Iggy aka IG
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Post by Iggy aka IG on Aug 1, 2019 15:36:16 GMT -5
Curious to hear from YM folks who expedited paying off/down their mortgage by applying extra money toward the principal each month. I've been playing around with online calculators, and would love to hear your stories, tidbits and advice. TIA.
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sesfw
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Post by sesfw on Aug 1, 2019 16:02:25 GMT -5
Many years ago when our payments were around $450 I would round up to $500 and the extra to the principle. Within the past couple of years our payments were around $1400, we upped it to $1700 with the extra applied to principle. To us, every little bit helps.
Another thing I have heard of is make a payment every 4 weeks, and automatically have the 13th payment to apply to principle.
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Tiny
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Post by Tiny on Aug 1, 2019 16:15:06 GMT -5
I like round numbers - it makes my checking account easier to balance. So, I rounded up my mortgage payments. One of the benefits of the bigger payment on the mortgage that had escrow - as my taxes and insurance cost went up - I didn't have to allocate more money to my "mortgage payment". I had rounded up enough to keep my "mortgage payment" exactly the same for 7 years. That was helpful in that it kept my "fixed" expenses predictable during some stressful times. For the most part I was making an extra mortgage payment every year. One other thing I did was during the first year or two of the mortgage on my primary home, I made some above and beyond the mortgage payment payments. Mostly this was cushion money that I had reserved for unexpected expenses (when I was a newbie homeowner). When I didn't have to use the money - I threw it at my mortgage. I think I put about 2K towards my primary home mortgage. it made a big difference (it was a 15y under 100K mortgage). Another thing I did at the end of the mortgage on my primary home -- I pulled the "mortgage money" from my 3 month EF (that covered my fixed expenses for 3 months) and paid the house off 3 months earlier. I wasn't trying to save interest. I was trying NOT to have the last payment happen in November and then have to deal with any paperwork/etc during December/January which were the most hectic months of the year for me back then. Some of the "mortgage" magic has faded for me... I've had a lot of them and paid off a couple so the "thrill is gone". I would still round up a payment for that nice round number, though.
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Tiny
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Post by Tiny on Aug 1, 2019 16:22:22 GMT -5
I have a friend who was on a bank sponsered plan to pay 1/2 the mortgage payment every 2 weeks (making 13 full payments a year).
I recently saw that Chase was offering various "payment plans" for my Chase mortgage. I didn't pay much attention but I'm sure it was the 1/2 payment every two weeks thing plus a couple of other options...
I'm hoping these plans were free...
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phil5185
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Post by phil5185 on Aug 1, 2019 16:47:57 GMT -5
Many years ago when our payments were around $450 I would round up to $500 and the extra to the principle. Within the past couple of years our payments were around $1400, we upped it to $1700 with the extra applied to principle. To us, every little bit helps. I would do the opposite - ie, I borrow as much as I can and I keep the mortgage for the full 30 years.
I would invest your extra $300/M into a SP500 fund, at 11% that would be about $640,000 in 30 yrs. (And the house would be paid for). As long as fixed-rate mortgage money is available for 3.5% to 4.5%, it doesn't make sense to prepay it - instead, use that money to earn 10% or 11%.
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Iggy aka IG
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Post by Iggy aka IG on Aug 1, 2019 16:55:18 GMT -5
Many years ago when our payments were around $450 I would round up to $500 and the extra to the principle. Within the past couple of years our payments were around $1400, we upped it to $1700 with the extra applied to principle. To us, every little bit helps. I would do the opposite - ie, I borrow as much as I can and I keep the mortgage for the full 30 years.
I would invest your extra $300/M into a SP500 fund, at 11% that would be about $640,000 in 30 yrs. (And the house would be paid for). As long as fixed-rate mortgage money is available for 3.5% to 4.5%, it doesn't make sense to prepay it - instead, use that money to earn 10% or 11%.
Phil, I understand the math and your reasoning. My thoughts are having a mortgage payment in retirement doesn't sound appealing. We've 28 more years left on our mortgage which puts me past my ideal retirement age. Tiny , I'm like you: I like round numbers. And sesfw, thank you, I've begun research on the 13th payment option.
