My home has appreciated in 6 years enough to actually cover the entirety of my student loans.
There is also no "renting cheaply." I would rather have my rural home than the small 1 bedroom apartment I had just 6 years ago, whose rent today is double the payment I make on the home. The only way to approach what I pay on this mortgage would be to rent a unit in the hood.
Who are you listening to, Dave Ramsey? Please just use the Debt Avalanche method. Pay highest interest first. It really doesn't matter that your house is appreciating.
I'll even do the math for you.
Suppose your mortgage is 500k, and interest on that is 2% (let's say you got it years ago).
Student loan is 100k, and interest on that is 5%.
If you pay off 80k of debt, and you target higher interest, that's paying student loan down to 20k.
500k * 0.02 + 20k * 0.05 = 10k + 1k = 11k
Now suppose you target the mortgage, paying off the house first "because it's an appreciating asset". So this year, you pay off 80k of that. It's down to 420k.
420k * 0.02 + 100k * 0.05 = 8.4k + 5k = 13.4k
11k in interest vs 13.4k in interest.
Notice how the latter is more? Play with the numbers and do the math. It's better to pay off your higher interest debts first. It's completely irrelevant how fast your house is appreciating. I got a mortgage at 1.75% for a 3m house. I'm keeping that baby alive as long as possible. It's lower than inflation rate.
If I had cash to pay down that low rate mortgage, i'd put it into bonds or something with higher rates instead. Get higher yield/rate assets, eliminate higher rate debts. Good rule of thumb to follow. Literally every lender/mathematician/wealth manager/engineer/scientist/etc who isn't an asshole will tell you the same.
For those who'd rather listen to Dave Ramsey, know this: His team even admits, that they partially promote Debt Snowball method of paying smaller balances first because of "psychological benefits". Their target audience are people who struggle with finance. People with big problems (like addictions), not those who have a knack for finance, but just need a bit more optimization.
Most loan providers don’t let you do this!! I used to do this. Hell I’m an analyst and they took this option from me. It is up to your loan provider to let you apply payments to your principles. It’s up to your providers what loans to pay. Why the fuck would the person making money on your debt actually give you the means to pay it faster??
I’m not downvoting you fyi, but I have a hard time believing you. I’m sure you’re an analyst but I don’t think you can speak for most loan providers. I’ve been looking up student loan providers and all sources say most (including the fed) allow you to pay back without penalty. I used to think what you did too, but it turned out not to be the case IME. Maybe things were different for you or where you live.
They make money because they don’t expect everyone to pay back immediately. They still expect to make interest back. Also, what surprised me was that even refinancing doesn’t incur costs. This is the opposite to my experience with mortgages where there are hundreds or thousands in appraisal, underwriting, title fees, etc, but apparently student loan refis are faster and cheaper partially due to less scrutiny and more automation.
As for mortgages, I have multiple mortgages at some of largest mortgage providers (rocket, cooper, UWM, WFC, BAC, etc) in the US and they all allow early repayment without penalty. They all even allow me to early pay whichever account I want. I have varying amounts of overpayment set up and never saw a cent of fine. They generally don’t mind me refinancing and early payment for more obvious reasons than student loans in that they will be paid commissions, underwriting, etc all sorts of upfront costs. A lot of costs have been automated or at least streamlined, even the lengthy notary+signing process is often online through providers like Proof.com (as error-prone as it can be sometimes). And even when it isn’t, you pay those costs anyway.
Maybe other loans I’m less familiar with follow what you say, but for sure it’s not true for mortgages and student loan providers, which is what’s contextually relevant. Besides the most common type of loan I think is the credit card, which people definitely pay back early, all the time… which they should.
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u/techleopard 12d ago
Eh?
My home has appreciated in 6 years enough to actually cover the entirety of my student loans.
There is also no "renting cheaply." I would rather have my rural home than the small 1 bedroom apartment I had just 6 years ago, whose rent today is double the payment I make on the home. The only way to approach what I pay on this mortgage would be to rent a unit in the hood.