DawnM Posted January 11, 2012 Share Posted January 11, 2012 What sacrifices did you make? Or did you make none? We have finished our emergency fund! We currently have a 3.37% loan on a 15 year mortgage. I did some calculations last night and we could feasibly pay it off in 10 years if we put the $$ we were putting into the emergency fund to the mortgage instead. It would also save $20K off the interest. I am trying to figure out if this is a better thing to do or whether it would be better to continue funding the savings account to pay for college. My thinking is that even if we pay that amount now for 5 years (until oldest is college age) it is a huge savings because the interest on a house is front loaded anyway. Just to clarify, we have offered our children a local 4 year college tuition cost and free living at home. Any other choice and they will have to pay the difference. Please no critiques of our decision as that is what we have opted to do. It is not to say that if my child gets in to an Ivy League school or has a passion for something else we won't try to help, but that is what we are offering right now. So, would you save the $$ in an account or pay down the mortgage? Dawn Quote Link to comment Share on other sites More sharing options...
Meriwether Posted January 11, 2012 Share Posted January 11, 2012 (edited) We paid off most of our first home in 3 years. It was a starter home and we didn't have kids. My salary paid my tithes and expenses. The rest of my paycheck went to the mortgage. It did not seem sacrificial, because Dh made more than either of our parents his first year working. I would be inclined to pay down the mortgage, but put some more into savings - not 50%,though. If the mortgage is paid off you will have more cash to help with college to balance out less savings. Edited January 11, 2012 by Meriwether Quote Link to comment Share on other sites More sharing options...
BethG Posted January 11, 2012 Share Posted January 11, 2012 If you're EARNING an interest rate higher than your mortage rate (your mortgage rate is 3.75) then it's best to put that money where it's earning more than that 3.75 rather than pay off that mortgage. 3.75 is very low and, even in this economy, you can find investments that earn more than 3.75. (At least this is what my husband who is the financial analyst for a huge company says.) Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 11, 2012 Author Share Posted January 11, 2012 Are you still in that home? I truly wish we had bought a home we could have paid off in under 7 years. I played with the numbers and we just can't swing 7 years unless we get a windfall or his salary goes up. However, when we moved here, we moved from Southern California and we were in a different mindset (hadn't started Crown, thought the houses here were CHEAP compared to SoCal, and we had never opted for anything other than a 30 year mortgage so we were of the 30 year mindset monthly costs.) Dawn We paid off most of our first home in 3 years. It was a starter home and we didn't have kids. My salary paid my tithes and expenses. The rest of my paycheck went to the mortgage. It did not seem sacrificial, because Dh made more than either of our parents his first year working. Quote Link to comment Share on other sites More sharing options...
Kari C in SC Posted January 11, 2012 Share Posted January 11, 2012 I didn't vote yet because I have a question for you. How good at you are actually saving the money? The reason I ask this is because I am super amazing great at paying down debt, but when it comes to sticking money away - not one of my better things. I can do it, but I can also find excuses to spend some of it. Once I mail the payment for the mortgage - it is gone and I just deal with it. So - in my case - I would probably pay down the mortgage. My other question is how will you pay for college once they are there? Stop paying extra then? That sounds like a reasonable plan too. Quote Link to comment Share on other sites More sharing options...
snickelfritz Posted January 11, 2012 Share Posted January 11, 2012 How much do you have saved for college? (you don't have to answer, but I'm just thinking that having to take out college loans would be a factor in this decision.) What about when 14 and 12 year old are both in college? They will be out before the 7 year old (probably :)) so that's not quite as much a concern. Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 11, 2012 Author Share Posted January 11, 2012 Well, we have other monies in investments, but we are very conservative investors. We have money market accounts vs. our friends who lost huge amounts in stocks and such. We also have retirement investments. However, if your DH has a sure thing that he can guarantee a better return on, please share. Dawn If you're EARNING an interest rate higher than your mortage rate (your mortgage rate is 3.75) then it's best to put that money where it's earning more than that 3.75 rather than pay off that mortgage. 3.75 is very low and, even in this economy, you can find investments that earn more than 3.75. (At least this is what my husband who is the financial analyst for a huge company says.) Quote Link to comment Share on other sites More sharing options...
