Mortgage Debt Paydown

[seriousthistime]

Good points about the difference between being on the deed and being on the mortgage. Also a good point about what would happen in a divorce. Wisconsin is a community property state, I believe, so I don't know how it works. My state is not community property, and if a nonmarital asset (like the house that DH owned before the marriage) is co-mingled with marital assets (like her paycheck AND HIS; if it's earned during the marriage it's marital), it converts the nonmarital property to marital property. So unless he has separate money earned before the marriage that he uses to pay the mortgage, he is using marital funds to pay for a nonmarital asset and the house will become a marital asset. The important thing is, don't assume anything. Check and find out. (Not directed to the OP but to the board in general; I'm sure the OP is not contemplating divorce.)

May I suggest you get out your mortgage and note paperwork and see what it says about deeding any interest in the property to someone else -- because sometimes the paperwork says that if you do, without notifying the bank, they can accelerate the entire balance due if they find out. If you are not on the mortgage but are on the deed, you have an ownership interest but you have not given them security for the amount owed and they might have a much more difficult time foreclosing if the person who is obligated to pay the mortgage stopped paying. I once wanted DH to buy the house we were looking at in his name only and the bank got all crazy about it. It seemed silly considering that his credit was much better than mine and I had no income anyway (SAHM with two toddlers). We finally had to buy it jointly. But the mortgage world has changed a lot since then.

[Wisconsin Beth]

For example, you only pay about $2000 a year in interest on this loan.
If they charged $2000 in closing fees to refi, you'd basically need a 0% loan to break even in a year.
Crazy, huh?

It really is.

[debtheaven]

Beth glad to hear you're actively dealing with it.

Rome wasn't built in a day. You don't need to get it done yesterday, but I know you'll feel better once all that PITA paperwork is all done.

And believe me, I'm no stranger to procrastination. That's DH's first name lol.

The important thing is to aim to getting all that PITA paperwork done SOONER rather than LATER.

Good luck!

[TheOtherMe]

I am already retired and play to start putting money towards principal so I can get out from under the mortgage.

[Wisconsin Beth]

It's probably more accurate to say we have a plan for dealing with it than that we're actively dealing with it. And thanks for the encouragement.

[saveinla]

Mar 22, 2011 13:28:54 GMT -5 phil5185 said:

Yes, it really is amazing how people assume, assume, assume, that every dollar of your income goes to paying off your mortgage! Our retirements accounts are fully funded every month up to the full 401k match. IRA's are funded fully each year. EF is now at a full 39 months and still adding to it.

'Fully funded to the match' is way different than 'fully funded' ($16,500/yr each).

Phil,

Does this mean that if you have no CC or any other loans, fully fund both you and your spouses's 401K (16500 each), have an EF of 8 months and can save an additional 1K per month in other investments, then it is good to start paying down the mortgage? TIA

[busymom]

Hi Beth,

Not to worry you, but wanted to share an experience that happened to a close relative. We live in the midwest, and this relatives's husband died suddenly. He had no will (at least, one was never found). The state law at that time was his house had to automatically go to his biological children. If those kids hadn't been good kids, and deeded the house back to their mother, she would've been out on the street.

Don't know if that's still the way property is distributed when there is no will, but wanted to warn you about what could happen. Best to get your name on the property ASAP.

And yes, I'm sure you've got GOOD kids!

[Wisconsin Beth]

Lol, the kids are not quite 3 years old and not quite 18 months old. they can be anything BUT good kids at this point. lol.

Yeah, I still haven't done anything on this. I need to add it to the chore list on the white board in the kitchen that way it will get done because I like wiping off the completed chores!

And I need to check on my 457. I know DH is the current payee if anything happens but I think DD is the only one listed as an alternate. I need to change that to 50% per kid I think. Actually, I need to add the whole house/quit claim/457/guardian/insurance change/POA/MPOA/will to the whiteboard so we go back to working on them. 2 procrastinators married to each other is not always a good thing...

[Clever Username]

Apr 15, 2011 16:27:54 GMT -5 saveinla said:

Phil,

Does this mean that if you have no CC or any other loans, fully fund both you and your spouses's 401K (16500 each), have an EF of 8 months and can save an additional 1K per month in other investments, then it is good to start paying down the mortgage? TIA

Putting on my Phil hat for a moment.....
Or what non-YM folks would call mathmatical maximization.

Once you are out of consumer debt, funding retirement to the full (don't forget about Roth), you should focus on further pre-retirement investing.
And while you're at it, move the bulk of that 8 month emergency fund into that pot too.

People focus on paying off a mortgage to elminate RISK.
If you have:
A: A fixed rate, long term, low interest loan.
B: More than the payoff balance in accessible investments.
The mortgage is no longer a Risk, it is a choice.

