i want to make a one time payment to a n existing mortgage?

Question

would it be better to apply the amount to a mortgage started may 1,1999 in the amount of 309,375 for 20 years@7.5%. Or a mortgage started in nov 2002 in the amount of 375k for 30 years @6.38%. Where do I save the most in interest paid. Also, should I consider the tax benefits of having the mortgages and putting the 150k in a C.D. @ 5.5%

Answer 1

Two questions two answers.

First, if you do make a principle payment, make it on the higher interest debt. That will save you the most, regardless of how much principle is left on either.

Theoretically, assume 1/3 is the tax savings of your mortgage (it may be more or less, just assume)

The 7.5% ends up only costing you 5% because of the tax savings. So it would appear it is better to do the CD. Wrong. Because the interest on the CD is going to be taxed at the rate you would have saved taxes, so a 5.5% cd only ends up putting an after tax return of 3.68 % in your pocket. So from a pure return, the Mortgage paydown is better.

However, the nice thing about the CD is if you need the $ you can get it. You pay down the mortgage, you don't have the same flexibility.

Good luck.

Answer 2

Wow. Your current 20 year loan will have a total interest amount paid of $277,479.17.

A one time payment of $150K reduces that to $159,069.64 in interest with a new end date of April, 2010.


375K as is will have a total of $467,665.89 interest paid. A one time payment of $150K reduces that to $160,005.56 and changes the pay off to August 2016.


I would go with the one that frees up an entire mortgage payment first, then you can apply that money to the remaining mortgage.

We should all be so lucky!

Answer 3

I would go for the 20 years. Even though its a higher int, you wouldnt be paying that int for 10 years. And you have already built equity.