Kari C in SC Posted January 11, 2012 Share Posted January 11, 2012 If you're EARNING an interest rate higher than your mortage rate (your mortgage rate is 3.75) then it's best to put that money where it's earning more than that 3.75 rather than pay off that mortgage. 3.75 is very low and, even in this economy, you can find investments that earn more than 3.75. (At least this is what my husband who is the financial analyst for a huge company says.) Depends entirely on your want of any risk though. We took inheritance money and put it into property even though we could possibly earn more on investments. We much preferred the exact return to the possible return. Quote Link to comment Share on other sites More sharing options...
Cera Posted January 11, 2012 Share Posted January 11, 2012 Also, don't forget to factor in tax differences assuming you deduct your mortgage interest. Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 11, 2012 Author Share Posted January 11, 2012 Very good question. Dh is great at saving. Me, well, not as much! However, when he set up a savings plan, he put it in another bank/investment account that I don't see as it comes out of his check first......THAT is how I CAN save......if I don't calculate it into our income first! :lol: So, the money would keep going into that account if we leave it be. Dh's job is pretty secure. Yes, I know anything can happen (heck, after yesterday we know he could get hit by a truck on his way to work), BUT, he isn't in any worry of losing his job. So, that said, the Emergency Fund is kind of a catch all fund.....college, emergencies, etc....and it is funded enough for one kid for the local college most likely. But, yes, the other part of your question is valid.....we could stop contributing if we needed to at that point and put it towards college funds...... However, I do anticipate DH's income to increase by then as well. Dawn I didn't vote yet because I have a question for you. How good at you are actually saving the money? The reason I ask this is because I am super amazing great at paying down debt, but when it comes to sticking money away - not one of my better things. I can do it, but I can also find excuses to spend some of it. Once I mail the payment for the mortgage - it is gone and I just deal with it. So - in my case - I would probably pay down the mortgage. My other question is how will you pay for college once they are there? Stop paying extra then? That sounds like a reasonable plan too. Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 11, 2012 Author Share Posted January 11, 2012 Already factored.....makes very little difference. Dawn Also, don't forget to factor in tax differences assuming you deduct your mortgage interest. Quote Link to comment Share on other sites More sharing options...
BethG Posted January 11, 2012 Share Posted January 11, 2012 Well, we have other monies in investments, but we are very conservative investors. We have money market accounts vs. our friends who lost huge amounts in stocks and such. We also have retirement investments. However, if your DH has a sure thing that he can guarantee a better return on, please share. Dawn With real estate (rentals) you can make 8 - 12%. I think he said we were making 9% on mutual funds. Quote Link to comment Share on other sites More sharing options...
elfgivas Posted January 11, 2012 Share Posted January 11, 2012 well, fwiw, what we did was to save the money for our next car first. then, after we had that, we started paying down the mortgage. the plan was to have paid off the house by the time the first one was ready for college, and to use what used to be the monthly mortgage payments to help with college. separate from that, they each had a college fund. all of which would have worked swimmingly if oldest dd had not been accepted to stanford, which required the equivalent of buying a lexus each year. but we did pay off the house. when dh and i were married, he was half way thru a 30 year mortgage. we paid it off in the next four years.... hth, ann so, fwiw, i would pay down any other debts that are greater than the mortgage interest, save for the next car to avoid those interest payments, then work like crazy on the mortgage even though the interest rate is low...... Quote Link to comment Share on other sites More sharing options...
Meriwether Posted January 11, 2012 Share Posted January 11, 2012 Are you still in that home? I truly wish we had bought a home we could have paid off in under 7 years. I played with the numbers and we just can't swing 7 years unless we get a windfall or his salary goes up. However, when we moved here, we moved from Southern California and we were in a different mindset (hadn't started Crown, thought the houses here were CHEAP compared to SoCal, and we had never opted for anything other than a 30 year mortgage so we were of the 30 year mindset monthly costs.) Dawn No, but that has been our downpayment for other houses. We get transferred. If we hadn't had Dd8, we'd have paid off the entire mortgage (it was only 72,000) in less than 4 years. If we get transferred back to our previous location, we are seriously considering paying off our rental and living there for a while - until we are transferred again or we have enough cash to build, depending on whether or not the location looks permanent. It would not be my dream home;), but it would put us ahead financially. Quote Link to comment Share on other sites More sharing options...
jplain Posted January 11, 2012 Share Posted January 11, 2012 (edited) With real estate (rentals) you can make 8 - 12%. :001_huh: That depends entirely on your local market. Around here no one is becoming a landlord in order to make money. They're only doing it because they can't sell, and even then most are unable to break even. It's just slowing the bleeding a little. Edited January 11, 2012 by jplain Quote Link to comment Share on other sites More sharing options...
