Slowly chipping away at your mortgage

[Redraidernurse]

I found out today that I can make a payment of any value online to pay off my mortgage. I can see this being a beneficial way of chipping away at your mortgage slowly. My plan is that every time I think to do something like purchase a "want item" or spend money on going on to eat, etc..... I will instead hop online and use the money I would have spent towards that item and put it towards my mortgage.

I have reached Step 6 on the Dave Ramsey Plan and am trying to think of ways to help myself pay down the mortgage. Any thoughts on this idea or any other tips on paying your mortgage down?

[nick__45]

Here is the flaw with super dave's plan: The less you owe on your house, the more people want to foreclose on you because your loan is view as profit during bad time. While you don't want your purchase price to be less than your house value, it is actually a good thing to owe a lot more than the house is worth. It is a selfish way of making sure nobody can touch your house in case of emergency. And guess what? You already got that money in either a refi or heloc so it is not like you're in loosing position. Hopefully, you spent that money well for things such as children's education and help them get a good start. If we all play the bank like they play us, we'll be safe.

For the record, super dave is right about getting out of debt in general and with CC in particular. He's dead wrong about mortgage though.

[disneysteve]

The less you owe on your house, the more people want to foreclose on you

it is actually a good thing to owe a lot more than the house is worth. It is a selfish way of making sure nobody can touch your house in case of emergency.

What a bizarre theory. I can't say that I've heard or read anybody suggesting that being upside down on a mortgage is a good thing until now. And I'm quite sure that the millions of people who have lost their homes to foreclosure and short sales would strongly disagree with you.

Where did you get the idea that "nobody can touch your house in case of emergency" if you owe more than it is worth? If you don't make your payments, you get foreclosed on - period. Doesn't matter if you are upside down or not. In fact, that is a major reason that so many people have been foreclosed on. They couldn't afford the payments and owed too much to sell the house and pay off the loan so they were trapped. Foreclosure or short sale was the only way out.

OP is on step 6 of Dave Ramsey's plan meaning her mortgage is her only remaining debt and she has a fully funded emergency fund. She didn't say whether or not she is upside down though I suspect she isn't. Even if she is, though, making extra payments on the house and reducing debt is a good thing.

[wincrasher]

I guess if you engage in behaviors that open you up to litigation, then being maxed out without attachable assets may be a way to go.

But for that to work, you have to have your money somewhere it can't be touched.

It's a far better strategy to just have insurance to cover your risky activities. Then your assets can be protected.

FWIW, being underwater or having a high mortgage balance won't keep a creditor from going after your house. It can still be liened. If you have income, they can still go after you.

[muexm]

I'm confused by you logic. When is it ever a good thing to owe a lot more than the house is worth? And who the hell care if people want to forclose on you. It's better to have some equity in your house during a bad time than be upside down on your mortgage.

[snafu]

Mortgage rules are quite different here, requiring a minimum sum payable only on specific dates making your flexibility a treat. I suggest you try to change to bi-weekly payments since that makes 26 payments, For example, $2,000. per month changes to $1,000. bi weekly, adds an extra annual payment and knocks off significant interest over the years.

We discovered that having a written goal was critical. We decided that any 'found' sums [overtime, PT work,bonus,tax refund,cash gift], cost avoidance [sums you didn't spend as mentioned], savings on sale items, & sums under budget should be swept into a Money Market a/c to reduce the amount of interest charged on a mortgage. In reality, only about half the sums went to the mortgage but our 25 yr. mortgage was paid out in 13 years. It resulted from the way an amortization table works!

[bjl584]

Here is the flaw with super dave's plan: The less you owe on your house, the more people want to foreclose on you because your loan is view as profit during bad time. While you don't want your purchase price to be less than your house value, it is actually a good thing to owe a lot more than the house is worth. It is a selfish way of making sure nobody can touch your house in case of emergency. And guess what? You already got that money in either a refi or heloc so it is not like you're in loosing position. Hopefully, you spent that money well for things such as children's education and help them get a good start. If we all play the bank like they play us, we'll be safe.

For the record, super dave is right about getting out of debt in general and with CC in particular. He's dead wrong about mortgage though.

I would rather owe LESS on my mortgage in hard times than more. The more equity that I have the safer I am.