The same way I choose to spend money on TV, entertainment and restaurants, I also choose to pay down my mortgage.
None of these is the most efficient financial move. So, I keep all of these urges in check.

[saveinla]

Apr 19, 2011 11:05:37 GMT -5 Clever Username said:

Apr 15, 2011 16:27:54 GMT -5 saveinla said:

Phil,

Does this mean that if you have no CC or any other loans, fully fund both you and your spouses's 401K (16500 each), have an EF of 8 months and can save an additional 1K per month in other investments, then it is good to start paying down the mortgage? TIA

Putting on my Phil hat for a moment.....
Or what non-YM folks would call mathmatical maximization.

Once you are out of consumer debt, funding retirement to the full (don't forget about Roth), you should focus on further pre-retirement investing.
And while you're at it, move the bulk of that 8 month emergency fund into that pot too.

People focus on paying off a mortgage to elminate RISK.
If you have:
A: A fixed rate, long term, low interest loan.
B: More than the payoff balance in accessible investments.
The mortgage is no longer a Risk, it is a choice.

The same way I choose to spend money on TV, entertainment and restaurants, I also choose to pay down my mortgage.
None of these is the most efficient financial move. So, I keep all of these urges in check.

Thanks for the response cleverusername. I get the strategy now.

[blackcard]

<<People focus on paying off a mortgage to eliminate RISK.>>

Sorry Clever Username, not us people.

WE people, focus on having a debt-free lifestyle, and then an unencumbered cash flow.

Exactly how does one live in a 401k? Care to show me the way to my imaginary kitchen?

[Gardening Grandma]

My view is that, assuming that other financial goals have been met (no consumer debt, EF in place, retirement saving on track), paying off the mortgage gives you a GUARANTEED return of whatever the rate is (4%, 5%)...

I understand the argument that mortgage debt is cheap debt, rather than paying it off, you can build wealth by investing for an assumed return of 11% to 12%. The problem is that you are comparing a guaranteed rate of return (paying off the mortgage) with an assumed rate of return (the market). Not everyone has the same tolerance level of risk and could sleep soundly when all their financial eggs are in the stock market while it is tanking.

I've never, ever heard anyone say, "Gee, I wish I hadn't paid off my home"

[Firebird]

It's funny to me how bent out of shape people get about this subject...

For most people, prepaying a mortgage is not the best financial decision. If you have extra money, better to direct it to investments earning higher returns. However, a lot of people like to say they're debt-free and that's okay too, if that's what works for you. As long as you realize there's a trade-off involved.

It's nothing to get mad over ;D

[dancinmama]

Mar 19, 2011 11:07:48 GMT -5 dancinmama said:

House #1: 10 or 11 years.

House #2: Less than 2 years.

House #3: 5 1/2 years and counting.

Since we are nearing retirement, we have decided not to try to pay off House #3 since the interest rate is so low. What we are trying to do is to have the amount that we would need to pay off the mortgage in the bank, prior to retirement. IF DH's company offers a RIF package, we'll be able to do it; if not, we'll be about $50K shy.

[debtheaven]

Dancin, from what I've seen on YM, your DH will certainly get a generous package.

I think you have a great plan. But if he does get a better deal than you expect, I think both of you will sleep a whole lot better at night knowing that your mortgage is either paid off, or that much closer to being so.

This said, you are right. It's generally better to have the money to pay off the mortgage in the bank rather than a paid-off mortgage. But, it's not always about the numbers.

You are very savvy, you will make the right decision for your family.

[Wisconsin Beth]

ARRGGGHHH. I can't find the stuff for the quitclaim. I thought it was software, DH thought it was paper. I think it may be in the office, aka junk room. I don't think we ever opened the packet after I brought it home from the store.

[Tiny]

For most people, prepaying a mortgage is not the best financial decision. "Most" people? Why? According to whom?

Well, I keep reading all those articles about how the majority of 'boomers' have less than 25K in savings... the youngest boomers are 47- so lets make some guesstimations about someone who's say 40. They probably have little or no money in savings and probably 10 or 15 years into a 30 year mortgage...
Maybe they are contributing 3 or 5% to a 401(k)...

Would you suggest they pay down their mortgage Or save more?

Don't forget that even a paid off house is an expense - Insurance, Property Taxes, and Maintenance. You can still LOOSE a paid off house - if you don't have insurance and a disaster strikes (fire, flood, tornado,etc) or if you don't pay Property Taxes, or if you can't maintain the house and it starts to loose value from the damage done (water leaks, etc).

So if you can't live in a 401(k) - exactly HOWdo you get money out of your house to buy grocereis, put gas in the car, pay a medical bill? Do you chip out a few bricks or pull off some siding and sell it?? As my neighborhood aged there were plenty of seniors clinging to their paid for houses on fixed incomes. The paid for house didn't increase their monthly money in any way shape or form...

