would you consider it?

[wincrasher]

Periodically, I check status of my accounts just to be sure my payments are posted, etc, that everything remains in good standing.

Well, since I pay all way above the minimum, I've noticed that "next payment due date" for most is like May or June 2011, with $0 due for the current month.

Would you consider that as part of an EF calculation?

Normally, I maintain a 6 month EF. So really, I think I'm way over-funded, since I basically only need the household expenses in the EF.

[Cassius King]

I wouldn't consider it in your EF calculation. Sure your expenses could be less going forward, but if you have an emergency, say lose your job, you can't tap it to help out.

[wincrasher]

So even though you don't have to pay the mortgage for 8 months, you wouldn't factor that in?

[jIM_Ohio]

EF needs to be liquid cash, and last I checked you don't have liquidity in the balance credited.

[disneysteve]

So even though you don't have to pay the mortgage for 8 months, you wouldn't factor that in?

You shouldn't be making payments ahead of time. You should be sending extra money to the principal of the loan. When doing that, it wouldn't change the due date of the next payment but it would reduce your outstanding balance which, in turn, would reduce the amount of interest you pay over the life of the loan. Just making the regular payments early doesn't accomplish the same thing.

As for your question, no, the fact that you are ahead in your payments has nothing to do with your EF. An EF is liquid cash that you keep on hand in case you need to pay an unexpected bill or if your income drops for some reason. I understand what you are thinking - If a big bill comes along I can skip a mortgage payment. While that's true, that doesn't help if the emergency is loss of your job/income.

[wincrasher]

actually, the principal is reduced. you just have the option of not making payments until the due date. If you did that, you'd be back on your original amortization schedule with the accumulated interest. If you continue paying, then you remain ahead.

I'm not saying to go with no EF here. I'm just saying reduce it to cover the expected expenses with a little spare for an emergency. Also what I'm proposing is taking the accumulated cash and investing it in something longer term. So my EF would go from about $60k to more like $30k.

Right now I'm in the position of only "needing" gas, groceries, utilities, insurance and property taxes for 6 to 8 months. Maybe something extra for the odd car repair or whatever.

[disneysteve]

actually, the principal is reduced. you just have the option of not making payments until the due date. If you did that, you'd be back on your original amortization schedule with the accumulated interest. If you continue paying, then you remain ahead.

I would just double check on that. If they are crediting your extra money toward your next regular payment, that is different than if they are crediting your extra money entirely toward the principal. Either way reduces your principal, but the second way reduces it a lot more than the first way. It would be rather unusual for extra principal payments to be changing the due date of your next regular payment.

I had that same issue with a student loan years ago. I was sending in what I thought were extra principal payments and they were applying them as extra regular payments so I was getting a statement telling me my next payment wasn't due for several months.

[wincrasher]

I think that if you have a payment contract, like a mortgage, or auto loan, you always have the option to revert to your original payment schedule. If you opt to pay extra, your interest does go down along the way, because your principal goes down. Auto loan works the same way.

Now my mortgage on my first house didn't work that way. If you wanted to pay extra, you had to do it by paying a full mortgage payment, which they took off the end of the contract. Suffice it to say, I didn't make many of those.

Revolving accounts, like a credit card, you can't really pay ahead. If you pay extra, it comes out of principal, but there is always a payment due the next month. I don't have any balances, so I don't worry about such nonsense on credit cards.

I guess this all leads to the question - how often do folks revisit their EF and make adjustments? I'd think for most people, the adjustment would be upwards, not downwards.

[disneysteve]

how often do folks revisit their EF and make adjustments? I'd think for most people, the adjustment would be upwards, not downwards.

Not necessarily. It depends what happens to your fixed expenses. If you pay off a car loan or a student loan or some other debt, your fixed expenses drop so your EF need can drop also. Of course, if your expenses go up, your EF may need to go up, too. All depends.