Mortgage Debt Paydown

[debtheaven]

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?

I can't answer for lonewolf, but if he or she has been at this for a while, the interest rates were probably going down on his / her savings.

Plus, like I said. Until you have a paid-off mortgage, I believe that you cannot imagine the degree of comfort that can provide (unless you're a REALLY high-roller and have that and plenty more in the bank).

Yes I know you still have to pay insurance and property taxes, but still. The house is finally ALL YOURS. In my case we have a lovely but modest home that my ex and I bought in 1984. We moved in in 1985. He moved out in 1992. DH moved in 1998 and took over my ex's half of the mortgage. The mortgage was finally paid off in August 2007, in the fullness of time, just an occasional pre-payment or two.

Our house isn't huge, it's about 2200 square feet. Small for a family of six by US standards. Raising four kids, it felt well small sometimes. But we love it, and we couldn't afford to upgrade, so we "made do". Fast forward to today, and our modest home (in a very HCOLA) is worth a lot.

In the olden days, before people in the US could communicate on internet sites LOL, people who had paid off their house put a small wooden circle (either a wooden coin or a wooden button) on their banister. So that people who visited would know that the house was paid off. That tradition started in the south.

So even way back when (not sure if that was the early 1800s or 1900s) visibly, people aspired to owning their own home.

[Firebird]

I can't answer for lonewolf, but if he or she has been at this for a while, the interest rates were probably going down on his / her savings.

Plus, like I said. Until you have a paid-off mortgage, I believe that you cannot imagine the degree of comfort that can provide (unless you're a really high-roller and have that and plenty more in the bank).

Your interest rates shouldn't be going down if you've got the money invested properly. If you just have the money picking its nose in an ING account, that's different. But that much money shouldn't be in an ING account to begin with, it should be in an investment account.

As far as the home being yours - maybe it's an emotional thing? I don't know. But the house is still ALL YOURS as long as you have the money to pay for it, but why would you tie up that money in the house if you didn't have to? It'll be paid off sooner or later, and you can be absolutely sure of that fact once you have enough invested to cover the mortgage, so in effect it IS all yours.

Different strokes, I guess. DF is all over the idea of paying off our mortgage early (when we get one). I cringe at the thought. Having enough in a solid investment account to cover the mortgage will, I think, be a reasonable compromise for us. But we'll see.

[debtheaven]

Your interest rates shouldn't be going down if you've got the money invested properly.

Sorry, firebird, but that's just silly. My ex and I bought this house in the early 80s. In those days he handled the money but I think we were getting about 15% on savings, but our mortgage was costing us 17%. I'm not sure of the savings rate, but I am sure of the mortgage rate. When my ex and I took out a mortgage for this place in the 1980s, we were paying 17% interest on our mortgage. Ask your parents about interest rates in the early / mid 80s.

I'm 51 now and I handle ALL our family's finances, including the "gifts" from the rich grandparents to my adult kids. Interest rates have gone down here consistently over the past five years. They are JUST NOW starting to edge back up.

Yes, I am talking about savings / CDs. DH and I and DS1 did very badly in the market, we all invested in Dec 1999. Our pensions are all in the market, but after that debacle, DH and I decided we could do much better with our DISCRETIONARY income in RE, and indeed we have.

Yes of course a very large part of owning one's home is emotional!

[Firebird]

I'm not sure of the savings rate, but I am sure of the mortgage rate. When my ex and I took out a mortgage for this place in the 1980s, we were paying 17% interest on our mortgage

17% interest?! Holy crap, THAT I would have paid off. I've never had ANY debt that high! Wow. I thought my 6.8% student loan was bad! Didn't realize we were talking about that kind of percentage - but there again, if you're still earning higher interest than 15% why would you prepay?!

Yes of course part of it is emotional!

I could see making a small, irrelevant financial choice out of emotion. Like buying a present for your mom that cost twice what you budgeted for her birthday because you knew she'd love it. But a decision this big that affects how wealthy I am going to become in my lifetime - yeah, I'm not basing a decision like that on any kind of emotion.

[debtheaven]

Firebird, like I said, except for 2.5K once when DH was feeling flush, we DIDN'T prepay our mortgage. To be honest, we couldn't afford it LOL.

But it is such a great relief. This said, what I say about having a paid-off house doesn't apply to people starting out, it's more for people my age. I just can't imagine entering retirement with a mortgage, let alone a huge one.

Happily, you're not there yet LOL!

[dancinmama]

May 12, 2011 19:19:16 GMT -5 Firebird said:

I'm not sure of the savings rate, but I am sure of the mortgage rate. When my ex and I took out a mortgage for this place in the 1980s, we were paying 17% interest on our mortgage

17% interest?! Holy crap, THAT I would have paid off. I've never had ANY debt that high! Wow. I thought my 6.8% student loan was bad! Didn't realize we were talking about that kind of percentage - but there again, if you're still earning higher interest than 15% why would you prepay?!