Holly IN Posted January 11, 2012 Share Posted January 11, 2012 I voted pay down the mortgage. We re-financed our home to shorten the term from a 30 year loan to 15 yr loan. We were in our 8th year of mortgage (30 year loan). Our loan officer told us when we went in to talk to them about paying down the mortgage. She told us if we really want to do it quicker then refinance the house and do 15 yr loan. It only increased our payment to $150 and saved us $22,000 in interest. We took the offer!!! YAY!! So glad we bank at a small bank and have the same loan office in all these years!! We cut out interest rate in half. From 6% to 3%. Holly Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 11, 2012 Author Share Posted January 11, 2012 We have already done that. Dawn I voted pay down the mortgage. We re-financed our home to shorten the term from a 30 year loan to 15 yr loan. We were in our 8th year of mortgage (30 year loan). Our loan officer told us when we went in to talk to them about paying down the mortgage. She told us if we really want to do it quicker then refinance the house and do 15 yr loan. It only increased our payment to $150 and saved us $22,000 in interest. We took the offer!!! YAY!! So glad we bank at a small bank and have the same loan office in all these years!! We cut out interest rate in half. From 6% to 3%. Holly Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 11, 2012 Author Share Posted January 11, 2012 I would need names of the mutual funds. I haven't found any that pay that. Rentals are iffy at best and our neighbor just foreclosed on some rental properties. We just aren't big risk takers because we know too many who have lost big time in their risks. Dawn With real estate (rentals) you can make 8 - 12%. I think he said we were making 9% on mutual funds. Quote Link to comment Share on other sites More sharing options...
JumpyTheFrog Posted January 11, 2012 Share Posted January 11, 2012 If you are conservative with your money and don't know much about investing, put it toward the mortgage. Big piles of money have a tendency to get spent. Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 11, 2012 Author Share Posted January 11, 2012 It isn't that we don't know much about investing (well, I don't but DH knows more), it is that it has not been proven to me that we can indeed get a high yield on our returns. In the 80s and 90s, yes, but not now. We have watched many lose huge sums..... Dawn If you are conservative with your money and don't know much about investing, put it toward the mortgage. Big piles of money have a tendency to get spent. Quote Link to comment Share on other sites More sharing options...
dcjlkplus3 Posted January 11, 2012 Share Posted January 11, 2012 I would need names of the mutual funds. I haven't found any that pay that. Rentals are iffy at best and our neighbor just foreclosed on some rental properties. We just aren't big risk takers because we know too many who have lost big time in their risks. Dawn It sounds to me like putting that money into your mortgage would be the best thing for you then. Quote Link to comment Share on other sites More sharing options...
Heather in AL Posted January 11, 2012 Share Posted January 11, 2012 I would need names of the mutual funds. I haven't found any that pay that. Rentals are iffy at best and our neighbor just foreclosed on some rental properties. We just aren't big risk takers because we know too many who have lost big time in their risks. Dawn I voted to pay down the mortgage because of the part I bolded. Even though you are on a 15 year loan with a great interest rate, if, in a few years, you find yourselves with half the mortgage left and really want to plug away at a college fund, you can always refi that remaining amount (even to 30 years) so your 'required' payment will be much smaller, allowing for more college savings. You could still pay a 15 year payment, though. Not the most ideal way of doing it, but it would be a stress relief to know that if something happens to the job situation, you would only have to come up with a much smaller amount each month. There are no rules saying that once you begin to chip away at your mortgage that you can't stop. Or slow down to smaller 'chips' each month. One thing we do is talk about where we are several times a year and decide if we want to maintain the status quo or change our goals a bit. We don't play by a lot of the 'financial rules' that are out there and consider some strange things when deciding what to do, yet we are doing wonderfully and are happy with how things are working for us. I say if both you and dh are on board with paying down the mtg, go for it! Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 11, 2012 Author Share Posted January 11, 2012 Thanks. We have no other debt other than mortgage and we have a fully funded emergency fund and retirement. Dawn well, fwiw, what we did was to save the money for our next car first. then, after we had that, we started paying down the mortgage. the plan was to have paid off the house by the time the first one was ready for college, and to use what used to be the monthly mortgage payments to help with college. separate from that, they each had a college fund. all of which would have worked swimmingly if oldest dd had not been accepted to stanford, which required the equivalent of buying a lexus each year. but we did pay off the house. when dh and i were married, he was half way thru a 30 year mortgage. we paid it off in the next four years.... hth, ann so, fwiw, i would pay down any other debts that are greater than the mortgage interest, save for the next car to avoid those interest payments, then work like crazy on the mortgage even though the interest rate is low...... Quote Link to comment Share on other sites More sharing options...
