Paying House Off Early

Mr.Gadget

Old Mossy Horns
Seriously? The price on the mattress was the same if you paid cash or financed it.
Guess you know what mattress he has.
Other than that it is just speculation.

I know I will not waste the time or effort to pay for a mattress for 5 years.
Not worth my time to keep up with it. Time can be spent on other things.

First quarter I just had several 15% returns and a 14%.
 

Mr.Gadget

Old Mossy Horns
Without fail, EVERY item I have checked on that the 0% interest applies to comes with a larger up front price. Enough to pay the interest on the same term loan at standard rates.
Yep what I have found.

The only time the 0% paid of was when I got my Toyota, worked out the cash deal then started talking about the 0%. It was.a fight but got it.

Chevy or Dodge/Ram always better to pay cash or other low or no interest short term loan due to dealer retaining hold back and rebate.
 

DBCooper

Old Mossy Horns
Contributor
Guess you know what mattress he has.
Other than that it is just speculation.

I know I will not waste the time or effort to pay for a mattress for 5 years.
Not worth my time to keep up with it. Time can be spent on other things.

First quarter I just had several 15% returns and a 14%.
Mattress. Vehicle. Tractor. Widget.

Make your deal, then determine payment that suits you.

It’s the only way to make sure you DON’T get hoodwinked.

Credit is a tool. It’s not a dirty word. Cash is not always the smartest choice. It’s just not.
 

Mr.Gadget

Old Mossy Horns
A classic example is an $80 K vehicle with 12 month terms at 0%.

That’ll weed out a lot of people.
Mattress. Vehicle. Tractor. Widget.

Make your deal, then determine payment that suits you.

It’s the only way to make sure you DON’T get hoodwinked.

Credit is a tool. It’s not a dirty word. Cash is not always the smartest choice. It’s just not.
nothing wrong with using credit. Never said that.
Some times it is not.worth it or the waste of time.
 

ncscrubmaster

Eight Pointer
Contributor
From what I have seen the price on the 0 percent loan was the same price as cash. I think where you get in trouble is the wording of the deal. 0 percent for 60 months is just that. 6 months same as cash is where you can get in trouble. If there is 1 cent left at 6 months your are in for it. A lot of time they go back and charge interest for the whole time.
 

Greg

Old Mossy Horns
Check your amortization schedule. You will see that the interest is FRONT LOADED. That means that in the beginning, most of your payment pays the interest. Later in the loan, the payment is paying down the principle. At some point in the loan, it's not worth making the extra payments, because you're paying off principle that you've already paid to borrow. In other words, it's largely principle and it is much like paying off a VERY low % loan. At that point, you're better off just making the normal payment and using the money you were using to pre-pay the mortgage to invest elsewhere.

I hope I explained it clearly.
 

Newsome Road

Ten Pointer
Seriously? The price on the mattress was the same if you paid cash or financed it.

That’s a weak argument against people using credit to their advantage - typically used by people who aren’t responsible enough to do the same.

My cousin’s a multi-millionaire. He has the Midas touch, except everything he touches turns green. He purchased his last Suburban and did the 60 mos 0% financing.

I PROMISE you, if it didn’t make fiscal sense to do that, he wouldn’t have.
Didn't make a bit of difference. The dealership knows the numbers. They would have sold it to him for ~3-4K less if he financed it at 4%, however the numbers play out. After a long back and forth a few years back, the guy finally broke that down for me. He said he was either gonna get it on the front end or the back end, I could choose which way. I financed at 4% for 5 years and paid it off in less than one.
 

DBCooper

Old Mossy Horns
Contributor
Didn't make a bit of difference. The dealership knows the numbers. They would have sold it to him for ~3-4K less if he financed it at 4%, however the numbers play out. After a long back and forth a few years back, the guy finally broke that down for me. He said he was either gonna get it on the front end or the back end, I could choose which way. I financed at 4% for 5 years and paid it off in less than one.
I would’ve walked away

Make your deal. Then, discuss terms. If they’re not to your liking, walk away.
 

Southern

Eight Pointer
Check your amortization schedule. You will see that the interest is FRONT LOADED. That means that in the beginning, most of your payment pays the interest. Later in the loan, the payment is paying down the principle. At some point in the loan, it's not worth making the extra payments, because you're paying off principle that you've already paid to borrow. In other words, it's largely principle and it is much like paying off a VERY low % loan. At that point, you're better off just making the normal payment and using the money you were using to pre-pay the mortgage to invest elsewhere.