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MN-Investor
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Post by MN-Investor on Aug 1, 2019 17:01:17 GMT -5
When we bought our house in 1980, our mortgage was 14%. A few years later the interest rates had dropped to something like 11% and we refinanced. We started making extra principle payments fairly quickly. I had a printout from the bank showing all 360 payments due, so I would add up the next five principle amounts, for example, then enclose a letter saying that besides payment #45 for $690, I was also including the principle payments for #46-#52 and list them so I could constantly tie to their spreadsheet of required payments. We closed on our house in Dec 1980 and our last mortgage payment was about June 1994 (the summer we visited Norway). There's another thread here about receiving "life changing money." That's sort of what I felt like when we finished paying off our mortgage. Instead of the thousands that we were sending off to the mortgage company each year, now, all of a sudden, we had these thousands of dollars going into our savings account. My husband was a champion of investing, so those funds did not stay in our savings account but were used to buy stock. That worked out very well for us.
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Iggy aka IG
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Post by Iggy aka IG on Aug 1, 2019 17:09:01 GMT -5
When we bought our house in 1980, our mortgage was 14%. A few years later the interest rates had dropped to something like 11% and we refinanced. We started making extra principle payments fairly quickly. I had a printout from the bank showing all 360 payments due, so I would add up the next five principle amounts, for example, then enclose a letter saying that besides payment #45 for $690, I was also including the principle payments for #46-#52 and list them so I could constantly tie to their spreadsheet of required payments. We closed on our house in Dec 1980 and our last mortgage payment was about June 1994 (the summer we visited Norway). There's another thread here about receiving "life changing money." That's sort of what I felt like when we finished paying off our mortgage. Instead of the thousands that we were sending off to the mortgage company each year, now, all of a sudden, we had these thousands of dollars going into our savings account. My husband was a champion of investing, so those funds did not stay in our savings account but were used to buy stock. That worked out very well for us.
Yes, the 80's interest rates were a killer for my parent's home and business. I like the sound of that, MN, paying off the mortgage = equal life changing money.
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MN-Investor
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Post by MN-Investor on Aug 1, 2019 17:13:17 GMT -5
I respectfully disagree - strongly - with Phil's approach to a mortgage. I think it's insane to take on that much debt to buy stock. Yes, over the long term stocks have gone up. But there are no guarantees as to when they will go up and when they will decline. But the mortgage is due each and every month. It doesn't care if you've lost your job, it's still due. Having a paid off house gives you flexibility. You can live on one salary, or off of emergency funds, and not dip into investments when they're down 30%.
The companies which seemed to be hurt the most during the Great Recession were those with the most debt on their books. They had a hard time weathering that storm. Think about it.
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Iggy aka IG
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Post by Iggy aka IG on Aug 1, 2019 17:43:17 GMT -5
MN-Investor, yes, a CPA acquaintance of mine said at the time: Those with a lot of debt will be in trouble, those without will be fine. Today's calculations indicate if I put an extra $1K monthly toward the mortgage, it will be paid off in 15 years. Utilizing the 13th payment idea will make it even quicker. This puts me at about retirement age, and DH at 59. He's a mechanic, so who knows how long his body will hold up. The flexibility and freedom of not having that much of our monthly income tied up sounds reassuring.
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Deleted
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Post by Deleted on Aug 1, 2019 18:03:26 GMT -5
I paid off a modestly priced townhome (130k) in 12 by paying as much as I could on it over 4 years. Fast forward to today and I used the proceeds from selling to buy another reasonably priced townhome close to work.
If I’m laid off I can pay all my bills with unemployment for almost 6 months and then make it another 4 months on my emergency fund. Any severance adds to that. Only at that point would I start selling investments. If I am laid off now I will smile and enjoy a nice vacation.
I know way too many people that borrowed and leveraged on their home only to see it come crashing down on them in 08/09, then had to sell investments at the market bottom to survive.
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Deleted
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Post by Deleted on Aug 1, 2019 18:19:29 GMT -5
Chase services my mortgage, and they make it super easy to pay extra on principal. There is an amortization calculator that you can use to see the effect of a lump sum and/or additional monthly principal. You could change the payment every month if you wanted to; it is really that easy.
