster by not paying ahead and putting that money in the market. In Rex's example, I could make more than the $13.8k over 25 years by keeping that one extra payment a year and investing it. A single $1,000 payment compounds to almost $10k over 30 years (8% return) and you're doing an extra payment every year. Interest rates being ~half of annual rate of investment return helps a lot. You're basically borrowing money at 3-4% and using it to make retirement income at 8%. That said, some people just want to pay off their mortgage... but I don't fall in that camp.

This is 100% true, and all relates to your risk tolerance and your prognostic ability. I'm not a financial advisor I was simply responding to the specific question, and I agree if you have something that will return 8% over the next 30 years...invest, for sure. (and most index funds have returned that or better over the past 30...)

[Apoc]

My intent was not to indicate your suggestion was wrong, so apologies if it came across that way.

I wanted to point out that mortgage debt is pretty much the best debt to have because interest rates are low, interest is tax deductible, and the market has consistently performed better than mortgage rates over the last few decades.

I perceive Kaan as someone who values paying off a house more than eeking every single dollar out of personal finance. People should do what feels comfortable to them... except pay PMI... that shit is a waste of money. BUT, once you have a mortgage without PMI, consider investment as a possible option instead.

[Kaan]

you are right... id prefer to pay off the house. looking at my earnings projections we could likely do both. i would like to expand our investments, but who knows. we are projecting to be pretty set for retirement (for now).

[Tyler.M]

It was so nice to finally get rid of my PMI this past month and complete the refinance. This is a weird aside but my mortgage company is based in California and they wanted to me to close immediately and sent a notary to my house at midnight after I got off work to finish filling out the paperwork. Pretty crazy. Don't worry, it was the same mortgage company I had my original loan with so I trusted them.

I did the unpopular refinance option of going to another 30 year loan. The plan is to pay my old mortgage payment amount (including PMI) effectively making it a 15 year loan, but allowing me some flexibility in case I wanted to budget for a purchase (i.e. a car) or lost a job. In those instances, just pay the minimum mortgage payment. The real cost to this is that I wouldn't take advantage of a closer to 2.0% rate, but I'm at 2.99% on the refinance which is a big improvement over the 3.75% I had in the other loan.

[Apoc]

I did the unpopular refinance option of going to another 30 year loan. The plan is to pay my old mortgage payment amount (including PMI) effectively making it a 15 year loan, but allowing me some flexibility in case I wanted to budget for a purchase (i.e. a car) or lost a job. In those instances, just pay the minimum mortgage payment.   The real cost to this is that I wouldn't take advantage of a closer to 2.0% rate, but I'm at 2.99% on the refinance which is a big improvement over the 3.75% I had in the other loan.

FWIW, this is exactly what I would have done.

[JPolen01]

^agreed. I think that's a good and safe move. We we're lucky to be able to pay $1500 upfront to remove PMI on our new house.


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[Tyler.M]

^agreed. I think that's a good and safe move. We we're lucky to be able to pay $1500 upfront to remove PMI on our new house.


Sent from my iPhone using Tapatalk

If I could do it all over again, I wouldn't have bought a house as a junior in college and tried to do it when I had more sense. I paid PMI for 8 years. so much wasted money!

[Kaan]

Obviously you dont want to pay PMI. Especially now, or if you got into a program that doesnt allow it to be canceled without a refinance (or not at all). BUT i think we did "okay" with PMI in the grand scheme of things. in the last 3 months distressed homes (both needing cedar siding replaced, complete roof jobs, flood mitigation, etc) in the neighborhood sold for what we purchased our home for.

Looking back i think we got a good price on the house and is a big reason we pushed to get the house, PMI and all. A lot of that had to do with a crappy realtor that only put 6 pictures up of the house (4 were the outside of the house in every season lol)... and they didnt add more pics until we were under contract! our current appraisal is right about where i think we should be... with some budget friendly upgrades to increase value and possibly get people into a bidding war when we actually sell.

i would not get into a house today with PMI, i dont think there are legit deals out there right now worth taking the PMI hit for the time you over pay to get rid of it.

[Apoc]

We paid PMI once or twice. I think it's pretty standard these days for first time buyers.

[Sijray21]

Yeah, we paid PMI for a few years when we wouldn't have otherwise been able to get into a home. Down payment was only 5%, but since then the value of the home has gone up 39%. We refi'd 4 years later when our loan to value was enough to get out of PMI and opted to get out of escrow (paying taxes and insurance separately).

[Tyler.M]

Yeah, we paid PMI for a few years when we wouldn't have otherwise been able to get into a home. Down payment was only 5%, but since then the value of the home has gone up 39%. We refi'd 4 years later when our loan to value was enough to get out of PMI and opted to get out of escrow (paying taxes and insurance separately).

What's the benefit of that? i'm still in escrow for my insurance and taxes.

[Sijray21]

Yeah, we paid PMI for a few years when we wouldn't have otherwise been able to get into a home. Down payment was only 5%, but since then the value of the home has gone up 39%. We refi'd 4 years later when our loan to value was enough to get out of PMI and opted to get out of escrow (paying taxes and insurance separately).

What's the benefit of that? i'm still in escrow for my insurance and taxes.

Monetarily there is no benefit. Escrow requires that a certain balance is carried through out the year, so if you fall below that threshold they adjust the mortgage payment the following year. When we had escrow the property taxes went up enough for us to fall below that threshold, so they raised our mortgage $300 more per month the following year.

Now the mortgage is fixed (principal/interest) and I budget in the annual property taxes due twice a year and pay that directly to the county. It also allows me to 'feel the pain' of taxes and insurance. It also made me realize that my insurance went up a LOT since we bought our house so I switched companies and saved about $1200/yr.

TLDR; with no escrow I'm more financially aware of the costs.