Five years ago, you bought a house for $151,000, with a down payment of $30,000, which meant you took out a loan for $121,000. Your interest rate was 5.75% fixed. You would like to pay more on your loan. You check your bank statement and find the following information:
Escrow payment
$211.13
Principle and Interest payment
$706.12
Total Payment
$917.25
Current Loan Balance
$112,242.47
Explain whether or not it would be reasonable to do this is if you currently meet your monthly expenses with less than $100 left over.
See previous post.
To determine whether it would be reasonable to pay more on your loan given your current financial situation, we need to evaluate your monthly expenses and the potential impact of paying more on your loan.
First, let's calculate your monthly expenses. Since the bank statement only provides information on your loan payments, we will not consider any other expenses like utilities, groceries, or insurance.
Based on the bank statement, your monthly payment consists of two parts: the escrow payment and the principal and interest payment. Adding these together, we get:
Escrow payment: $211.13
Principle and Interest payment: $706.12
Total monthly payment: $917.25
Next, we need to consider your income and compare it to your expenses. You mentioned having less than $100 left over after meeting your monthly expenses. Let's assume your income covers your expenses apart from the loan payment.
Total monthly expenses (excluding loan payment): X
Loan payment: $917.25
Remaining income after expenses: $100
Now we can set up an equation to determine the maximum amount you can afford for your total monthly expenses:
Total monthly expenses (excluding loan payment) + Loan payment = Remaining income after expenses
X + $917.25 = $100
Subtracting $917.25 from both sides, we get:
X = $100 - $917.25
X = -$817.25
This result implies that your monthly expenses (excluding the loan payment) exceed your income by approximately $817.25. In this case, it would not be advisable to pay more on your loan because you are already living beyond your means.
It is crucial to prioritize meeting your necessary monthly expenses and ensuring you have enough savings before considering paying extra on your loan. If your financial situation improves, you can revisit the idea of paying extra towards your loan to reduce the overall interest and accelerate the payoff.