melissel Posted January 11, 2012 Share Posted January 11, 2012 I have heard, though I don't know whether it's true or not, that your mortgage payment (or lack thereof) is taken into account when financial aid packages are offered to incoming college students. I know someone who is hesitant to work on paying the mortgage off early and would opt for additional retirement savings (if they had any extra money anyway, which they don't!) for that reason. Might something like that be a factor for you to consider? Quote Link to comment Share on other sites More sharing options...
tomandlorih Posted January 11, 2012 Share Posted January 11, 2012 Depends entirely on your want of any risk though. We took inheritance money and put it into property even though we could possibly earn more on investments. We much preferred the exact return to the possible return. If you're EARNING an interest rate higher than your mortage rate (your mortgage rate is 3.75) then it's best to put that money where it's earning more than that 3.75 rather than pay off that mortgage. 3.75 is very low and, even in this economy, you can find investments that earn more than 3.75. (At least this is what my husband who is the financial analyst for a huge company says.) Dave Ramsey says(and we agreed) that if you didn't have a mortgage, you wouldn't go out and borrow the money to invest. That doubles the risk in my opinion. If the bread winner loses their job.. you still have a house payment to pay and (possibly) no way to get your money out of stocks in time to pay it..OR you have to pay fees/penalties to get at your money..etc.etc.. And if you run the numbers it does not "pay" to pay thousands in interest to save a little on your taxes.. My vote is to pay off the mortgage because.. 1. With the mortgage paid off, there is a huge chunk of money each month to save/invest/etc. but without the worry of the house payment. 2. There is nothing like the feeling of security from having no house payment when your husbands job has been very uncertain for the last 2 years(ask me how I know this:) 3. The reasons listed above. just my .02. Good luck with your decision. Quote Link to comment Share on other sites More sharing options...
tomandlorih Posted January 11, 2012 Share Posted January 11, 2012 Of course, we did pay off the house before we had kids, so they weren't factored into our decision:lol: And while we will help them out with college costs.. We have a local university that our kids will be attending while paying for it in cash(no loans). We are raising them to not go into debt for something you cannot afford. DH and I got no loans for college and made it through just fine(had to live at home..but we did it). It's a good feeling to graduate with no debt! So we are rather lucky to have a great University so close. Go Cougs! :D Quote Link to comment Share on other sites More sharing options...
lynn Posted January 11, 2012 Share Posted January 11, 2012 (edited) I voted other and that would be to save the extra money until you have the entire amount to pay off the mortgage in full. Edited January 11, 2012 by lynn Quote Link to comment Share on other sites More sharing options...
Tap Posted January 11, 2012 Share Posted January 11, 2012 I vote pay down mortgage, because that is what we did. I can't say it is right or wrong, just what we chose. We have a low interest rate, but figured that if we payed down the mortgage we were protecting ourselves more for the future. When our kids were ready for college we would have our mortgage paid off and we would have more money to pay out each month to help them. After that, we would still have a home paid off for our own retirement. We did not offer free tuition for our kids though, just free room and board, plus transportation and books if we could afford it. One alternate plan, was to pay off the first house, and buy another home to retire in. This has been nixed by the economy and dh starting a new business. Quote Link to comment Share on other sites More sharing options...
Kari C in SC Posted January 11, 2012 Share Posted January 11, 2012 I voted other and that would be to save the extra money until you have the entire amount to pay off the mortgage in full. This is really not a good idea. The interest you earn on the savings account this money would be in is nothing. A mortgage has higher interest in the earlier parts of payments - so you are better off paying that money to your mortgage now. Quote Link to comment Share on other sites More sharing options...
Soror Posted January 11, 2012 Share Posted January 11, 2012 Considering your goals I'd look into the College and sinking funds. I tried to read it all but I might have missed do you have a fully funded carfund? How about health insurance? We are on a high deductible plan and are working on saving up the full amount of that as well( a few years back we met the full deductible and it was painful!). That is our plan here we are already going to be paid off in a bit under 5 yrs so I'm not stressed about rushing it as I think it is more prudent to be prepared. It is inevitable that a vehicle will need to be replaced. Another thing to consider is any big house repairs/maintenance that might need to be done - like perhaps roofing, painting, or such. I'd put so much into College funding depending on how much you need by what time and continue to build up any sinking funds that need attention with that money you've been putting towards the e-fund. That is all what we are doing anyway we are on a 3 yr plan funding our 6 month fund, car replacement fund, and full health insurance deductible- this is year 3. I was just thinking today what to do after that is finished and we will be increasing retirement savings, adding in College savings and probably saving extra for vehicle maintenance and replacement of dh's vehicle as well. We don't plan to replace either of them anytime soon(I'd like to get 5-6 more years out of the van and dh's car) but I'd rather have the money just in case. Our vehicles are 11 and 17 yrs old, repairs are inevitable at some point. I like to keep buffers as well that way the e-fund is never touched in case of extreme emergency. Quote Link to comment Share on other sites More sharing options...
