What the What wrote:
Logic behind bolded sentence is so bad that it does not even rise up to the level of being wrong.
No idea what you're talking about. It's exactly correct -- mortgage interest does not compound, while investment interest does. Simple concept.
Larry Liberal wrote:
What the What wrote:Logic behind bolded sentence is so bad that it does not even rise up to the level of being wrong.
No idea what you're talking about. It's exactly correct -- mortgage interest does not compound, while investment interest does. Simple concept.
INCORRECT!
While the terminology confuses many (apparently including you) the effect of paying down the principle on a mortgage is EXACTLY the equivalent of compound interest regardless of the terminology involved. It reduces the principle outstanding, thereby reducing the interest accruing the following month, thereby increasing the principle part of the normal payment the following month, thereby further reducing the principle outstanding two months hence, thereby...ad infinitum.
i.e., compounding
As noted previously, you have age on your side and ought to invest most of that money in securities rather than debt retirement. Hold onto emergency cash of $10K-$12K. Determine what it will take to get 20% equity and shed that PMI payment and make a decision how much to pay toward that goal and how much to direct toward investments. Wouldn't go less than 60% of the left over funds toward investment. The advantage of compounding gains are the key to long term financial security.
You probably need more like $20-25k cash on hand as an emergency fund if your mortgage alone is more than $2000/mo. Planning to loot your IRA contributions on an emergency basis is a terrible idea.
~ wrote:
As noted previously, you have age on your side and ought to invest most of that money in securities rather than debt retirement. Hold onto emergency cash of $10K-$12K. Determine what it will take to get 20% equity and shed that PMI payment and make a decision how much to pay toward that goal and how much to direct toward investments. Wouldn't go less than 60% of the left over funds toward investment. The advantage of compounding gains are the key to long term financial security.
As noted previously, paying down your mortgage IS getting the advantage of compounding gains.
You have age on your side and ought to invest in wherever you can get the best return (which MAY be paying down your mortgage).
What the What wrote:
~ wrote:As noted previously, you have age on your side and ought to invest most of that money in securities rather than debt retirement. Hold onto emergency cash of $10K-$12K. Determine what it will take to get 20% equity and shed that PMI payment and make a decision how much to pay toward that goal and how much to direct toward investments. Wouldn't go less than 60% of the left over funds toward investment. The advantage of compounding gains are the key to long term financial security.
As noted previously, paying down your mortgage IS getting the advantage of compounding gains.
You have age on your side and ought to invest in wherever you can get the best return (which MAY be paying down your mortgage).
The first statement is factually inaccurate. Even when taken at face value the most advantageous decision is to invest.
~ wrote:
What the What wrote:As noted previously, paying down your mortgage IS getting the advantage of compounding gains.
You have age on your side and ought to invest in wherever you can get the best return (which MAY be paying down your mortgage).
The first statement is factually inaccurate. Even when taken at face value the most advantageous decision is to invest.
INCORRECT! once again.
While the terminology confuses many (apparently including you) the effect of paying down the principle on a mortgage is EXACTLY the equivalent of compound interest regardless of the terminology involved. It reduces the principle outstanding, thereby reducing the interest accruing the following month, thereby increasing the principle part of the normal payment the following month, thereby further reducing the principle outstanding two months hence, thereby...ad infinitum.
i.e., compounding
And as far as making the most advantageous decision, just in case you were not aware - reducing one's debt IS investing one's money and has PRECISELY the same impact on one's wealth as increasing one's assets.
As I said, one ought to invest in wherever you can get the best return.
Bro, do even own? Debt is amortized monthly at a constant rate of interest. When you pay down principal you are saving on borrowing costs at this same constant rate. Dividends on investments compound at an increasing rate. Similarly, a mortgage note is not affected by inflation over the long run whereas the dollars you're paying with are. The debt is inflated away to some extent by paying in future dollars. Fact, not a debate. Regarding returns - the guy's effective cost of interest on that mortgage is less than 4% assuming he itemizes. Long term appreciation in the S&P is north of 7%. You need to get wise and diversify yo bonds fam.
brasky wrote:
Bro, do even own? Debt is amortized monthly at a constant rate of interest. When you pay down principal you are saving on borrowing costs at this same constant rate. Dividends on investments compound at an increasing rate. Similarly, a mortgage note is not affected by inflation over the long run whereas the dollars you're paying with are. The debt is inflated away to some extent by paying in future dollars. Fact, not a debate. Regarding returns - the guy's effective cost of interest on that mortgage is less than 4% assuming he itemizes. Long term appreciation in the S&P is north of 7%. You need to get wise and diversify yo bonds fam.
It is astonishing to me that even the simplest financial concepts confuse so many. It does not say good things about the intellect of your average Joe (which apparently includes you).
Start by trying not to confuse concepts.
1) The historical average return of a diversified stock portfolio is greater than 4%. This is a FACT and beyond dispute. So if the individual wishes to invest the extra in stocks rather than paying down a mortgage that may well be a fine decision for said individual. However, it should be done FOR REASONS THAT ACTUALLY MAKE SENSE. You know, reasons that are true and all.
2) The fact that the debt is partially inflated away is a red herring and entirely irrelevant to the discussion. Your investment returns are ALL partially inflated away by the exact same inflation. Try to think. Seriously, try to think clearly. It shouldn't be painful.
3) Dividends on investments DO NOT compound AT AN INCREASING RATE. They compound just like anything else. The rate may increase or decrease over time depending on how the market swings. Please try to understand basic facts.
