Carlin, Arizona discussed on The Dave Ramsey Show

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A Carlin is weather's Carlin is in Arizona hi Carl how are you are you better than I deserve what's up thanks for taking my call and so my question for you is my husband and I are on baby step four five and six good and we just relocated to a new city and bought a house and as part of our relocation benefit we get to do or have the option to do a mortgage pre cast it cost three hundred dollars to do it does not impact our interest rate or anything but it does give us the ability to put put some additional principal down and it will actually lower our monthly payment and so my question is is there a mathematical trick to maybe when the right time to do this would be we have about fifteen thousand dollars extra right now that we could throw at it unless you need a lower payment to make the budget there's no mathematical reason to do it all really L. three cache doesn't do anything except lower your payment it doesn't change your interest rate it doesn't change how fast you advance the debt reduction in the event you have principal it doesn't change anything it just changes the way the ball down the road nope sorry it's not just changes time a calculation how does it change payment calculation okay and it doesn't matter down the road if let's say we have an additional thousand dollars surplus per month for a that's going towards the principal it's simply you what what is your what is the number of years a number of months or whatever left on your mortgage right now at fifteen it's brand new we just bought it so why would you recast it you would recast it to what just take a look here a lower payment after you set the principal down right right okay and so if you throw some money at it and then you recast it you're now paying a a payment based on a new lower principal payment follow me the interest isn't exactly the same if the interest rate stays the same in the recast exact same amount of interest and so when you pay extra principal it has the exact same effect it doesn't do anything except lower your payment I wouldn't do it the don't do anything with it don't just start chunk in principle on it and keep paying the higher payments because here's the thing all right well the interest is calculated on a typical mortgage of Fannie Mae and FHA VA monthly all right and so round numbers which is useful and easy number let's say you had a three percent mortgage okay that is one quarter of divided by twelve okay is one fourth of one percent per month on your outstanding balance okay so when you pay the payment the next month one quarter of one percent three percent divided by twelve multiplied torture outstanding balance at that moment what the verdict is the principal or not and all the rest of your payment beyond that amount goes towards principal and so if you lower your principal the interest amount of your next the amount going to interest in your next payment goes down and more of your payment goes towards principal simply by lowering the principal every month you're sliding forward in the imposition schedule mathematically and so that's a bunch of gobbledygook to say if you just chop principle on it you're gonna make the exactly the same progresses if you recast it and junk the same exact amount of principle towards let's say you reduce your payment about three hundred bye bye bye to tour Bucks a month indeed but then you decided well we were already paying a thousand dollars extra we're gonna keep paying thirteen hundred extra now and so you know you're gonna be in exactly the same place if you if you paid it out so I wouldn't do it all I would just chunk on the principal and get are knocked out really good question Hey thanks for the discussion open phones at triple eight eight two five five two two five eight J. is in Arizona hi AJ welcome the Dave Ramsey show Hey are you doing big things in my car sure I can help also my wife are currently we we just got married last year well we have two kids are we just going to cancel the money are not too long ago so as of right now our state of the killing of bank is looking at about twenty four thousand dollars and we have about four thousand dollars liquid I'm just trying to act out debt wise we have about five thousand dollars combined it together and we have two kids and right now we're living is barbaric the nice nice nice neighborhood where an apartment but we're growing out of it and we're kind of wondering right now with this money should we look into buying a home I do have a pretty steady job right now so we're kind of thinking like a nose with everything going all should be by Harlem should we wait our back wall would come from our parents will never really owned a home before so we can't really reach back and talk to them so we figure can I reach up to you and see what are we think our best option would be cool how long you been married are we do not manufacture in October so congratulations where the twenty four thousand come from so I recently I got my car told all the way to work I feel a bit of that came from the settlement I don't want to say about sixteen thousand under came to a settlement originally came from just like you know a saving and we found out about you before when you said you had a you are paid for car they got totaled what we paid for our I think the Old Navy to for a couple hundred Bucks but I mean so what do you drive I don't really driving are we have we have one car right now next totally paid off okay she do you need to buy another car we do need to buy another car okay that's a good thing okay cool so here here's the you know you've been let's send us a sounds like so you know the baby steps probably right the first thing we're gonna do is pot payoff of five thousand or for that that you got twenty eight thousand work with four thousand lose cash twenty four the bank that I understand that right yeah okay yeah that's a twenty eight minus five twenty three your debt free that's baby step two baby step three is an emergency fund of three to six months of expenses what your household income are you right now it's only working so she's trying to address their home one thing with the time being but we're trying to get her back out working as well what is your household income right now one eighty five thousand okay nine and so if we say it on the merchant's refund of five thousand dollars a month to operate your house you should you're saving three thousand right her mom there would you say you're sorry I wasn't caught for months with okay okay so what does it take to operate your house right now a month three grand for grand I want to say maybe two now I want to say for okay you got you got several kids you got a mark you know you got gas insurance rent okay you start adding up you need to be doing a budget you need to get your every dollar budget going but we're gonna call it for granted we're gonna say three to six months of expenses let's call your emergency fund fifteen grand out of twenty three that leaves you eight to buy a car with no you're not rated by house you're not emergency phone.

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