Thanks for the advise guys! I'm a little disapointed that the thread got bumped to off topic as it pertains to one of the most important aspects of S2000 ownership...paying for it! Anyway...

Iceman thanks for the perspective. Maybe I'll see you around Bergen County soon.

TrojanHorse- Funny, as I was typing this peoplefirst just e-mailed me! Good to know you had a good experience with them. I'll definately check them out.

 

Further, if you decided to pay off the same $27,000 loan tommorow (two weeks after you got the loan), there would be almost NO finance charge. You would pay $27,000 + (some really small amount). Present Worth $27,000 + (small $) versus the $32,460 five years from now. Savings = 5,460.

Its for this reason that people with home mortgages are always trying to pay more than their monthly payment. Remember, interest represents the time value of money. Over the course of a five year auto loan this is a relatively small $ value. However, in the case of a mortgage (15 or 30 years) the savings can end up being $20K to 50K or more!!

Something to think about. . .

 

Iceman, apparently you have some expertise in this field. I currently pay xxx additional principal to my mortgage every month, would it be better to make 1 large payment (equal to the 12 monthly add. payments ) at the begining of the year?

 

Charlie,

To answer your question. Yes and yes. . . By making a lump sum payment at the beginning of each year (whether it equals your smaller payments or not) you ARE directly reducing your principal debt by that amount.

Additionally, by making an annual lump sum payment in conjunction with paying more than your monthly mortgage, you will see SIGNIFICANT reductions in your principal debt over a couple of years.

Say you have a $200,000 mortgage for 30 years at 7.5% fixed rate. Your monthly payment will equal $1398.45 ($503,442 paid over 30 years: 200,000 for the house, 303,442 in interest payments ).

Subsequently, without any prepayment, for all intents and purposes, your first 217 monthly payments (approximately 18 years) would be to repay the interest. That's why when people look at a breakdown of their loans (car, school, auto, etc.) they're usually shocked to see that even after they've paided thousands of dollars the principal loan is still relatively untouched. . .

By paying as little as $2,000 lump sum at the begining of each year & an extra $300 per month, you will reduce your principal loan by approximately $5,600 per year. Doesn't seem like much until you realize that is $5600 per year that interest will not be accrued on.
Over a five year stretch, that's $25K+ (principal is now under $175K) that will not have interest accrued on it over the next 25 years. . . And so on. . .

By using that simple strategy, you could save 100K easily in interest payments and reduce the life of a 30 mortgage by 10 years. . .

So, yes, prepay (especially at the beginning of the year) and remember, for it to work effectively, you must be consistent in your payment strategy (one month here and there won't work).

The irony, is that for this strategy to be most effective, you most start early in the repayment process. This just happens to be the time period in which most home owners/loan repayers have the least amount of disposable income. . .

 

Thanks ICEMAN......

I have been in my new home for 3 years and have consistantly made addditional payments to the principal every month. Now I am in the position to make a large payment at the begining of the year which I will thanks to your help, and continue to make the added pricipal payments.


I know there has been some debate amongst financial advisors not to do this and make a greater contribution to IRA, or 401k but having my home paid in full by the time I am 45 woudl be fantastic. IMHO of course.

 

7.06%??????

I think mine is like 12.5%!!!!!!

but then again maybe thats because it was bought under a business name...