I'm a very conservative person when it comes to money matters and need some advice

[NNN0LHI]

I was aware adjustable rate mortgages were bad business long before they became all the rage. 30 years ago I was warned about them.

I owe about 40 grand on a house worth about 250 and have an extra 15 grand to either pay on the mortgage which is fixed at 6 and a half percent interest or invest safely.

Would you pay the money on the house or invest in insured CDs or something else if it were you?

I am not the gambling type so the stock markets is out of the question.

So it is either 15 grand on the house or into a very safe investment. Any suggestions?

Don

Edit: And I do not need the 15 grand to make ends meet.

[Ishoutandscream2]

1. Me...15 grand on the house

Interest rates are so low. If I had high credit card debt and had that kind of money, I'd be paying off the card instead of investing in your traditional cd's. I think paying off a house is one giant step in having a better and more secure retirement. Just my thoughts.

[NNN0LHI]

2. Only debt I have is the house

[Warpy]

17. Look at the interest rate you're paying on the house

versus your projected interest on a CD or even tax free bond. That will tell you what you need to do.

However, if all you've got is $15,000, you'll need to set it aside in case of disaster. If it's over and above a 6 month financial cushion, then consider paying down the loan. Your monthly payments will decrease considerably and your 6 month cushion will stretch to 8-10 months.

[CanonRay]

3. Pay on the house...

don't lock in a low interest rate now on a CD.

[NNN0LHI]

5. That was my plan but I thought I would just inquire about this before I did it

Thank you.

Don

[roody]

4. Check out Calvert Foundation.

www.calvertfoundation.org

[bookman]

6. Savings rates stink

Getting 6 percent on anything would be a great rate these days. I'd lean to putting it to the house.

Also don't forget you can do both, just split it.

[asthmaticeog]

7. No other debt but the house? If it were me I'd pay it on the house.

The sooner one is out of debt, the better. Most other considerations pale in comparison, especially where land and a dwelling are concerned. The intrinsic value of owning your property clear of the bank seems worth more than anything I can think of, aside from food, of course.

[SteinbachMB]

8. If you think the house will increase in value

I'd put it in the house. Especially if you plan on living in it for more than 5, or so years.

[NNN0LHI]

12. The house is located in a unique setting

About 50 houses around a stocked 22 acre lake. No two houses alike. Its beautiful here. I hope to stay here until I die.

I paid 95 thousand for it in 1989. It was a 2 year old repo that had went back to the bank and was listed then for 139 thousand and I beat the bank down on the price because I knew they wanted to move it real bad.

I have farm fields for as far as the eye can see for a view out of the back of the house and the front of the house faces the lake.

Small town where people don't need to lock their doors even when they go on vacation for weeks. High school graduating classes of about 30 kids is all.

Its really nice here. We have had several people who moved away from my subdivision over the years and then ended up moving back because they missed living here and regretted moving.

Even now as bad as things are houses only stay on the market for a few months when listed. Usually less. I don't think I will lose any money on this place.

Don

[Turbineguy]

9. You owe 40 grand

will the bank reduce your payments if you pay off 15 grand? Some banks will do that. That would be like a 6.5% CD (OK, allow for the tax deduction loss). If the bank will not reduce the payment anyway you may be better off with the money in a CD. That way you have a nice 15 grand up your sleeve in case you need it. You can always reduce the mortgage later. Assuming you are OK with the current mortgage payment, keeping the money in a liquid account is good. If you put the money into the house and need it, you would be forced to take a loan (re-fi or heloc) against the house, possibly paying fees.

BTW congrats for having your finances in such good shape!

[NNN0LHI]

16. The bank just offered to refinance the remaining 25 grand at 6% interest for a fifty dollar fee

So I will not only save about 75 hundred in interest by paying it on the house they will also shave a half a point off my current interest rate on the balance which I think is a pretty good deal.

They offered a 48 month term loan which keeps the payment about the same as I am paying right now and my house will be payed off in 4 years rather than the 11 years I am currently looking at right now.

Think I am going with the offer. Thank you for the advice and congrats.

Don

[Turbineguy]

18. Sounds Good!

[opusprime]

19. Slow down a second...

"The bank just offered to refinance the remaining 25 grand at 6% interest for a fifty dollar fee"

On what terms? 5 years? 10 years?

And where are you on paying off your existing loan? You owe $40k on a home that is worth $250. That tells me you are in the final years of your loan.

Remember, your loan is amortized. You need to look at your amoritization table to see where your interest payments are in your loan cycle.