I bought this house in 2004, and thanks to extra principal it will be paid off in 2025. So that is 9 years earlier. But for a lot of years I had to pay a HELOC because I used a 90/10/10 to purchase. When I got that paid off, I started upping the payment to include extra principal. I am now paying $1030 a month, which is $230 more than my regular payment. That is what it would cost to rent a decent (not luxurious) 2-bedroom apt. in our area. So if it comes to that or even a higher than now house payment at some point, I am "used" to it.
I would agree with Phil if I were young. But I am not. I am 65, and even with the acceleration, the house won't pay off until I am 71. I won't be trying to really make money in the market at age 71. I will be trying to hold on to my principal while beating inflation.
What's interesting is that Chase really isn't encouraging me to pay off the loan early. They have offered a no-fee recast. They have offered fee-based refinances to pull out the equity. The balance owed is pretty low ($53,000) so I guess that's why they want me to pull out the equity.
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chiver78
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Post by chiver78 on Aug 1, 2019 18:20:16 GMT -5
I'm another in the round number camp. with this year's escrow numbers, the extra is only like $22, but it makes my math easier along the way. when I bought my first place, though...I was listening to my mother (whose financial/professional advice I no longer take...) and paying half my mortgage payment every two weeks, which essentially gets an extra month of principal over the course of a year. that requires a little planning to get ahead of things before you start going halves on it, though. I only stayed in that place 3 or 4 years, so I don't know how much it actually benefitted me in the long run.
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Deleted
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Post by Deleted on Aug 1, 2019 18:33:06 GMT -5
My mortgage is a 15-year term and the payment is very manageable. Principle and Interest were a bit under $700/month so I rounded it to $700.
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Iggy aka IG
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Post by Iggy aka IG on Aug 1, 2019 18:49:01 GMT -5
I really appreciate everyone's feedback. I'm going to present the payoff early idea to DH this evening and am a bit excited. I'll report back tomorrow.
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giramomma
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Post by giramomma on Aug 1, 2019 20:31:26 GMT -5
I'm more in Phil's camp. We could pay off our mortgage, today. But that gets us an extra $400/month cash flow..and we've shifted 83K from gaining 10% a year to 3% a year.
We don't make enough that we can ask our money to barely keep up with inflation. Our money has to work harder than 3% for us. We'll be carrying a mortgage into retirement.
ETA: We put down a 55% down payment on our house to have the low mortgage. For me, that was easier than figuring out how to pay it off early.
ETA: If we have some sort of dire, dire emergency where DH and I had no income coming for a couple of years, then I would pay off our mortgage early and live off of the rest of the money for a few years. The more likely scenario in that situation is that we're both dead or in hospice. Paying off our mortgage still would likely be a moot point.
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Deleted
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Post by Deleted on Aug 1, 2019 21:42:12 GMT -5
I'm more in Phil's camp. We could pay off our mortgage, today. But that gets us an extra $400/month cash flow..and we've shifted 83K from gaining 10% a year to 3% a year.
We don't make enough that we can ask our money to barely keep up with inflation. Our money has to work harder than 3% for us. We'll be carrying a mortgage into retirement.
ETA: We put down a 55% down payment on our house to have the low mortgage. For me, that was easier than figuring out how to pay it off early.
ETA: If we have some sort of dire, dire emergency where DH and I had no income coming for a couple of years, then I would pay off our mortgage early and live off of the rest of the money for a few years. The more likely scenario in that situation is that we're both dead or in hospice. Paying off our mortgage still would likely be a moot point.
That's definitely not camp Phil. So, you paid off early, only on the front half instead of the back. Just think of the millions you could have had if you had took out an 80/20 and invested that 55%!
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Deleted
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Post by Deleted on Aug 1, 2019 21:49:41 GMT -5
I just round up like $23. My pay off plan has been investing the extra $500/month extra I was going to apply to the mortgage into my Roth. Paying it off by adding extra monthly doesn't help me a whole lot until it's all gone, so this way I can just lump sum it when the Roth contributions equal the mortgage balance and cha-ching. I free up $1300/month. For a couple years I was sticking money in a taxable account as well. I think I put in 4K and it's worth 7K now.
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steph08
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Post by steph08 on Aug 1, 2019 21:55:02 GMT -5
The only extra I pay on my mortgage right now is about $40. That's because my PMI went away two years ago, but I just set up the extra to go straight to principle.