Yes of course part of it is emotional!

I could see making a small, irrelevant financial choice out of emotion. Like buying a present for your mom that cost twice what you budgeted for her birthday because you knew she'd love it. But a decision this big that affects how wealthy I am going to become in my lifetime - yeah, I'm not basing a decision like that on any kind of emotion.

Yes, I lived through those days too. That is why we paid off our first two homes WHILE we were ALSO investing in the stock market. Our first mortgage in 1985 was @ 12.25% and we refinanced when rates hit 10%, but they kept dropping. Our second mortgage was a smidge over 7%.

It's a lot different when rates are high. On the flip side of the coin, what you could earn in a money market account was really high too. There were a couple of years while we were saving the down payment for our first home that money market rates were at 13% or more.

So what people do or don't do is not always so cut and dried.

Since rates are at their lows now, I have no problem NOT paying off the mortgage, but do want to have the money available to have the option to do so. It's just as good as a paid off mortgage.

[yogiii]

Firebird - I guess for me it's psychological but I really don't want more of my money sitting in the stock market and ING is what 1% now? It made sense for me to pay down my mortgage. I wasn't doing it each month, I did it in a few large lump sums. For example, DH and I had saved about half of my yearly income for having a baby since i wanted to take almost 6 months off. Well, we never ended up dipping into that money while I was home, so when I went back to work, I took that money and put it on the mortgage (this acct was seperate from our EF). Once I saw that we were getting close to the 15 year point that became a goal, that I wanted to pay down to that point. Now that we're refi-ing into a 15 it feels great. I don't think I'll be paying it down now, I'll save (even if it is in the stock market ) and see what happens.

[Firebird]

I'm pretty fanatic about saving what I can up to half of my (gross) income. Once I'm there, that's the only time I'd consider prepaying a mortgage - but OTOH I feel like if I'm saving half of my gross income, I should be allowed to enjoy the other half.

To each his own, as I said

[DVM gone riding]

Blackcard I think clever usernames point was if you have more then enough money in other funds to pay off the mortgage then it doesn't really matter if you pay the mortgage off or not (you could!!) Now if you don't want the risk of the entire market crashing to zero and you loosing your job and your health all in the same week then pay off the mortgage-but that is still about negating risk not increasing wealth or cashflow.

Now I am like someone else said, I like round numbers so I pay a round number to my mortgage every month, if I change nothing it will be paid off 2-4 years early. Of course Like you I like to negate risk so once the SLs are finally paid off then I will focus on paying off the house, just going to take a lot of time

[Wisconsin Beth]

I found the quitclaim paperwork! Woohoo! Now we just have to fill it out and then get the rest of the paperwork the courthouse needs and I'll be on the deed to the house.

[debtheaven]

Yay Beth!!!

[Wisconsin Beth]

May 16, 2011 18:02:49 GMT -5 @debtheaven said:

Yay Beth!!!

yeah, it's a bit of progress. DH got some basic quotes on term life insurance for us too. So hopefully by the end of month we'll have term life insurance and the quit claim dealt with. We still need wills and POAs/Medical POAs and guardianship paperwork to do but it's a step in the right direction.

[TD2K]

I bought a car in the early 80s and had some horrible interest rate (I still wonder why I bought it). Luckily, the loan was set up such that I could rewrite it at any time at no cost to current rates. About a year after I bought the car interest rates started to drop so every 4 months or so I was rewriting the loan. Back then people commented we would never see interest rates below 10% and we all know what happened to that.

But yes, those interest rates on a mortgage is pretty ugly.

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

If you are putting that extra money into investments rather than your mortgage then it really depends on the rate of return from those investments. If you can make more on your investments than what you save in prepaying your mortgage, you will be farther ahead. Yes, when you retire you still have to make those mortgage payments if you go the investment route but then you have that money from your investment accounts to pay the mortgage.

However, I also like the idea of having my mortgage paid off and being able if needed to live on a lot less money. I paid off the balance of my mortgage with my HELOC and currently, that is costing me 2.9% though I'm not counting on that staying nice and low

[3jsmom31]

I always think I learn so much from these discussions, but still.... It will be a load off my mind to pay off our mortgage. It's a 15 year 5/1 ARM at 6.9%. We have accelerated our payments 2 to 3 times the monthly payment amount. We have invested in some property, so if push comes to shove, we could sell a property to survive. I have tried to learn about investing in the market, but it scares the crap out of me that the rug can be yanked from under you. I do understand that it's costing us money, so if anyone wants to help me learn everything I need to know to make wise investment decisions, feel free to hold my hand, and soon, or we will pay the mortgage, and then begin floundering around on wallstreet? I dont' think I'm particularly dumb, but I overthink things, then procrastinate .....