I hope I explained it clearly.
That is the rule of 78. Generally illegal on most legitimate long term loans in NC now I think
 

woodmoose

Administrator
Staff member
Contributor
heck your amortization schedule. You will see that the interest is FRONT LOADED.

for the most part, it's not that it is "front loaded",,it's that you pay more in interest earlyt becuase you have more that is getting hit with the interest,,if the loan at the beginning is 200k the interest part of your payment is higher because you are paying interest on 200k,,,vs later when it's down to 100k or whatever,,,
 

Southern

Eight Pointer
for the most part, it's not that it is "front loaded",,it's that you pay more in interest earlyt becuase you have more that is getting hit with the interest,,if the loan at the beginning is 200k the interest part of your payment is higher because you are paying interest on 200k,,,vs later when it's down to 100k or whatever,,,
No, I think he is referring to actual front loaded interest also known as sum of the digits interest. Look up "rule of 78" loans. It is not as common as it once was and outlawed on all but some short term retail finance contracts now in NC.
 

woodmoose

Administrator
Staff member
Contributor
I know the rule of 78s, no need for me to look it up,,,- I think he was refering to any amortization table,,,because the amounts make it look like it's front loaded

but at the end of the day,,,It doens't really matter which it was he refered to

and since the "rule of 78s" is "outlawed" I doubt you see it on a mortgage amortization anymore
 

dc bigdaddy

Old Mossy Horns
Contributor
That is the rule of 78. Generally illegal on most legitimate long term loans in NC now I think
this is what I was thinking he was talking about, and when I built my house years ago, they told me that it was illegal now and your mortgage was just a simple interest loan. You only pay the interest on the money that you owe. That's what Woodmoose is talking about.
 

Southern

Eight Pointer
I know the rule of 78s, no need for me to look it up,,,- I think he was refering to any amortization table,,,because the amounts make it look like it's front loaded

but at the end of the day,,,It doens't really matter which it was he refered to

and since the "rule of 78s" is "outlawed" I doubt you see it on a mortgage amortization anymore
That is why I brought it up. To clarify that if that was indeed what he was referring to, that it had no impact on the original question asked by OP
 
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pattersonj11

Old Mossy Horns
Seriously? The price on the mattress was the same if you paid cash or financed it.

That’s a weak argument against people using credit to their advantage - typically used by people who aren’t responsible enough to do the same.

My cousin’s a multi-millionaire. He has the Midas touch, except everything he touches turns green. He purchased his last Suburban and did the 60 mos 0% financing.

I PROMISE you, if it didn’t make fiscal sense to do that, he wouldn’t have.

In regards to the mattress example, the last one I purchased had one of the 0% financing deals going on. I told them I would not be financing and told them the most I would pay for the mattress. I paid cash and it was half the price.

You can get a better deal on most things with cash. Houses and cars included. Dealerships do not like it, but if they know you are out there and know what you will pay, they will call you when they are ready to get rid of it.
 

DBCooper

Old Mossy Horns
Contributor
In regards to the mattress example, the last one I purchased had one of the 0% financing deals going on. I told them I would not be financing and told them the most I would pay for the mattress. I paid cash and it was half the price.

You can get a better deal on most things with cash. Houses and cars included. Dealerships do not like it, but if they know you are out there and know what you will pay, they will call you when they are ready to get rid of it.
I’m telling you as someone who used to finance cars for a living....

We made more money if you financed. If anything, I’d rather discount on the front end to make a little more on the back end. We got our “cash” from the bank, almost immediately. It’s not like we were fronting the money.
 

pattersonj11

Old Mossy Horns
I’m telling you as someone who used to finance cars for a living....

We made more money if you financed. If anything, I’d rather discount on the front end to make a little more on the back end. We got our “cash” from the bank, almost immediately. It’s not like we were fronting the money.
That’s exactly what I mean. They want the bank kickback. Are you telling me at the end of the month or end of any sales period that phone calls were not made to close a deal that was otherwise stagnant? You have an offer on a car that is sitting still and you have a chance to make something even if not what you wanted to make on it?
 