The point being, that you've probably already paid all the interest in your original loan off. So why change it now if you're just paying off the principle? The hard work is over. The bank wants to put you in a new loan so that they get another 10-15 of interest.

http://mortgages.interest.com/content/calculators/mortgage_calculator.asp

I say you keep the $15 in cash. Put 10k into Fidelity or Vanguard Money Market mutual funds. It'll earn about 3% which is just below inflation, but very safe. Both those MM funds are void of CDO and MBS securities, I checked.

The other $5k I would keep in cash, either in a safe deposit box, in a safe inside your house, or hidden in the attic under insulation.

If the sh*t hits the fan, you'll need the cash. It'll be the only thing of value.

[NNN0LHI]

21. Term was 48 months but I think you may be right I may have already paid most if not all the interest

Thanks for bringing it up. I am going to bring this up to the loan officer tomorrow.

And this isn't the only money I have. This is just the amount I have to play with.

Don

[opusprime]

22. Shouldnt be too hard to figure out.

Take a look at the amoritization table, and add up the interest you owe on your current loan.

And then add up the interest you'll pay for your new loan.

If you can get the new loan for less interest than you'll pay on your remaining loan, you have your answer.

[spooky3]

25. see my other posts - I would bet that this year you'll pay 6% on $40000

or a bit less than $2400 * 8/12 months for the rest of the year (this will be less than $2400 because the principle balance will decline each month as you pay more of the principle, so the next month might be about 6% of about $3900, depending on your payment, etc.). Then you'll pay 6% on the declining principal balance next year. You should have a little savings each year (as a result of the 6.5 % reduction to 6 %) and can now invest what you could have otherwise used to pay down this mortgage.

[Mnemosyne]

10. Paying on your home should save you thousands in interest.

And the less interest paid to the corporate masters, the better.

[opusprime]

20. Not necessarily...

Remember, mortgages are set up so that interest payments occur in the early years of the loan. If I'm 15 into a 30 year loan, I've already paid more than 75% of the interest for the term of the loan.

The longer you're in the loan, the more you apply to principle. Once you get to the out years of the loan, the payment is almost entirely principle.

The banks dont want you to know this of course, because they want you to come and get a new loan, with a new 30 year term, and 20 more years of interest payments.

[spooky3]

24. In most loans, you are paying interest as you go.

So if you have a 6% rate, and your balance now is $40000, you are still paying a bit less than $2400 this year in interest. (Your post was a bit ambiguous, but to clarify, the reason why you are paying more interest at the beginning is that the principal balance on which you are paying interest is higher than towards the end of the loan. You're not prepaying the interest.) Therefore, yes, of course you're right that everyone pays much more in interest at the beginning, but he could still save thousands becauase that his rate is above 6% and he still has a substantial principal balance.

[Demobrat]

11. If you have a one year cash cushion in the bank pay on the house.

Otherwise put it in a money market fund. There are some that pay as much as CDs right now. Check out Fidelity.

[One_Life_To_Give]

13. Second, Only if you have a Cushion

If you have reserves to cover unexpected expenses, typically assumed to be 3 -6 months income.

[Clear Blue Sky]

14. The Dow went up over 3% yesterday.

Historically the market will do better than 6% on an annual basis if you buy and hold, say in a good mutual fund.

[fed-up]

15. do you have any other liquid assests or savings?-don't end up like me, screwed

because all my money went into my house and now I have no funds for a lawyer and bad credit due to health reasons

do you have kids that may need help in an emergency?

alway, always keep a reserve or keep some funds that are easy to liquidate

[spooky3]

23. if you're in a high tax bracket

these days, it is hard to earn a good *net* (of state and fed income taxes) return that does not involve a lot of risk. So if you have a nice cushion of savings (one year's pay) it might make more sense to reduce the mortgage, since there is NO risk that you will "earn" (save) less than 6.5% (which might be a little less net of taxes if you have enough other deductions to itemize).

[DemReadingDU]

26. We paid off our house early

It's great not having a mortgage payment!

I would put the extra $15,000 and apply it towards the principal.
No need to refinance. The amount you owe will go from 40K to 25K, so most of your monthly payment will be going towards the principal now instead of interest.

When I was working, every few months I would put an extra $1000 directly towards the principal. Eventually, the principal amount was whittled down and one day we received a letter from the bank that the mortgage was paid off.

One thing to think about for the future, is that there will no longer be a mortgage deduction for taxes. Actually now that our kids are grown, we have no deductions to itemize, so we just take the standard deduction.

[wordpix]

27. I did the same as you, & kept paying down the principal when I had extra $

Looks like I'll pay off my 30 yr. mortgage in 11.5 yrs. if all continues to go well but it took belt tightening, no nights out at expensive restaurants, no expensive vacations and so on. But to me, owning my own home was more important.