And if you buy right and are a well informed and financially savy consmer, then you don't have to worry about being "played" by the bank.

[EconoMutt]

I always throw a few extra bucks toward the mortgage.
Over time it really adds up and will save a ton of interest.

[briandownie]

Well I have to chirp in on the whole mortgage thing.

Your house is a liability, not an asset like many think. Lets start there. People are under the misconception that a house is an investment. It costs a lot of money to enjoy the privilege of owning a house. I know that in the future the house will have appreciated (provided the market is good) but what did it cost to maintain it over a period of years?

If you're interested check out entrepreneur Robert Kiyosaki on your house.
kiyosaki-blog.blogspot.com/2010/.../your-house-is-not-asset-it-is-liability.html

None-the-less, the equity in a house can be a huge benefit to you now and in the future. Money can often be borrowed against a house at very favorable rates because YOU HAVE EQUITY! In a sense the bank is lending you your own money. I use the equity in my home to secure a personal line of credit. This way I never pay high interest rates, I never owe on credit cards, I can buy things when the price is right and I can make investments if something looks promising. If I fall on hard times which usually are short lived I am only responsible for the repayment of the interest and can play catch up when times are good.

Being able to manage without debt would be better but if you can't look to the equity in your home to help you manage your finances.

One last thought. I use one and only one credit card. It's easy to manage, I get one statement with all my monthly expenditures and it pays me huge dividends in the form of store credits at my favorite store. In a sense you could say my cc makes me money.

I will agree though that you must be disciplined.

Brian

[Hector]

Here is the flaw with super dave's plan: The less you owe on your house, the more people want to foreclose on you because your loan is view as profit during bad time. While you don't want your purchase price to be less than your house value, it is actually a good thing to owe a lot more than the house is worth. It is a selfish way of making sure nobody can touch your house in case of emergency. And guess what? You already got that money in either a refi or heloc so it is not like you're in loosing position. Hopefully, you spent that money well for things such as children's education and help them get a good start. If we all play the bank like they play us, we'll be safe.

For the record, super dave is right about getting out of debt in general and with CC in particular. He's dead wrong about mortgage though.

Good thinking! I love that fact that you love paying interest to bank forever.

[muexm]

Well I have to chirp in on the whole mortgage thing.

Your house is a liability, not an asset like many think. Lets start there. People are under the misconception that a house is an investment. It costs a lot of money to enjoy the privilege of owning a house. I know that in the future the house will have appreciated (provided the market is good) but what did it cost to maintain it over a period of years?

If you're interested check out entrepreneur Robert Kiyosaki on your house.
kiyosaki-blog.blogspot.com/2010/.../your-house-is-not-asset-it-is-liability.html

None-the-less, the equity in a house can be a huge benefit to you now and in the future. Money can often be borrowed against a house at very favorable rates because YOU HAVE EQUITY! In a sense the bank is lending you your own money. I use the equity in my home to secure a personal line of credit. This way I never pay high interest rates, I never owe on credit cards, I can buy things when the price is right and I can make investments if something looks promising. If I fall on hard times which usually are short lived I am only responsible for the repayment of the interest and can play catch up when times are good.

Being able to manage without debt would be better but if you can't look to the equity in your home to help you manage your finances.

One last thought. I use one and only one credit card. It's easy to manage, I get one statement with all my monthly expenditures and it pays me huge dividends in the form of store credits at my favorite store. In a sense you could say my cc makes me money.

I will agree though that you must be disciplined.

Brian

I tried to look at Robert Kiyosaki website but I couldn't read anymore after I saw this statement. "the key to real estate is debt , it is debt that makes us rich ...."

[snafu]

Rich Dad Poor Dad author Kiyosaki views are very controversial but that sells books! I've observed it's not so much the own/rent action, it's the discipline and motivation to do the repairs and updates, spending small amounts year after year to hold home value. What is the evidence to show renters being miles ahead of owners in savings, investing, education, employment opportunities during this economic downturn. Have they shown leadership? Have they shown a higher level of discipline?

Taking a long term view...Seniors that have always rented, are now paying rental rates that were not imagined when they were in their 20's making decisions with long term effects. They are the same folk whose income can't support market rate rental, food, utilities transportation & medicine. They have to chose what they can and cannot pay. Sadly they are the same folk who didn't set aside sums owners used for upkeep, repairs, municipal tax, insurance etc.