DBCooper

Old Mossy Horns
Contributor
That’s exactly what I mean. They want the bank kickback. Are you telling me at the end of the month or end of any sales period that phone calls were not made to close a deal that was otherwise stagnant? You have an offer on a car that is sitting still and you have a chance to make something even if not what you wanted to make on it?
When did I ever say differently?

If it’s for sale, it’s negotiable. Paying cash for a car isn’t always the best practice. It’s best for people who don’t want the hassle of financing (even if it’s fiscally prudent) and/or don’t utilize credit to their advantage and/or don’t realize time value of money.
 

Homebrewale

Old Mossy Horns
Guess you know what mattress he has.
Other than that it is just speculation.

I know I will not waste the time or effort to pay for a mattress for 5 years.
Not worth my time to keep up with it. Time can be spent on other things.

First quarter I just had several 15% returns and a 14%.
Well, it's speculation on your part that I paid more for the mattress because it was financed. I will take 0% financing after I have agreed on a price, meaning I have my checkbook or credit card out ready to pay before I ask if any financing is available. From there, you take the financed amount, divide by the term of the loan, and see if it adds up to the cash price you were going to pay. If it does, you are paying 0% interest. Anything more and there are hidden fees. I never start out a conversation while shopping that I'm looking to finance.

As for effort to pay, I just set up an automated payment from my checking account through my credit union. Set it and forget about it. Payment is never forgotten or late.

The only thing I lost on the mattress purchase was the 1% cash back on my credit card.
 

pattersonj11

Old Mossy Horns
Only one place in the world cares about your credit....the bank. Only one place controls credit scores and how they go up and down...the bank. This is the same place that charges you double the rate to use their money as do to use your money.

No matter the loan terms, eventually that puppy has to be paid. There is a lot of variation in what can happen to a person in 4-5 years in terms of money. Maybe I have the money to buy a car/truck now. Does that mean I’ll have the money to pay it monthly in 5 years? I don’t know what my situation will be then. I know I’d rather sell something to recoup what I could rather than have a bank take it from me. It’s all risk/reward.
 

Homebrewale

Old Mossy Horns
Mattress. Vehicle. Tractor. Widget.

Make your deal, then determine payment that suits you.

It’s the only way to make sure you DON’T get hoodwinked.

Credit is a tool. It’s not a dirty word. Cash is not always the smartest choice. It’s just not.
Yep. Talking financing after agreement on the price, not before. I never walk into a store and say I want to buy X and I want to finance.
 

Homebrewale

Old Mossy Horns
Only one place in the world cares about your credit....the bank. Only one place controls credit scores and how they go up and down...the bank. This is the same place that charges you double the rate to use their money as do to use your money.

No matter the loan terms, eventually that puppy has to be paid. There is a lot of variation in what can happen to a person in 4-5 years in terms of money. Maybe I have the money to buy a car/truck now. Does that mean I’ll have the money to pay it monthly in 5 years? I don’t know what my situation will be then. I know I’d rather sell something to recoup what I could rather than have a bank take it from me. It’s all risk/reward.
This is a reason why I'm not a fan of Dave Ramsey due to his attitude towards debt. People will often state just like something you said about money may not be available to make the payments down the road. You can give an extreme example where someone buys a car with 0% interest, takes the car money and remodels the bathroom the next month and in month two has something happen such as job loss where now you don't have the money for the loan because you spent it on the bathroom remodel. This is a person who is not disciplined with their money.

When you have the cash but take a 0% loan, that money is now off-limits to any other spending. You can set up a money market account (MMA) at the bank or credit union with the cash you would have spent. Using their automated transfer and bill paying services, you can transfer the money automatically from the MMA to your checking on the 1st of the month. Then on the 2nd of the month, set up the bill pay service to automatically pay the monthly loan payment. Then never touch the MMA for any other spending for the term of the loan.

Now you don't have to worry if you have the money to pay it 2, 3 or more years down the road.
 

Homebrewale

Old Mossy Horns
Two crazy ways to earn money years ago. Because these techniques were abused, they were shut down.

