#1GoodMoneyThing Monday, update 2
September 7, 2015
Monday: Catching up on FSA redemptions.
Tuesday: Didn’t pay for daycare and cooked up a pantry dinner of sausage & pasta!
Wednesday: Getting the August Net Worth figured!
Thursday: Worked on figuring out how much mortgage prepayments I would have to make in order to approximate the same savings as refinancing. Got very confused by the mortgage calculator. Riddle me this, how does this make sense? Using this mortgage calculator, I kicked around some numbers.
Total interest paid over the life of the loan (no pre-payment): $322,459.53
Annual prepayments of $10,000.00 for 5 years
Total interest paid over the life of the loan (with pre-payment): $245,588.91
Your Savings: 5 years and 7 months shorter loan
Total interest saved: $76,870.62
Annual prepayments of $12,000.00 for 5 years
Total interest paid over the life of the loan (with pre-payment): $233,895.42
Your Savings: 6 years and 6 months shorter loan
Total interest saved: $88,564.11
Annual prepayments of $15,000.00 for 5 years
Total interest paid over the life of the loan (with pre-payment): $218,142.25
Your Savings: 7 years and 11 months shorter loan
Total interest saved: $104,317.28
Annual prepayments of $10,000.00 for 10 years
Total interest paid over the life of the loan (with pre-payment): $215,785.50
Your Savings: 9 years and 1 months shorter loan
Total interest saved: $106,674.04
Enough about me, let’s admire your progress!
@clareyfrey: Now that we earn more than we did when he opened it, @FreyDrew converted his traditional IRA to a Roth. #1goodmoneything
@PhoenixStorm24: #1goodmoneything I’m trying to predict how much it would cost us a month to get a newer car with insurance, when we’re ready for it.
@imawindycitygal: I spent the weekend doing free fun things like kayaking on the river and cooking/eating dinner in. #1goodmoneything
@femmefrugality: Balanced the budget. The numbers are looking good even with Q3 this month! #1goodmoneything
@femmefrugality: Got the bills paid for this half of the month. #1goodmoneything
@FunnyAboutMoney: #1GoodMoneyThing Canceled NY Times; got NY Review of Bks & Economist for less than half Times’s cost.
@imawindycitygal: Stopped at Whole Foods tonight to buy one thing, and came out spending less than $100. :-/ #1goodmoneything?
@NotSoSerene: Did the math, and with my new job starting in October, if I really dig deep I could pay my loans off in 1 year, 10 months #1goodmoneything
@TheAsianPear: Ate my packed lunch & went for walk instead of buying take-out (although I still want a lobster roll) #1goodmoneything
Well, two of my readers just saved me money by suggesting I check YouTube for a workout video I was considering. That one wasn’t there, but two other 3-mile walks are. Yay!
And Nadine is going to hem the two new pairs of pants I got, so that saves the better part of $40. (Based one what I’ve read about professional hemming charges.)
Unfortunately, I still have a few money things to take care of. I need to go ahead and get the tax documents/checks written out now, so that I can send them off as soon as the paycheck (coming between the 10th and 12th — and I leave the 16th) clears.
Speaking of which, I’m off to go transfer money from our online bank to our main bank while I’m still thinking about it. Whee.
What’s confusing about the mortgage payments?
A: Nothing. I should not have been playing with a calculator so late at night that I forget basic math š Past midnight, my brain forgot that 10 years of $10K prepayments saves more than 5 yrs of $15k prepayments because the first is $100K total vs $75K total. Uh, duh? I was focused on whether there was more value in prepaying more early.
There is a value in prepaying more early. Unlike credit cards, mortgage payments don’t re-amortize every month. So you’re mostly paying interest at the beginning of your loan and principal at the end of it. You can see it more clearly using this spreadsheet: http://www.getrichslowly.org/amortizationtable.xls
Try it with a prepayment of 10K early on compared later.
That’s one reason we haven’t paid off our mortgage yet even though we could– the 20K remaining isn’t worth as much in prepayment as 20K would have been when we first had the loan.
THANK YOU. That’s the missing piece I was trying to nail down and ought to have run. Damned brain fog. I’ll give it another run later today – we’re early enough in the loan that I think it’ll be good value for our cash.
If we paid off our mortgage this month, we would save $583 over the remaining 1.3333 years of the loan. If we made that same payment the first month of the mortgage, we would have saved 27,638 over the lifetime of the loan.
Of course, it isn’t actually that simple because there’s inflation– 5 years ago 20K was worth more than it is today. Also we’ve done more than just that one pre-payment and each future pre-payment decreases the utility of the previous pre-payment. That’s why in our monthly mortgage update we only give the one month’s saved info– that doesn’t change.
But the basic idea is still pretty solid– prepayments early on are way better than prepayments near the end.
That’s an amazing tool! Something that makes sense, but I never would have put the pieces together on my own. THANK YOU!
[…] thanks to Nicole and Maggie for pointing me in the direction of a useful amortization spreadsheet, I’ve worked the […]