Soror Posted January 11, 2012 Share Posted January 11, 2012 Oh, I forgot the other thing we've been slowly investing in is emergency preparedeness. We now have a propane heater and tank in case of outage, water filtration, largish generator(powerful enough to power anything in the house), finishing up a 1 yr food supply, emergency lights, sleeping bags rated extra cold and various other things as well. I don't like to be caught unprepared and a few years back we were nearly a week without power so I think that type of emergency is more likely than any other to happen. Quote Link to comment Share on other sites More sharing options...
Tree House Academy Posted January 11, 2012 Share Posted January 11, 2012 Why not split it between a savings account and paying extra on the mortgage? Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 11, 2012 Author Share Posted January 11, 2012 Health insurance is covered and not a factor. We don't have a fully funded car fund, although we do have enough in savings to cover it should we need one. House maintenance is covered. We actually have a separate account for that as we don't even factor that into the equation. We have been remodeling and had an estimate of what needed to be done when we moved in and saved out that amount in a separate fund. So far we have had a new roof, new heat pumps (2), house painted, basement finished, two bathrooms remodeled, new hardwood throughout the main floor, and I think that may be it so far.....but that has already been HUGE. We now need to focus on the kitchen next, but that isn't major. Dawn Considering your goals I'd look into the College and sinking funds. I tried to read it all but I might have missed do you have a fully funded carfund? How about health insurance? We are on a high deductible plan and are working on saving up the full amount of that as well( a few years back we met the full deductible and it was painful!). That is our plan here we are already going to be paid off in a bit under 5 yrs so I'm not stressed about rushing it as I think it is more prudent to be prepared. It is inevitable that a vehicle will need to be replaced. Another thing to consider is any big house repairs/maintenance that might need to be done - like perhaps roofing, painting, or such. I'd put so much into College funding depending on how much you need by what time and continue to build up any sinking funds that need attention with that money you've been putting towards the e-fund. That is all what we are doing anyway we are on a 3 yr plan funding our 6 month fund, car replacement fund, and full health insurance deductible- this is year 3. I was just thinking today what to do after that is finished and we will be increasing retirement savings, adding in College savings and probably saving extra for vehicle maintenance and replacement of dh's vehicle as well. We don't plan to replace either of them anytime soon(I'd like to get 5-6 more years out of the van and dh's car) but I'd rather have the money just in case. Our vehicles are 11 and 17 yrs old, repairs are inevitable at some point. I like to keep buffers as well that way the e-fund is never touched in case of extreme emergency. Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 11, 2012 Author Share Posted January 11, 2012 That would be fine, but certainly would not be as significant. Instead of saving $22K on the mortgage overall it would only save $10K. Instead of a 10 year payoff it would be 13 years, only taking off 2 years of the entire loan. Not bad, but not great either. Dawn Why not split it between a savings account and paying extra on the mortgage? Quote Link to comment Share on other sites More sharing options...
garddwr Posted January 11, 2012 Share Posted January 11, 2012 Dawn, It sounds to me like you want to pay down the house, so I say go for it! It's an entirely reasonable option, it fits your low-risk profile, and it will take a weight off your shoulders. That's what we're doing. I'm counting on my kids getting scholarships for college! There are too many of them (4 + 1 on the way + who knows in the future...) to save for everyone's college. They will have to study hard and do what it takes to get some outside funding, and not go to a school they cannot afford. We will have the house paid off before anyone hits college age, so mortgage money can be college money as well at that point. --Sarah Quote Link to comment Share on other sites More sharing options...
