bkshopr,<em>
1) If I make a minimal payment just to cover interest only then I could deposit the principle portion into my mutual fund account that yield better than 6-1/2 %. I am disciplined enough to save then I would make a lump sum principle payment by the 12<sup>th</sup> month of each year for the principle I should have paid. Would the mortgage payment be reduced the subsequent years and I would pay less and less toward the 30<sup>th</sup> year.
</em>If you are disciplined, this is a good method. 99% of people aren't that disciplined, so it generally is not an idea I endorse. Plus, you have no idea of you will continue to make more than 6.5% in the mutual fund. Money spent paying down a mortgage has a guaranteed rate of return.
<em>2) Same as one but I would make one lump sum principle payment at the end of my 10<sup>th</sup> year for the cumulative 120months of principle. Would I now have a higher payment required for the remaining 20 years of interest and principle? Is there only 20 remaining years left.
</em>Paying it off yearly or at the end of 10 years will have similar effects. If you are making a substantially better return in the mutual fund, holding all the funds until year 10 is better.
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<em>3) Same as one and make no lump sum payment at all after 10 years. Would the loan start all over again and will take 30 more years to pay it off. Will I have wasted 10 years with this scenario? With this scenario take 40 years.
</em>Two and three are similar questions. These loans generally amortize with the remainder of 30 years, so if you have a 10 year I/O, you will have only 20 years to pay off the balance. This is a significant payment jump if you are not prepared for it. Most people just refinance at that point -- which is another concern. There is no guarantee home values will be higher 10 years from now to allow refinancing without paying down the mortgage.<em>
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<em>4) Pay the same set amount each month and after 30 years I own the house and no headache.
</em><strong>This is always the scenario I suggest. Why create all the additional stress?</strong><em>
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<em>5) I heard about the bi monthly payments and people pay off the loan a lot quicker. How does it works my out of pocket are still the same except for the extra stamps?
</em>This works very well for people who are paid bi-weekly because you have 2 extra paychecks a year. Putting those checks toward your mortgage will pay it off in 22 years instead of 30. Also, some people put their tax returns toward the mortgage for a similar effect. Again, it is a matter of discipline. Most people will find something else to spend the money on.