If we stay in our house, I will set up extra to pay it off by the time DD1 graduates high school. Or do like mpl and put it in a Roth or taxable account and pay it off when she graduates.
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nidena
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Post by nidena on Aug 1, 2019 23:16:49 GMT -5
I don't pay extra on my mortgage--the rate is only 3.5%--but I may continue to make the payment, once the house is sold, into a liquid account so that I'll have a nice chunk of change for my next home.
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ohmomto2boys
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Post by ohmomto2boys on Aug 2, 2019 6:40:00 GMT -5
I would love to pay off our mortgage. I hate paying it every month. However, our interest rate is 2.875%. We would be crazy to pay it off early. We only have 8.5 years to go (I will be 60, DH will be 55). So we will have it paid off well before retirement. On the other hand, if we got a big windfall say, $100k, we would pay off the mortgage just to have it done. Is that smart - no - but our retirement savings are also on track so we wouldn't need all the windfall money to fund savings.
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Miss Tequila
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Post by Miss Tequila on Aug 2, 2019 8:45:58 GMT -5
I have a fairly low interest rate on my 30 year mortgage but I also didn't buy the house until I was 44. Right now I am not putting any extra towards principal as I get much better returns on my real estate investing, but as I get closer to retirement I will want to pay it off. I'm aggressive when I have a full time job and rental income but I will be much less so when I have to rely on my rental income/investments.
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phil5185
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Post by phil5185 on Aug 2, 2019 9:12:37 GMT -5
I'm surprised that almost everyone wants to pay off their mortgages early? Sounds like an emotional thing? Or guilt? lol Mortgages in the US provide some of the cheapest capital in the world. Most people of us can walk into a bank, ask for $300,000 or more to buy a house, insist on a fixed rate, insist on having that rate guaranteed for 30 years - and if rates happen to go down, we can refi to the new lower rate. Most countries don't do that - you have to refi every few years at a new going-rate. Yet most people seem to want to prepay their mortgage? Some say 'to be safe in case of a job loss'? If you were to use your $100k savings account to prepay your mortgage - and then lost your job - you cannot borrow that money back (you have no income to support a loan). So your $100k is locked into your home equity. So you cannot buy fuel to go job-hunting, you cannot buy groceries for more than a couple months - ie, an immediate emergency. But if you had retained the use of your $100k, you could make house payments for a couple years, hunt for a job, eat - ie, survive for a couple years. Some say that they need to prepay their mortgage so that they don't have house payments after retirements. Think that thru - is that really a "rule"? (I retired at age 60, I had mortgages until age 75 - and my money was retained and instantly available)
Yesterday a financial whiz named Richard Fisher was interviewed on CNBC , he was asked what is the most serious economic problem in the US - he said it was our ongoing failed education system - our kids have only a minimal understanding of math, and it is now infiltrating our younger teachers. IMO the generation that lived thru the Depression had a better math skills, better risk assessment skills, money management, investing, needs vs wants, than we do.
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Deleted
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Post by Deleted on Aug 2, 2019 9:15:40 GMT -5
I'm surprised that almost everyone wants to pay off their mortgages early? Sounds like an emotional thing? Or guilt? lol Mortgages in the US provide some of the cheapest capital in the world. Most people of us can walk into a bank, ask for $300,000 or more to buy a house, insist on a fixed rate, insist on having that rate guaranteed for 30 years - and if rates happen to go down, we can refi to the new lower rate. Most countries don't do that - you have to refi every few years at a new going-rate. Yet most people seem to want to prepay their mortgage? Some say 'to be safe in case of a job loss'? If you were to use your $100k savings account to prepay your mortgage - and then lost your job - you cannot borrow that money back (you have no income to support a loan). So your $100k is locked into your home equity. So you cannot buy fuel to go job-hunting, you cannot buy groceries for more than a couple months - ie, an immediate emergency. But if you had retained the use of your $100k, you could make house payments for a couple years, hunt for a job, eat - ie, survive for a couple years. Some say that they need to prepay their mortgage so that they don't have house payments after retirements. Think that thru - is that really a "rule"? (I retired at age 60, I had mortgages until age 75 - and my money was retained and instantly available)
Yesterday a financial whiz named Richard Fisher was interviewed on CNBC , he was asked what is the most serious economic problem in the US - he said it was our ongoing failed education system - our kids have only a minimal understanding of math, and it is now infiltrating our younger teachers. IMO the generation that lived thru the Depression had a better math skills, better risk assessment skills, money management, investing, needs vs wants, than we do.
