Hey AT Real Estate / Finance experts

[GoingUp]

Lets use round numbers to make this easier.

Say I buy take out a mortgage for $100,000. Several years later, I have $95,000 left on the mortgage.

I think I can sell my place for around $80,000 in a year or so after I put together enough cash for the bank. What is the better way to go about doing this.

#1 Set aside X dollars per month until I reach the $15,000 difference that I think I can get,

or

#2 Have those X dollars per month automatically applied to my mortgage so that I am paying less interest and potentially closing the gap faster.

My take is that its a question of how much can I make in an online saving account vs save in interest by paying extra on the mortgage. To also throw another wrench into the equation, I have to consider the fact that its nice to have cash in the bank for emergancies, and should I lose my job, all of the extra payments I made up front make no difference if I have no cash in the bank to keep paying down the mortgage...

Other opinions? Thanks

 

[speg]

How can you only have paid off $5,000 in several years?

#2 would be the best way to it. Unless, you can earn a higher interest rate on that $X dollars in other way. Say, a P% yielding investment. (Where P is greater than your mortgage rate)


In reality, I don't think you're going to be able to find a guaranteed way to get P > your mortgage, so I would just pay down the mortgage.

 

[GoingUp]

Originally posted by: speg
How can you only have paid off $5,000 in several years?

#2 would be the best way to it. Unless, you can earn a higher interest rate on that $X dollars in other way. Say, a P% yielding investment. (Where P is greater than your mortgage rate)


In reality, I don't think you're going to be able to find a guaranteed way to get P > your mortgage, so I would just pay down the mortgage.

How? When you first start a mortgage its damn near all interest, thats how.

 

[cKGunslinger]

Originally posted by: speg
How can you only have paid off $5,000 in several years?

Have you ever seen an amortization schedule?

$100,000 @ 7% @ 30yr

Start Year 1: $100,000
Start Year 2: $ 98,984
Start Year 3: $ 97,894
Start Year 4: $ 96,726
Start Year 5: $ 95,474
Start Year 6: $ 94,131

 

[speg]

Fair enough.

 

[HardcoreRobot]

i would think that because all the interest in a mortgage is front loaded, the benefit of paying it off early would only really be helpful longer term. so, i would say just save, but im sure if you crunch the numbers you can find the answer. find a calculator, like one on bankrate. plug in your existing balance and what you think you can save/pay extra a month. i think you will find that the entire loan would get paid off faster, but the difference in the first year of extra payments might not be too noticeable. then take the interest rate of your online savings account and run the numbers there

 

[JS80]

don't forget to account for tax benefit of mortgage interest exp and income tax paid on interest.

 

[GoingUp]

morning bump for more info