The Resting Place.

[ultrarunner]

I paid the 30yr, loan off in 3yrs and never a loan since for anything.

And here I thought I was doing well paying a 30 in 12

 

[Jstpssng]

And here I thought I was doing well paying a 30 in 12

You did do well. Not all things are equal.

 

[Fuddyduddy1952]

In my case after about 18 months (payments) at my bank I had hardly paid any principal off. I asked what if I pay an extra $200? "That is deducted from the principal" I was told. So I started doubling payments, sometimes more. After 18 more payments that really reduced principal. I had saved cash also which added up living frugally, so I was able to pay the balance off in 3 years.
Never another loan, new cars, trucks just paid cash. An inexpensive compact car was just as good transportation as an expensive one, actually better mpg.

 

[MossRoad]

I paid the 30yr, loan off in 3yrs and never a loan since for anything.

We borrowed $18K for our first house at 12.5% on a 30yr mortgage. Had we paid it off in 30 years, it would have been about $50K in interest plus the original $18K borrowed. We made double payments and paid it off in a bit less than 5 years for a total of about $30K. So that was a big boost early in our marriage.

 

[WinterDeere]

We borrowed $18K for our first house at 12.5% on a 30yr mortgage. Had we paid it off in 30 years, it would have been about $50K in interest plus the original $18K borrowed. We made double payments and paid it off in a bit less than 5 years for a total of about $30K. So that was a big boost early in our marriage.

Amen. I think too many people have accepted taking 30 years (or longer) to pay off a mortgage as "normal". Even at today's lower rates, the cost of borrowing is real, and substantial.

I took a 15 year mortgage to buy each of the two homes I've had in my life, and took roughly 10 years to pay off each. By going for a 15 year fixed, you can get a lower rate than is possible on 30 year fixed, I think my last one was at 2.125%.

To the young folks out there, just getting started: if you think you can't afford a 15 year mortgage, you should probably be shopping smaller homes. Your retirement plan will thank you. Being poor early in life, because you're working to pay off that mortgage, is just... "life". We called it, "being young and poor". But being poor later in life sucks, or so I'm told.

 

[kenmbz]

Matters how much your house costs and what the loan really covers.
We have some of what you would consider large loans, but for this area they are not considered large. We refinanced our house at 3% for 15 years and are paying down to a time line and used some of the money for a rental property, which covers much of the loan.

 

[MossRoad]

We ran the numbers on a 15 year VS a 30 year. At that time, with the high interest rates on both, there was not much incentive to go with the 15. The 30 lowered the minimum monthly payments quite noticeably. So we figured we'd go with the lower 30 year payments in case we ever ran short in a month, with the plan being to make double payments normally. Also, the mortgage allowed us to pay way ahead. If we ever needed to skip a payment, it allowed us to skip as many payments as we wanted up to the point where we'd be back to the original loan amount, then we would be required to again make the minimum interest payments. One could get trapped in that revolving, never ending cycle and never pay the loan off ever.

Fortunately, we only had one month in that 5 years of early marriage where money was tight and we decided to skip one payment. It was pretty far into the payments, so it might have cost us about $12.

 

[MossRoad]

My favorite thing about our 30 year mortgage was having that printed amortization table with all 360 monthly payments on it. The very first month we paid double payment. So the first payment knocked off 1 payment, the double payment was applied to the principle, and that knocked off the next 29 payments! I grinned from ear to ear as I penciled out each of those 29 payments!

 

[Torvy]

Be careful with that thinking. Many people get into trouble because they think making extra payments allows them to skip. This is rarely the case. It changes the payments on the back end, not the front end. Most institutions will charge late fees and report missed payments if you just skip a payment, even if you have been paying extra. The banks that don't do that are often just applying extra payments the same as a regular payment, just sooner. (Meaning they aren't applying it all to principal). You still finish sooner, but end up paying a lot more. Some make you specify principal only on the extra payment. Caveat Emptor.

 

[WinterDeere]

Be careful with that thinking. Many people get into trouble because they think making extra payments allows them to skip. This is rarely the case. It changes the payments on the back end, not the front end. Most institutions will charge late fees and report missed payments if you just skip a payment, even if you have been paying extra. The banks that don't do that are often just applying extra payments the same as a regular payment, just sooner. (Meaning they aren't applying it all to principal). You still finish sooner, but end up paying a lot more. Some make you specify principal only on the extra payment. Caveat Emptor.

You are correct in that making extra/early payments does not build-in automatic forgiveness for missed payments. However, amounts paid above the minimum do generally go directly toward principal, in a standard fixed rate mortgage.

Think of your monthly payment as first paying the interest due, with anything above that going toward principal. Some used to write a second check and put "toward principal only", as a belt-and-suspenders measure to ensure that's how it applied, but that is generally not necessary.

Here's another curious one: Some mortgage companies will allow you to convert from monthly to biweekly payments, which can actually save you a good bit over a decade-long (or decades-long) scale, by always shorting the interest accrual at a given principle level by 2 weeks (versus monthly). If you get paid every two weeks, it is worth asking your lender if you can convert to automatic bi-weekly payments. Of course, games like this were always more important back when interest rates were double-digit, versus the majority of the last 15 years.