Tigger Posted January 11, 2012 Share Posted January 11, 2012 I voted pay down the mortgage. We re-financed our home to shorten the term from a 30 year loan to 15 yr loan. We were in our 8th year of mortgage (30 year loan). Our loan officer told us when we went in to talk to them about paying down the mortgage. She told us if we really want to do it quicker then refinance the house and do 15 yr loan. It only increased our payment to $150 and saved us $22,000 in interest. We took the offer!!! YAY!! So glad we bank at a small bank and have the same loan office in all these years!! We cut out interest rate in half. From 6% to 3%. Holly I just did the math on our loan, which our CPA is hounding us to refinance - it's a 30-year, we're in year 6 and it's 6.5% - he wants us to go to a 15-year and refi at no more than 3.5% His numbers looked impressive until he realized I was already a few years ahead on principal payments and should have the mortgage paid off by its 15-year mark (2021) and that to do the same with a new 15-year loan actually costs us more to do since I'd have to add another $400+ a month to the new loan payment to pay it off by 2021. Even though we're paying more in interest each year, the new loan, to pay it off in the same nine years I still have targeting pay off on the first, actually costs us $35,000 more....once I calculate the loss in the mortgage deduction, the new loan would really cost us $45,000 more in nine years! He didn't believe me until I showed him the math and then he was like, oh, no, don't refinance! Quote Link to comment Share on other sites More sharing options...
Tigger Posted January 11, 2012 Share Posted January 11, 2012 Dawn, here is the simple math on to 15-year 3.37% mortgage using a hypothetical principal of $100,000 Loan - $100,000 Term - 15-years Interest 3.37% Payment ~$700 Paid in full according to terms: Total Paid = $127,535 Interest Paid = $27,535 Paid in 10 years instead of 15 years: Payment ~$900 per month Total Paid = $119,795 Interest Paid in 10-years = $19,795 Paying off early saves $7,740 in interest - there is no change in your mortgage deduction on your taxes since mortgage interest is front loaded. Now if you took that $2,400 a year and invested it instead - what will you earn for interest on the money? Maybe 3%? So, if you put away $200 a month over the next 120 months, you'd have put away $24,000 into some investment and it would earn over the course of time $4,020. Your better off paying the mortgage off since the $200 a month gives you a realized net gain on your money of $3,720 (the $7,740 in interest saved less the $4,020 in investment interest earned). But, if you want to take it a step further, if you calculate out a paltry 1.5% appreciation on the house each year, by year 10 the house is now worth $116,200. If you were to sell it at that point, you'd have paid a total of $119,795 and gotten a return of $116,200 - so for ten years of living in the home, it cost you $3,595 or $30 a month. Once you calculate your mortgage deduction savings over the 10-years, you actually made money living in the house by paying less in taxes by taking the deduction each year for 10-years. Quote Link to comment Share on other sites More sharing options...
lynn Posted January 11, 2012 Share Posted January 11, 2012 This is really not a good idea. The interest you earn on the savings account this money would be in is nothing. A mortgage has higher interest in the earlier parts of payments - so you are better off paying that money to your mortgage now. I understand that but what if the unexpected happens in life and the mortgage can't be paid then the house and extra money that went to pay down are both gone. I had that happen to a friend who was on track to pay her house off early, she lost house even though she paid as much extra she could every month to pay it off early. Quote Link to comment Share on other sites More sharing options...
Tap Posted January 11, 2012 Share Posted January 11, 2012 I understand that but what if the unexpected happens in life and the mortgage can't be paid then the house and extra money that went to pay down are both gone. I had that happen to a friend who was on track to pay her house off early, she lost house even though she paid as much extra she could every month to pay it off early. But there are also people who have paid off a home, so when something happened (like the loss of a job, or sudden interest hikes), it was already paid off and it wasn't an issue for them at all. Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 11, 2012 Author Share Posted January 11, 2012 Thank you. That is kind of how we have calculated our living expenses up to this point. We really thought we would have sold this house and moved by now as we aren't ones to stay in the house that long. But we have now been here almost 7 years and have no plans to move at this point! I wish we had STARTED with a 15 year mortgage, but as I said, we just weren't thinking that way back then. if we had been, we would have gotten a less expensive house as we did have debt back then and could not have afforded the 15 year payment. But, hindsight and all that, right? Dawn Dawn, here is the simple math on to 15-year 3.37% mortgage using a hypothetical principal of $100,000 Loan - $100,000 Term - 15-years Interest 3.37% Payment ~$700 Paid in full according to terms: Total Paid = $127,535 Interest Paid = $27,535 Paid in 10 years instead of 15 years: Payment ~$900 per month Total Paid = $119,795 Interest Paid in 10-years = $19,795 Paying off early saves $7,740 in interest - there is no change in your mortgage deduction on your taxes since mortgage interest is front loaded. Now if you took that $2,400 a year and invested it instead - what will you earn for interest on the money? Maybe 3%? So, if you put away $200 a month over the next 120 months, you'd have put away $24,000 into some investment and it would earn over the course of time $4,020. Your better off paying the mortgage off since the $200 a month gives you a realized net gain on your money of $3,720 (the $7,740 in interest saved less the $4,020 in investment interest earned). But, if you want to take it a step further, if you calculate out a paltry 1.5% appreciation on the house each year, by year 10 the house is now worth $116,200. If you were to sell it at that point, you'd have paid a total of $119,795 and gotten a return of $116,200 - so for ten years of living in the home, it cost you $3,595 or $30 a month. Once you calculate your mortgage deduction savings over the 10-years, you actually made money living in the house by paying less in taxes by taking the deduction each year for 10-years. Quote Link to comment Share on other sites More sharing options...