What's the mortgage amount on your primary residence again?
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haapai
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Post by haapai on Aug 2, 2019 10:26:51 GMT -5
I have a fairly low interest rate on my 30 year mortgage but I also didn't buy the house until I was 44. Right now I am not putting any extra towards principal as I get much better returns on my real estate investing, but as I get closer to retirement I will want to pay it off. I'm aggressive when I have a full time job and rental income but I will be much less so when I have to rely on my rental income/investments. Pretty much the same story here. 42 years old when I bought, 3.5% mortgage, plowing money into equity-heavy retirement accounts instead of paying off the mortgage. (I'm not on track for retirement.)
Everything that I know about money tells me to hold onto the mortgage and invest instead, and yet all of my lottery-windfall dreams involve finding some way to justify paying off the mortgage. I haven't found it yet, but I'm still searching.
Everyone hates their mortgage.
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Iggy aka IG
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Post by Iggy aka IG on Aug 2, 2019 10:32:00 GMT -5
To speak to your post, phil5185, similar to others, I'll have two different lines of retirement, as well as social security to buy food, RX, fuel, and other needs. I calculated necessities, including property taxes, to be around $800 a month. Much less to worry about than adding in my half of the mortgage payment. An emotional thing? Guilt? Nah, I am looking forward to having NO debt in retirement which equates to freedom in my mind.
~~~~~~~~~ Presented the idea to DH last night. His first question was how much extra do you want to pay [per month]? His next comment was, well it sounds good.... I then told him about the financial website I follow (referencing YM) and the fact I put a shout out to ask for feedback.
I'm excited. I'll pay off a few other things (our boiler!!) and start paying the extra toward the mortgage next summer. In fact, I input into my calendar to follow up here a year from now to confirm it's a go.
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Miss Tequila
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Post by Miss Tequila on Aug 2, 2019 10:55:30 GMT -5
To speak to your post, phil5185 , similar to others, I'll have two different lines of retirement, as well as social security to buy food, RX, fuel, and other needs. I calculated necessities, including property taxes, to be around $800 a month. Much less to worry about than adding in my half of the mortgage payment. An emotional thing? Guilt? Nah, I am looking forward to having NO debt in retirement which equates to freedom in my mind.
~~~~~~~~~ Presented the idea to DH last night. His first question was how much extra do you want to pay [per month]? His next comment was, well it sounds good.... I then told him about the financial website I follow (referencing YM) and the fact I put a shout out to ask for feedback.
I'm excited. I'll pay off a few other things (our boiler!!) and start paying the extra toward the mortgage next summer. In fact, I input into my calendar to follow up here a year from now to confirm it's a go.
not to scare you, but unless you have access to really good health insurance when you retire and are lucky enough to be healthy, be prepared for much higher healthcare costs. Right now, my mom's medicare supplement and prescription plan cost $210/combined. She was recently diagnosed with Congestive Heart Failure and now her prescription co-pays are just under $300/month (Eliquis alone has a co-pay of $110!). She also had to pay $54 for the ambulance ride to the hospital and I am not yet sure what kind of co-pays she might have from her 3 weeks in the hospital, followed by another week and a half. I am banking on a lot higher for medical once I retire. That is what scares the crap out of me.
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giramomma
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Post by giramomma on Aug 2, 2019 10:57:48 GMT -5
I'm more in Phil's camp. We could pay off our mortgage, today. But that gets us an extra $400/month cash flow..and we've shifted 83K from gaining 10% a year to 3% a year.
We don't make enough that we can ask our money to barely keep up with inflation. Our money has to work harder than 3% for us. We'll be carrying a mortgage into retirement.
ETA: We put down a 55% down payment on our house to have the low mortgage. For me, that was easier than figuring out how to pay it off early.
ETA: If we have some sort of dire, dire emergency where DH and I had no income coming for a couple of years, then I would pay off our mortgage early and live off of the rest of the money for a few years. The more likely scenario in that situation is that we're both dead or in hospice. Paying off our mortgage still would likely be a moot point.