4) When you pay down debt your increase in net worth increases by EXACTLY THE SAME AMOUNT as when you invest in the stock market. Further, your increase in net worth COMPOUNDS IN PRECISELY the same manner as if you added to your stock portfolio instead of paying down your mortgage.
Bottom line: Investing in the stock market rather than paying down one's mortgage may well make sense. However this depends on individual circumstances and individual outlook.
Further, your thinking (and that of many others) is very, VERY foggy and shows that you get easily confused by simple concepts like compounding interest (or dividends) and apparently by negative numbers (debt v asset).
I recommend making dollar-cost averaging payments to both the mortgage and retirement accounts simultaneously. Make sure you are maxing out your ROTH contributions, because at your age, it could be worth a lot when you retire. Then contribute and extra $500 to the mortgage and $500 to your 401k. This will allow you to still have an emergency fund for a couple of years while you are increasing your retirement and reducting your mortgage debt. Reducing your mortgage is nice when/if you decide to move to a more-expensive house, you will have equity saved up for a down payment.
What the What wrote:
Larry Liberal wrote:No idea what you're talking about. It's exactly correct -- mortgage interest does not compound, while investment interest does. Simple concept.
INCORRECT!
While the terminology confuses many (apparently including you) the effect of paying down the principle on a mortgage is EXACTLY the equivalent of compound interest regardless of the terminology involved. It reduces the principle outstanding, thereby reducing the interest accruing the following month, thereby increasing the principle part of the normal payment the following month, thereby further reducing the principle outstanding two months hence, thereby...ad infinitum.
i.e., compounding
Compounded interest is interest paid on interest. That scenario never happens on a mortgage. Maybe you are confusing that with credit card loans.
Paying down PRINCIPAL (not principle) on a mortgage simply moves you forward on the amortization schedule. Yes, you will pay less interest, but you have not saved compounded interest (saved interest paid on interest) because that doesn't happen in a mortgage loan.
dumb wrote:
You probably need more like $20-25k cash on hand as an emergency fund if your mortgage alone is more than $2000/mo. Planning to loot your IRA contributions on an emergency basis is a terrible idea.
"Planning to loot" a Roth IRA on an emergency basis is not a bad idea, assuming you can wait a couple of days for the money transfer between accounts. The money in the IRA is almost certainly earning more than it would a savings account.
Les wrote:
"Regardless" means without regard. "Irregardless" is a double negative. It actually means the opposite of what you're trying to convey.
You'd like to think so, but the English language is anything but predictable. The fact of the matter is that 'irregardless' and 'regardless' are synonymous, as are 'inflammable' and 'flammable'.
What the What wrote:
2) The fact that the debt is partially inflated away is a red herring and entirely irrelevant to the discussion. Your investment returns are ALL partially inflated away by the exact same inflation. Try to think. Seriously, try to think clearly. It shouldn't be painful.
All of this is just comically bad. You don't see the difference between owning assets vs debt in an inflationary environment? If you're a troll you certainly have promise.
Of course, right now we are technically in a deflationary environment.
Correct, but over the 20-30yr life of a mortgage that's unlikely to remain the case.
Coldwell Banker wrote:
What the What wrote:INCORRECT!
While the terminology confuses many (apparently including you) the effect of paying down the principle on a mortgage is EXACTLY the equivalent of compound interest regardless of the terminology involved. It reduces the principle outstanding, thereby reducing the interest accruing the following month, thereby increasing the principle part of the normal payment the following month, thereby further reducing the principle outstanding two months hence, thereby...ad infinitum.
i.e., compounding
Compounded interest is interest paid on interest. That scenario never happens on a mortgage. Maybe you are confusing that with credit card loans.
Paying down PRINCIPAL (not principle) on a mortgage simply moves you forward on the amortization schedule. Yes, you will pay less interest, but you have not saved compounded interest (saved interest paid on interest) because that doesn't happen in a mortgage loan.
I realize that you are confused. Like I said, it is surprising how many people get confused by this simple concept. It is perhaps because of the fact that the interest on a mortgage is interest that you are paying to the bank rather than interest that is accruing to you. As such, compounding this interest in the sense that folks are used to is the last thing you would want.
So, you are claiming that you are not compounding this interest? Good, because that would be the worst thing possible for you.
What you ARE doing is MATHEMATICALLY PRECISELY THE SAME AS COMPOUNDING INTEREST IN YOUR FAVOR. Call it whatever you like but the simple reality is that every dollar that you use to pay down your principal COMPOUNDS IN EXACTLY THE SAME WAY THAT COMPOUND INTEREST DOES.
As has been explained earlier...
...the effect of paying down the principle on a mortgage is EXACTLY the equivalent of compound interest regardless of the terminology involved. It reduces the principle outstanding, thereby reducing the interest accruing the following month, thereby increasing the principle part of the normal payment the following month, thereby further reducing the principle outstanding two months hence, thereby...ad infinitum.
i.e., compounding
Please try to think before posting. Because your next post really should say something like "Oops. Never really thought it through before. You're right!"
Pretty sure you're ventolin, only using allcaps, bold, and italics in place of >,
brasky wrote:
Pretty sure you're ventolin, only using allcaps, bold, and italics in place of >,
Pretty sure you are wrong.
Nice guess though. Since you've been wrong about everything else here why not keep it going?
Oh yeah, and nice try attempting to change the subject. It must finally be starting to sink in that "Oh shit, he's right! What was I thinking?"