Wasn't the burst housing bubble a direct result of people choosing to buy homes they couldn't afford, borrowing more than their home equity, with a negative savings rate?

[cjscully]

I tried to look at Robert Kiyosaki website but I couldn't read anymore after I saw this statement. "the key to real estate is debt , it is debt that makes us rich ...."

This sounds counter intuitive mostly because it's a bit out of context. First a liability could be defined as "anything that takes money out of your pocket." An asset could be defined as, "anything that puts money in your pocket." Let's talk about your principal residence. Even if there is no mortgage on it, you still have to pay for repairs and property taxes, etc. That's money out of your pocket so it's a liability. If you constantly refinance to pull cash out of it, you're paying interest on the cash you pulled out so it's still to some degree a liability.

Now, as to the quote above, let's put it in the context of investing. If you have $50,000 and invest it in stocks/mutual funds and you get a 5% return on it in one year you make $2500. If you take that $50,000 and use it as a down payment on a real estate investment with a positive cash flow of $210 per month, you still make your $2500 in that year but what else do you have? Assuming a your $50,000 was 20% of the purchase price you have a property worth $250,000. The property is paying the mortgage, taxes, insurance and maintenance and putting $210 in your pocket every month. Now, all investments can lose value or gain value. Let's say the house loses value. As long as you can maintain positive cash flow just hold the property and collect your $2500 per year. Don't try to sell it until you can recover your original investment and make a profit. Let's say both stocks and real estate are giving the same 5% rate of return after one year. $50,000 invested in stocks nets you $2500. However, by purchasing real estate with debt, the asset has a principal value of $250,000. In one year with 5% appreciation you net a $15,000 return on your investment if you liquidate it at that time $12,500 on the property appreciation and $2500 in positive cash flow.

So, the key to real estate is debt and debt can make you rich if you invest wisely.

[NJDebbie]

This is the expression on my face as I read Nick_45's mortgage theory

[jpg7n16]

I found out today that I can make a payment of any value online to pay off my mortgage. I can see this being a beneficial way of chipping away at your mortgage slowly. My plan is that every time I think to do something like purchase a "want item" or spend money on going on to eat, etc..... I will instead hop online and use the money I would have spent towards that item and put it towards my mortgage.

I have reached Step 6 on the Dave Ramsey Plan and am trying to think of ways to help myself pay down the mortgage. Any thoughts on this idea or any other tips on paying your mortgage down?

I'm not sure that I would do your method exactly, as you'd always be depriving yourself of the things you want.

It really is okay to get some things you want So try to find a happy medium. Yes - Pay down your mortgage. and Yes - enjoy your life. It doesn't have to be completely one or the other.

You can even make a game out of paying down your house. Where each $1000 that your balance owed drops, you reward yourself with 1 want item. Could you do something like that?

Here is the flaw with super dave's plan: The less you owe on your house, the more people want to foreclose on you because your loan is view as profit during bad time. While you don't want your purchase price to be less than your house value, it is actually a good thing to owe a lot more than the house is worth. It is a selfish way of making sure nobody can touch your house in case of emergency. And guess what? You already got that money in either a refi or heloc so it is not like you're in loosing position. Hopefully, you spent that money well for things such as children's education and help them get a good start. If we all play the bank like they play us, we'll be safe.

For the record, super dave is right about getting out of debt in general and with CC in particular. He's dead wrong about mortgage though.

Some state bankruptcy laws prohibit the loss of primary residence (aka - Homestead exemption - Wikipedia, the free encyclopedia ). So you gain nothing but downsides by keeping a mortgage.

And once your mortgage is paid off, it is impossible for a bank to foreclose - as they have no legal holding against you.

Every time you pay interest, you are losing. So yes having a mortgage is a losing position.

All the interest you would save by paying down your mortgage in advance could be used for child's education and help them get a legitimate good start.

The best way to play the bank, is to not borrow any money. Banks "play" you by charging you to borrow their money. So I fail to see how paying the bank $100,000's of interest will teach them a lesson. How about, pay off your mortgage early - then you don't owe the bank money, and they can't screw you or foreclose, and they make no income off of you. Instead, let them pay you interest.

Nick - I disagree with every statement in your entire post, exception being the first sentence of the last paragraph.