lynn Posted January 11, 2012 Share Posted January 11, 2012 But there are also people who have paid off a home, so when something happened (like the loss of a job, or sudden interest hikes), it was already paid off and it wasn't an issue for them at all. Whatever way one chooses it is what is best for them. There are pros and cons of both. Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 12, 2012 Author Share Posted January 12, 2012 Honestly, I don't think this will matter too much. We don't anticipate our kids getting any financial aid based on income or need. And I certainly won't pay $40K in interest to save $10K in tuition.....I am just throwing out numbers, but it often doesn't "pay" to keep a debt if you run the numbers. I don't know what the numbers are in this case, but my guess is that it won't work in our favor. Dawn I have heard, though I don't know whether it's true or not, that your mortgage payment (or lack thereof) is taken into account when financial aid packages are offered to incoming college students. I know someone who is hesitant to work on paying the mortgage off early and would opt for additional retirement savings (if they had any extra money anyway, which they don't!) for that reason. Might something like that be a factor for you to consider? Quote Link to comment Share on other sites More sharing options...
Blessedchaos Posted January 12, 2012 Share Posted January 12, 2012 We paid off our mortgage 3 years ago. We put the extra money into our mortgage (after building savings and maxing 401K) because we wanted to be debt free. Our mutual funds don't make much money and were unpredictable, so we felt this was a good choice for us. Our mortgage was $122K and it took us 7 years to pay off from start to finish. We are frugal people by nature. When the children were babies I used cloth diapers and cooked from scratch. I shop used first, and garage sale frequently. We don't have all the latest gizmos and gadgets. We have never had cable tv (not even basic), and our cellphones are prepaid. Dh worked insane hours for more than a few years and was fortunate to be paid for those few years above and beyond his salary for them. Still, our income is modest. We don't provide our kids with everything they want, and try to instill values of need vs. want. Still they have plenty of games and toys. Whatever we do, we try to look for inexpensive ways to do it. For example, our home was a fixer upper and for the past 10 years we have been fixing and fixing. We do it economically though; not necessarily using "cheap" materials, but by doing most of the work ourselves and using inexpensive materials for some items and splurging on others to make a bigger impact (i.e., when we remodeled our bathrooms this year, we kept the vanities and painted them, but we replaced our custom size top with two smaller granite tops and built a beautiful glass tile space between which we get lots of compliments on, we splurged on waterfall faucets and backsplash, but bought a less expensive shower enclosure.) We also have 2 2009 Toyotas which we own free and clear as well. We used the same methods here, just poured most of our extra money into them until the loans were gone. Quote Link to comment Share on other sites More sharing options...
Serenade Posted January 12, 2012 Share Posted January 12, 2012 If I had the cash, I'd pay down the mortgage. LOL, that's what we'll do when we have the cash again. It's the first thing I'm gonna do when the stock market goes up again, if it goes up. That is, after DH gets another car. Quote Link to comment Share on other sites More sharing options...
Dmmetler Posted January 12, 2012 Share Posted January 12, 2012 When I was working, we lived on DH's salary and banked mine, putting the max possible in tax sheltered retirement money through our jobs, and putting much of the rest into the house, adding a few hundred to the mortgage payment each month. When we could refinance, we did, but continued paying the higher amount at the lower interest rate. We've now paid off the house and carry no debt except credit cards paid in full each month, and while we've taken a hit in the stock market, we've got a decent amount of savings in short and long-term. We have not specifically saved in DD's name except for her stock funds (we have picked, or, now that she's older, had her pick a company each year and bought stock for her, which we hope that she'll be involved with following and take an interest long-term. So far, her "picked because I like them" companies like Disney, Mattel, and Viacom (parent company of the Neopets website) have generally out performed our professionally managed mutual funds, so maybe she's onto something!), but do have money that we will be able to access for college expenses. Quote Link to comment Share on other sites More sharing options...