[Tiny]

Snerd, you said MOST people and I'm judging most people from the articles I've read that seem to have stats higher than 60% or more of Americans who aren't on particularly good financial footings.

For the record, I'm in the crowd that favors Balance... if you're covering an EF and Retirement savings and want to pay down your mortgage - by all means do so.

Maybe it's the term "pay down the mortgage". I paided down my 15 year mortgage by $8.21 every month - just by rounding up my payment (P&I) to the hundreds place. If I had done that for 14 years, and 10 months could I proudly proclaim that I paid down my mortgage??
When I hear someone say they are paying down their mortgage I tend to think they are making more than 1 extra payment a year.
So I guess maybe I'll need to start tempering my responses on the paying down the mortgage debate by first asking HOW much more a month are they sending to the mortgage? $50 or $1500?

[Tiny]

Ooo snerd, most people who are adamant about having a paid off house would loathe to sell it much less re-mortgage it (take a HEL or HELOC). They'd probably rather starve than sell/re-mortgage.

[Tiny]

If you aren't particularly good with money, then all the MORE reason to do this IMHO.

For someone who's not approaching retirement (say 5 to 10 years away) I agree with you.

[Wisconsin Beth]

May 12, 2011 12:58:27 GMT -5 Tiny said:

For most people, prepaying a mortgage is not the best financial decision. "Most" people? Why? According to whom?

Well, I keep reading all those articles about how the majority of 'boomers' have less than 25K in savings... the youngest boomers are 47- so lets make some guesstimations about someone who's say 40. They probably have little or no money in savings and probably 10 or 15 years into a 30 year mortgage...
Maybe they are contributing 3 or 5% to a 401(k)...

Would you suggest they pay down their mortgage Or save more?

Don't forget that even a paid off house is an expense - Insurance, Property Taxes, and Maintenance. You can still LOOSE a paid off house - if you don't have insurance and a disaster strikes (fire, flood, tornado,etc) or if you don't pay Property Taxes, or if you can't maintain the house and it starts to loose value from the damage done (water leaks, etc).

So if you can't live in a 401(k) - exactly HOWdo you get money out of your house to buy grocereis, put gas in the car, pay a medical bill? Do you chip out a few bricks or pull off some siding and sell it?? As my neighborhood aged there were plenty of seniors clinging to their paid for houses on fixed incomes. The paid for house didn't increase their monthly money in any way shape or form...

I'm 40, DH is 41. We've got 9 years left on our mortgage and about 2 on our HELOC. We don't have much in savings but 20% into retirement. What's going to kill us financially is the kids. We've got todders now but private school tuition is running $2.5K-$4K a year now, per kid. The public schools here are horrible and NOT an option.

[yogiii]

We are "paying down our mortgage". Currently we're 4 years into a 30 and are refinancing early next week into a 15 year for slightly less per month than we currently pay due to the fact that we shaved 10ish years off the other one by paying ahead and also due to a lower rate. I'm 30 and DH is 29. We max our 401ks and Roths and also have an EF. I really don't want more money in the stock market than what is in our retirement accounts so I figure why not pay down the mortgage, as someone else said, it was a guaranteed 5.5% return.

That said, with the refi, I don't plan to pay down aggresively anymore. We have DS who is about to turn 1. I can see that our expenses will be going up in the future, with things like pre-school etc (right now we have free child care). Also, I may decide to go down to PT at some point in the future, so we may not have ths same income.

I'm hoping that paying down some of the mortgage in the "early years" will help. Now we should be debt free when we're 45. (Currently no cc or auto debt).

[Tiny]

If you ARE approaching retirement, wouldn't it be a good idea to have your house paid off?
Probably not if they don't have any savings...

[Tiny]

For the record I was in the 'not so good with money' category when I bought my house - I opted for a 15 year mortgage even though the monthly payment was, well, big. I didn't have to give up my opera seat to make the payments so I figured I'd be ok (I did say I was somewhat clueless). I also figured that since I was soooo very good at frittering away money, I'd be better off as it was a kinda of forced savings. I did round up my payments by $8.21 for the first year or so and then added $50.00 to each payment. Overall after the 5th year I pretty much made one extra payment a year. When the mortgage balance got down to 4K I just paid the silly thing off. About 10 years into the mortgage I was much more clued in to financial stuff and had an EF, a nearly funded 401(K), and I was contributing to a ROTH. Took me a couple more years to get the 401k and the Roth fully funded each year.
I'm thinking that if before 'financial enlightenment' occurred I had aggressively paid down/off my mortgage - I suspect I would have just started frittering money as soon as I got the deed to the house... cause you know whoo hooo! I'd have 1500-2k free up each month...

[Wisconsin Beth]

May 12, 2011 13:16:27 GMT -5 Lady Gaga Gaga Snerd said:

If you ARE approaching retirement, wouldn't it be a good idea to have your house paid off?

