michaelloll[at]hotmail.com (Mike) wrote in message news:<cba741c1.0309241203.33a07af6[at]posting.google.com> ...
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Yes, that makes sense. Thank you!

"Sgt. Sausage" <nobody[at]nowhere.com> wrote in message news:<3f705349$0$43875$a0465688[at]nnrp.fuse.net> ...
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Could you please demonstrate why it's better to pay off the higher
interest loan first by showing me the math, step by step? Here's what
it seems to me (I'm doing this from memory so bear with me): if I
apply $200 extra per month to the higher interest loan, I pay it off
in about 8 years, and save almost $10,000 on that loan. I then apply
the extra $200 to the lower interest loan (the only one I have left at
this point) and pay it off in 18 years (so it only took me 8+18=26
years instead of 30 years to pay if off), and save around $35,000 on
that loan. So a total savings of around $45,000 over the course of 26
years.

But if I apply the extra $200 to the lower interest loan, I pay it off
in about 23 years and save somewhere around $73,000 on that loan (and
save nothing on the higher interest loan, which is paid off in 15
years). What's wrong with my thinking here?

Randy Gordon wrote:
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Maybe it would help to pretend you have 9 loans from different banks,
each adding interest at the following rates:
1. $35,288 at 5.25%
2. $35,288 at 5.25%
3. $35,288 at 5.25%
4. $35,288 at 5.25%
5. $35,288 at 5.25%
6. $35,288 at 5.25%
7. $35,288 at 5.25%
8. $35,288 at 5.25%
9. $35,200 at 5.875%

Now which would you pay off first?

-Tad

PS note that the term - 15/30 yr - doesn't really factor into the
question you've posed...it just sets your minimum required monthly
payment...you can turn your 30-year loan into a 15-year by simply paying
more each month.

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You can *believe* anything you want, but that math
they tried to teach you back in high school will *prove*
that it's in your best interest (if your goal is to minimize
total payout over the life of the loans) to pay off the
highest interest first.

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Yes

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Payoff the higher interest loan first. Once it's
paid off, apply that money to accelerate payment
on the lower interest loan.

I just bought a house with an 80-10-10 plan so I now have two home
loans to pay off (I have no other debt). They are as follows:

1. $282,300 at 5.25% for 30 years
2. $35,200 at 5.875% for 15 years

As far as I know, everything else about them is the same regarding tax
deductions, etc. I can pay about $100-$200 a month extra.

I keep reading that you should pay off the higher interest rate loan
first, regardless of the balance, but it seems to me that I should
apply all the extra money toward the loan with the higher balance even
though its interest rate is lower. I believe I would save much more in
the long run doing that. Am I missing something here? What would you
do?