NoPlaceLikeHome Posted January 12, 2012 Share Posted January 12, 2012 I understand that but what if the unexpected happens in life and the mortgage can't be paid then the house and extra money that went to pay down are both gone. I had that happen to a friend who was on track to pay her house off early, she lost house even though she paid as much extra she could every month to pay it off early. :iagree:I have heard financial advisors say that it is better to have a very good emergency fund. IMHO I think that should be around 2 years of living expenses but maybe I am over cautious;) People have lost houses over the unexpected when they have not had enough of an emergency fund and it is hard to take the equity out of house in an emergency like job loss or catastrophic health problem. Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 12, 2012 Author Share Posted January 12, 2012 Is this what you have done? Save 2 full years of living expenses before paying anything down on the house? We have close to a year saved up. We really are fully comfortable with that and consider that a "full funded emergency fund." Sure, anything could happen, but anything could take up more than 2 years of savings too....where is the cut off where you day you are fully secure? I really don't think that number exists. Most financial advisors say a good number is between 6 and 12 months. I am not saying it is bad to have more, but I am not positive it is necessary either for people who aren't too worried about losing their jobs. Dawn :iagree:I have heard financial advisors say that it is better to have a very good emergency fund. IMHO I think that should be around 2 years of living expenses but maybe I am over cautious;) People have lost houses over the unexpected when they have not had enough of an emergency fund and it is hard to take the equity out of house in an emergency like job loss or catastrophic health problem. Quote Link to comment Share on other sites More sharing options...
Soror Posted January 12, 2012 Share Posted January 12, 2012 Not that my opinion counts for much I'd agree w/ a pp. It really sounds like you want to pay down the mortgage, so why not? If you start now how long do you have left? Did I miss that? What it be done by the time the 2nd starts school so you could just cash flow the 2nd child's college and then use your savings for the first? As long as it leaves enough to accomplish your other goals why not? We are paying ours off somewhat early but not really, our original loan was for 20(dh refused to set it up as 15 and I refused anything higher). So, we always paid it like that. It was kind of tight at first but easy now. Dh doesn't want to pay ours off any earlier although we could in a few years. Like a pp said I would just love that security of knowing that if he lost his job our expenses would be very, very small. We've cut everything else out of the budget as it is. Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 12, 2012 Author Share Posted January 12, 2012 Of course your opinion counts. I am "listening" to all opinions. We refinanced in Oct of 2011. We were already at a 15 year mortgage but we were offered a no cost refi (we did pay escrow but that is paying taxes and insurance, so it wasn't a fee to the bank) and going from 4.37% to 3.37%. So, we took it. So, we currently have about 14.5 years left on a 15 year. If we pay the extra towards mortgage it will bring it to just over 10 years. We do have some other wiggle room in our budget with Dh's November small raise that I am looking at possibly throwing in there too to get it paid off in about 8-9 years. My "goal" was 7 years but I don't see how that is doable right now.....maybe with DH's future bonuses or raises, but I am not counting on it. So, at 10 years it will not be completely paid off when the 2nd goes to college, BUT, we do have other money we are allocating towards college and will have some more saved by that point. We are not putting all of our chickens in one basket.....my question is: Once the Emergency Fund is fully funded, would you take the money you were putting in there to pay down the mortgage or would you just continue to save. Dawn Not that my opinion counts for much I'd agree w/ a pp. It really sounds like you want to pay down the mortgage, so why not? If you start now how long do you have left? Did I miss that? What it be done by the time the 2nd starts school so you could just cash flow the 2nd child's college and then use your savings for the first? As long as it leaves enough to accomplish your other goals why not? We are paying ours off somewhat early but not really, our original loan was for 20(dh refused to set it up as 15 and I refused anything higher). So, we always paid it like that. It was kind of tight at first but easy now. Dh doesn't want to pay ours off any earlier although we could in a few years. Like a pp said I would just love that security of knowing that if he lost his job our expenses would be very, very small. We've cut everything else out of the budget as it is. Quote Link to comment Share on other sites More sharing options...
DawnM Posted January 12, 2012 Author Share Posted January 12, 2012 Thank you all for your opinions. Nothing will change until March or April as we have a couple short terms goals that need to be met. Dawn Quote Link to comment Share on other sites More sharing options...
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