Snerd, you'd think. My ILs lived in HUD housing from about the mid 1970s-1995ish. They moved out because HUD was going to income based rents. They had no dp (and in fact borrowed it from DH) and were about 55 or so when they bought. They got a fixed rate, 30 year mortage and did their monthly payments. And life was apparently fine.

All of sudden, around a year after DH started bringing me home, they realized they needed to do something about the mortgage before retiring. HELLO? 30 year mortgage started at age 55 means you finish at 85 unless you do something about it. So then we got to listen to MIL expound on the joys of her bimonthly payments program. Because she apparently couldn't just make extra payments on her own... After that (and esp. once DD came along) we got to listen to her b!tch about how it sucked that she couldn't retire until after the house was paid off. That happened in early 2010 and she retired shortly afterwards. FIL retired about a year before her, his job was facing layoffs and as I recall, told him he was going to be laid off, then somehow talked him into retiring. So he did (against DH's and BIL's advice) and got no severance package or unemployment or anything.

[dancinmama]

May 12, 2011 13:16:27 GMT -5 Lady Gaga Gaga Snerd said:

If you ARE approaching retirement, wouldn't it be a good idea to have your house paid off?

That was our plan, but sometimes it doesn't always work out the way you'd like it to.

We paid off the mortgages on our previous two homes. The second one was paid off in 2000. In 2005 DH relocated for work to a much higher cost of living area, so even though we made a very hefty down payment, we also ended up with a pretty healthy mortgage to get a close equivalent in housing (his decision, not mine).

In the meantime, the housing market has taken a as have other markets and we suffered some losses (as have many other people) that were planned for paying off the mortgage.

The good news is that mortgage rates have been historically low so it makes more sense for people to hang on to their money because eventually interest on money markets, CDs, etc. will outpace those of their mortgages. If my mortgage rate is 4.5% and in a couple of years from now I can safely earn 6% on my money, it makes more sense to have the money in the bank rather than having dumped it into the home.

People in the 80s experienced this first hand. Money market accounts were earning 13% interest while their mortgage interest rate (mortgages obtained from years past) might have been only 7%.

[Wisconsin Beth]

May 12, 2011 13:39:06 GMT -5 Lady Gaga Gaga Snerd said:

Bad with money is bad with money. I doubt people who are bad with money are going to do anything that makes sense.

Yeah. Thing with MIL is that her family all think she's GOOD with money. She can tell you where every penny was spent and she's always looking for cheaper prices.

[Timberwolf]

This might be an unorthodox approach to paying off my mortgage, but this is what I did. I saved the money in a regular savings account, part of it in CDs, and didn't touch it (there's the rub), until I had enough to pay it off in one lump sum. The reason I did this was so that I didn't tie up the money in the house until I could fully get rid of the mortgage. That way, if I would have had a catastrophic financial event I would have had money available without having to sell the house for capital. I thought it was a good way to do it and I still paid off the house 12 years early on a 30-year mortgage.

[debtheaven]

Kudos to you Timberwolf. That's exactly the point of saving the money rather than not throwing it all at the mortgage as soon as it comes in.

In short, the argument for saving the money is that if you have a house worth 200K, you can just as easily be foreclosed upon for not paying your mortgage whether you owe 200K, or 2K.

Personally I too think it's better to have a paid-off house (the proof is that I do), especially before retirement. But if you don't, it's better to have a mortgage and money in the bank to pay the mortgage payments rather than a paid-off house and no money in the bank (or, when you retire, not enough money in the bank for retirement AND to pay off your house).

To me the problem is when people talk about paying off their mortgage, OFTEN other posters assume they are penniless, have no savings, retirement funds or other assets.

This said, both DH and I are not high earners and having a paid-off house has been an WONDERFUL thing for us. We paid our house off in Aug 2007. Since then we have been using that modest mortgage payment for other things, like updating the house, replacing the furnace, replacing the car, maintaining rental property, taking some fantastic vacations, etc. We've done / redone everything we wanted to do in our house except for installing double-glazing downstairs and replacing the kitchen (which is 29 years old). That's still on our to-do list, but not for tomorrow.

But I will never forget that in the weeks after paying off our mortgage, DH (who is a total early bird) just couldn't wake up and get out of bed. This went on for about two weeks. He finally realized it was because he hadn't been able to sleep that deeply in many years. But having paid-off the house gave him such an incredible sense of security, he was making up for lost sleep.

We are 51 and 55.

[Firebird]

That way, if I would have had a catastrophic financial event I would have had money available without having to sell the house for capital. I thought it was a good way to do it and I still paid off the house 12 years early on a 30-year mortgage.

But what rate were you getting on the money? Once you had enough to pay off the house, why not just let it keep growing and know that you always have the OPTION of paying off the house if you need/want to?

However, if you have to pay off a mortgage early, this is the way to do it for sure.