First was buying $1 coins from the US Mint. At one time, they offered them at face value with free shipping. Some people took advantage of this by buying thousands of coins with a cash back credit card and then immediately depositing the coins at their bank. Zero cost to them and they get their cash back on the credit card. There was one story someone ordered 10,000 coins, had the delivery guy place the coins in the trunk of his car and then drove straight from the bank . Made $100 (1% cash back) with a few minutes of effort.

Second is credit card arbitrage. At one time, credit cards would offer credit advances for 0% interest for a year with a 3% fee or $50 whichever is lower. Take a $10,000 advance, pay $50 for the advance, put it in a 6 month CD making 5% interest (interest rates higher back then), cash the CD, pay off the credit card and have $500 left over. Net profit of $450.
 

pattersonj11

Old Mossy Horns
I think someone has to experience a large obstacle in life in order to understand the fear some people have of debt. No matter what you do with the money, if you need it, you will have to spend it. If you are out of a job and/or have a major medical issue, you will have to use that money, whether you set it aside or not. If something happens to you that puts you in assisted living or something similar, you will have to use the money before you will be aided at all.

This is where the Ramsey advice shines in my book.

As long as you are in debt, you are beholding to others. You are forced to make decisions based upon this. You have more decision making power when you don’t owe anyone.

I work and have worked with a lot of people that have to have that paycheck every week. Work negotiations are much easier when you aren’t hurting too much from missing a month or two or a year or two of checks.
 

Homebrewale

Old Mossy Horns
I think someone has to experience a large obstacle in life in order to understand the fear some people have of debt. No matter what you do with the money, if you need it, you will have to spend it. If you are out of a job and/or have a major medical issue, you will have to use that money, whether you set it aside or not. If something happens to you that puts you in assisted living or something similar, you will have to use the money before you will be aided at all.
As I mentioned, the money for the 0% loan is off-limits except for paying off the loan. Let's use the following example. You buy a $30,000 car. You can pay cash or finance at 0%. If you pay cash, you have $30k less in your bank account. If you take a loan, you still have the $30k in cash. Then you lose your job one month after the purchase.

With the cash payment, the money is gone. It's not there to help feed the family while searching for new job. With the loan, you have two options. First option is that you take the cash you have saved for making payments and pay off the car. Now the money is gone and your car is paid off. You are in exactly the same position as if you paid cash for the car. The second option is to take some of the money and use it to make car payments and take some of it to feed the family.

The point I'm making is that worst case scenario is that you pay off your loan with the money you didn't spend by taking the loan and you put yourself in the exact same financial position as if you paid cash. Again, I have to emphasize that money saved by taking a loan is off-limits to all spending except for the loan. At worse, you are break-even at any point in the future.
 

pattersonj11

Old Mossy Horns
I hope you are never in a position to have to choose what to do with the money. If you have a major issue I highly doubt you are making the decision to pay off the car vs use a small nest egg to help yourself or loved ones with medical procedures or treatments. I can think of extreme examples of people using set aside money to help themselves or family, but I can think of zero examples of people paying off a car first.
 

DBCooper

Old Mossy Horns
Contributor
Only one place in the world cares about your credit....the bank. Only one place controls credit scores and how they go up and down...the bank. This is the same place that charges you double the rate to use their money as do to use your money.

No matter the loan terms, eventually that puppy has to be paid. There is a lot of variation in what can happen to a person in 4-5 years in terms of money. Maybe I have the money to buy a car/truck now. Does that mean I’ll have the money to pay it monthly in 5 years? I don’t know what my situation will be then. I know I’d rather sell something to recoup what I could rather than have a bank take it from me. It’s all risk/reward.
If you’re not secure in repayment potential (by your own admission), and you have cash - then by all means YOU should pay cash.

Doesn’t mean a hill of beans to the next guy, nor does it mean one of you got a better deal.
 

pattersonj11

Old Mossy Horns
They are talking about pros and cons of paying a house off early vs riding out the loan.

Someone was looking for a mattress .
 

pattersonj11

Old Mossy Horns
If you’re not secure in repayment potential (by your own admission), and you have cash - then by all means YOU should pay cash.

Doesn’t mean a hill of beans to the next guy, nor does it mean one of you got a better deal.
The “next guys” that can’t pay their debts definitely affects me. It affects you as well. How did your accounts do when those guys couldn’t pay their loans back in about 2008ish? If you would have been planning to retire then....I imagine it would have affected you.
 
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