[Wisconsin Beth]

3js, Phil on the YM board is the one who's knows about the return on investment for stocks/bonds stuff. You may want to check around on that board for other threads on starting out or start a thread of your own.

You want to have investments that will keep pace with inflation. So while CDs/savings accounts will keep your money safe, they don't have much of a return. The higher the return, the greater the risk. So you need to figure out how much risk you can tolerate. Most of the investment sites have some kind of free risk tolerance survey to help you figure it out.

Having time on your side helps too The younger you are, the longer you have to accumulate enough money for the retirement you want. So if you haven't thought about what your ideal retirement is, you guys should. Some people are happy sitting at home in a paid for house, doing yardwork and stuff. Some people want to travel the world and stay in expensive hotels. I suspect most want something in between.

I hear you on the procrastinating part. lol.

[3jsmom31]

Thank you.

[Wisconsin Beth]

You're welcome. And good luck with investing.

[bankergurl]

I just turned 27 and DH is 29. We have no debt other then our mortgage and both contribute 15% + to retirement including 401K, 403B and Roth. We have no financial help from our families and don't make a lot. We lived in the Midwest and out combined income is about $60K a year.
2007 Purchased home for $160K, 30yr loan at 5.75% - Put $14K downpayment, including closing costs
2009 Refinanced to 20yr loan at 4.80%
2010 Refinanced to 15yr loan at 3.75%
We have made extra payments on our mortgage every month since we purchased our home, ranging from $200 - $600 a month depending on extra income and other things going on in our life. If we could have seen the future we obviously would not have refinanced in 2009, and would have just waited for the super low rate in 2010, so that we wouldn't have had to pay the closing costs twice. But, such is life. We definitely will not be refinancing again.....cause lets face it, we would NEVER get a lower rate then 3.75%!! By refinancing to a lower term and lower interest, even if we did not make extra payments we are saving over $100K in interest off our original loan. vertex42.com has a great spreadsheet for mortgage loans if you want to plug in your numbers and see how much you can save in interest. We went from a 30yr loan to a 15 yr loan and our payment only went up $20 a month! We are still plugging away and plan to have our house paid off at the latest by DH's 40th BD (11 more years). I think we can be done in about 7 if we really focused, but as if we are in our 20's and in a great place financially, so we like to travel, go out to eat and do a lot for entertainment. ;D It helps a lot that DH and I are both allergic to debt. ;D

[blackcard]

<<we are saving over $100K interest off our original loan.>>
Paying that interest back to yourself, instead of to the bank. That is how we see it also.
It is amazing how so few others see it this way.

bankergurl I think you are doing great. Karma 4 U.

[reeneejune]

OP, I did some serious number crunching a few months ago because I was considering jointly purchasing a house with a family member. We agreed that because of her proximity to retirement age, we would want to pre-pay the mortgage to have it paid off in 15 years at the most. I assumed a $95K purchase price (she owns land, we were going to purchase a new mobile home and set it up for full handicap accessibility) and a high interest rate of about 7%. With those assumptions, the monthly payment would have been $632. To cut the mortgage down to 15 years, we would have only had to pay $853 per month. That's an extra $221. I know I had an assumption that you'd need to make huge payments to make any kind of real difference in the length of time it takes to pay off a mortgage. I had assumed that we would have needed to make double payments every month. That will pay off the mortgage fast alright, just over 8 years using the example above. A little extra goes a long way!

[phil5185]

<<we are saving over $100K interest off our original loan.>>
Paying that interest back to yourself, instead of to the bank. That is how we see it also.
It is amazing how so few others see it this way.

I'm one of the 'amazing' ones that see the opposite. You are forgetting the 'time value of money'. I often refi one of our houses and invest the equity in something else. I'll add an extra $50,000 to a loan, that costs about $300/m, $108,000 total over 30 yrs. I invest the $50,000 cash at 11%/yr for 30 yrs and grow it to $1,150,000. I'm happy to pay an extra $58,000 in interest, I done it a few times over the past 35 yrs.

[blackcard]

<<I am one of the 'amazing' ones that see the opposite. You are forgetting the time value of money.>>

HUH? Try the time value of having the largest debt , for most people a mortgage, removed from you expense column. Then having an almost totally unencumbered cash flow to invest as you see fit.

<<I invest the cash at 11%/yr for 30 yrs and grow it to $1,150.00.>>

Oh really?
Phil, Show me your touted index funds that return 11% a year.
Please list the top 5 funds with that ''current'' return.

The only things we can find in that 11% return range are high dividend paying stocks and oil/gas investments. Both risky investments.