That's definitely not camp Phil. So, you paid off early, only on the front half instead of the back. That is very true. Maybe a half-assed Phil?
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Miss Tequila
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Post by Miss Tequila on Aug 2, 2019 10:59:07 GMT -5
I'm surprised that almost everyone wants to pay off their mortgages early? Sounds like an emotional thing? Or guilt? lol Mortgages in the US provide some of the cheapest capital in the world. Most people of us can walk into a bank, ask for $300,000 or more to buy a house, insist on a fixed rate, insist on having that rate guaranteed for 30 years - and if rates happen to go down, we can refi to the new lower rate. Most countries don't do that - you have to refi every few years at a new going-rate. Yet most people seem to want to prepay their mortgage? Some say 'to be safe in case of a job loss'? If you were to use your $100k savings account to prepay your mortgage - and then lost your job - you cannot borrow that money back (you have no income to support a loan). So your $100k is locked into your home equity. So you cannot buy fuel to go job-hunting, you cannot buy groceries for more than a couple months - ie, an immediate emergency. But if you had retained the use of your $100k, you could make house payments for a couple years, hunt for a job, eat - ie, survive for a couple years. Some say that they need to prepay their mortgage so that they don't have house payments after retirements. Think that thru - is that really a "rule"? (I retired at age 60, I had mortgages until age 75 - and my money was retained and instantly available)
Yesterday a financial whiz named Richard Fisher was interviewed on CNBC , he was asked what is the most serious economic problem in the US - he said it was our ongoing failed education system - our kids have only a minimal understanding of math, and it is now infiltrating our younger teachers. IMO the generation that lived thru the Depression had a better math skills, better risk assessment skills, money management, investing, needs vs wants, than we do.
I don't want to pay my mortgage off while working but I do want it paid off when I retire. For me, it is a feeling of security. I am an aggressive investor but very conservative when it comes to living expenses (I live WAY below my means). My mortgage payment is only $650/month (did I mention I live way below my means??lol) but even with that, I will not be comfortable with fixed bills when I no longer have my 6 figure job. Call it emotional, fear or whatever, it is what I have to do to sleep at night when I'm retiring.
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Iggy aka IG
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Post by Iggy aka IG on Aug 2, 2019 11:07:28 GMT -5
I'm surprised that almost everyone wants to pay off their mortgages early? Sounds like an emotional thing? Or guilt? lol Mortgages in the US provide some of the cheapest capital in the world. Most people of us can walk into a bank, ask for $300,000 or more to buy a house, insist on a fixed rate, insist on having that rate guaranteed for 30 years - and if rates happen to go down, we can refi to the new lower rate. Most countries don't do that - you have to refi every few years at a new going-rate. Yet most people seem to want to prepay their mortgage? Some say 'to be safe in case of a job loss'? If you were to use your $100k savings account to prepay your mortgage - and then lost your job - you cannot borrow that money back (you have no income to support a loan). So your $100k is locked into your home equity. So you cannot buy fuel to go job-hunting, you cannot buy groceries for more than a couple months - ie, an immediate emergency. But if you had retained the use of your $100k, you could make house payments for a couple years, hunt for a job, eat - ie, survive for a couple years. Some say that they need to prepay their mortgage so that they don't have house payments after retirements. Think that thru - is that really a "rule"? (I retired at age 60, I had mortgages until age 75 - and my money was retained and instantly available)
Yesterday a financial whiz named Richard Fisher was interviewed on CNBC , he was asked what is the most serious economic problem in the US - he said it was our ongoing failed education system - our kids have only a minimal understanding of math, and it is now infiltrating our younger teachers. IMO the generation that lived thru the Depression had a better math skills, better risk assessment skills, money management, investing, needs vs wants, than we do.
I don't want to pay my mortgage off while working but I do want it paid off when I retire. For me, it is a feeling of security. I am an aggressive investor but very conservative when it comes to living expenses (I live WAY below my means). My mortgage payment is only $650/month (did I mention I live way below my means??lol) but even with that, I will not be comfortable with fixed bills when I no longer have my 6 figure job. Call it emotional, fear or whatever, it is what I have to do to sleep at night when I'm retiring. This
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