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Old 02-19-2011, 08:55 AM   #61
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If you pay an extra $40,000 into the loan toward principle after the loan is created, then you have just shortened the length of the loan, but not modified the terms while active. You will still pay the $810 in interest the first year, $790 the second, and $770 the third regardless of whatever extra you have put toward principle. The only thing extra principle does is shorten the loan.
No, that is not how a mortgage works. You only pay INT on the PRI you owe. Paying an extra $XXX the first year will allow you to skip to the third year's INT payments because the second year's PRI has already been paid (so you cannot owe INT on it). We saved $50,000 or so on INT payments by making extra payments each month on our mortgage.

If anyone is interested (I won't type it all out if no one asks for it) I can show you guys how we did it. Pretty easy method that starts out relatively painless.
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Old 02-19-2011, 10:39 AM   #62
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That is exactly how a mortgage works. If you take 10 years to pay off a 30 year loan, you still pay the interest on the schedule for the first 10 years. Whatever extra you pay in goes toward the end of the loan and removes payments as you pay off principle scheduled for them. A bank would never allow you to use it toward the payments in the beginning as that would cut to deep into their margin.

Based on what you are saying, if you sold your house you own for $60,000 and bought another house for $100,000 on a 6% loan, you should only put $10,000 down and in the first month put the additional $50,000 to skip ahead to whatever the future payments are scheduled to be at that principle balance. Since this will knock out the majority of the interest payments and you will be paying a significant amount less interest, your loan rate would basically be 3% on a $40,000 loan. Is this the general idea of what you are saying?

You pay interest on the original loan amount on a set schedule until the loan amount is paid up.
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Old 02-19-2011, 11:01 AM   #63
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I opened a roth ira just for fun this year. it may only end up with a few thousand dollars of initial cash in it, but whatever it earns is MINE until someone says otherwise.
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Have your wife open her own as well. We've been each contributing 5000 a year to ours for 4-5 years now.

plus we have roll over iras converted into roths, and our 401ks.
Can we have a Traditional vs Roth debate? I rolled a 401K over last year to a Traditional. Was going to convert to Roth but didn't really feel like paying the taxes though I could afford it as the balance is rather modest.

I'm thinking I'll be in a lower tax bracket when I'm old and can finally use the money.
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Old 02-19-2011, 11:04 AM   #64
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Can we have a Traditional vs Roth debate? I rolled a 401K over last year to a Traditional. Was going to convert to Roth but didn't really feel like paying the taxes though I could afford it as the balance is rather modest.

I'm thinking I'll be in a lower tax bracket when I'm old and can finally use the money.
Unless they change the tax laws between now and then. Oh snap!
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Old 02-19-2011, 11:12 AM   #65
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You mean like an Executive Order that says "the nation is in an extreme financial emergency and thus it is everyone's patriotic duty to convert half of all their retirement accounts into government bonds".
Nope, I'll convert the other half in the tax deffered accounts.
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Old 02-19-2011, 11:37 AM   #66
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I'm thinking I'll be in a lower tax bracket when I'm old and can finally use the money.

compounding interest...youll have tons more money when you are ready to pull, regardes of the bracket, the math usually works out int the favor of a Roth.
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Old 02-19-2011, 01:15 PM   #67
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Perhaps a 50/50 split might be in order. On the wild chance that I make over 100K a year some time in the future, I won't be able to contribute to a Roth IRA.

Last edited by ecko; 02-19-2011 at 01:39 PM.
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Old 02-19-2011, 01:47 PM   #68
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You can still make contributions up to $122,000 but they are more limited. Limits are $169,000 for married couples filing jointly and up to $179,000 limited contributions.
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Old 02-19-2011, 01:51 PM   #69
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Well I'm pretty sure I missed the fancy 2010 deal where I could break up the taxes owed between 2011 and 2012 income. I could convert half now and decide if I want to convert the other half later (maybe next year).
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Old 02-19-2011, 01:53 PM   #70
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That whole thing was a sweetheart deal. I doubled up that year by contributing to a Traditional IRA and then converting to a Roth, while still maxing out a normal Roth IRA.
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Old 02-22-2011, 11:37 AM   #71
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I'm with rharris19 on the paying a historically lowest 30 year fixed interest rate off early. It's an emotional decision vs a financial decision.

http://www.ricedelman.com/cs/educati...ong%20Mortgage


Granted the article is assuming greater returns on investment than are currently available, but it is also assuming a higher mortgage rate so both numbers can be adjusted to reflect current rates.
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Old 02-22-2011, 11:48 AM   #72
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I find myself leaning toward paying off the house earlier, both for the emotional satisfaction and also because I read the Market Ticker and I don't see market investments paying off an easy 8-10% like it always has in the past.
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