Anybody Working on Paying off their Mortgage Early?

[TexasGirl96]

I'm just looking for some company, tips, advice, support. It's such a big task to tackle, but I would like to knock this thing out in less than 5 years. We have already been putting extra money toward it, but when we redo our yearly budget in December, I would like to trim some of our other categories and really start hitting it hard. DH is great about following a budget once it is in place, but he sometimes has a hard time with the thought of having to make some sacrifices for a long term goal.

[LEAW]

That's our plan, once we finish the debt.. we have exactly 2 years of snowballing our debt until it's gone.. and that's barring no bonuses (tax return, bonus, raise, etc for dh's work, or unexpected cash in our laps..)

You need to check with your lender - either you have a loan that prepayment will knock the principle down each time you send in extra with an adjusted interest rate for the extra, or you have one that will continue to follow your 15/30 yr amoritization schedule, so you still have to pay the interest each month at the rate set by the lender... so if you prepay several years of $, you still pay the 28 yr interest rate (way high compared to what you would be paying) for the payment you are sending in...

If the 2nd method is the one your lender uses, then it might make more sense to dump all your spare cash into some sort of fund that makes a bit of interest and then pay the house off in full once the account is big enough. Harder to do since having that $$$ sitting in an acct. is tempting, but you can walk in and say "here, I'm done" with a check, rather than letting them hang on to the extra cash (they make interest off it that way).

Our plan is to bump up dh's retirement savings first, then set up college funds, and then kill the house.. at that point we will have no debt, and can pay double payments each month, which will make a 30 yr into something less than a 10 year. Sending just one extra payment a year can turn a 30 yr into a 23? year I think...

[Eman'smom]

We plan to have our mortgage gone in 12 more years (so 14 total), right now we are sending about 70 extra dollars a month to it, that takes 5 years off right off the top. We are snowballing the other debt, including dh's 12 years in college (but he's a rocket scientist now ) His student loans are bigger than some mortgages so it's going to take some time : However this plan doesn't involve me going back to work, him getting raises ect. Just paying the same amount of debt each month that we are currently paying.

[PajamaMama]

Our mortgage would be paid off early if we were planning on staying in this house through the loan's duration, but we only see ourselves in this house for a few more years tops.

We do pay a bit extra but more of our money is invested in higher yield investments...you should talk to a financial planner to find out what's best for you. For some people not having a mortgage payment gives them more security than the actual investment is worth, so it makes sense in more than just their finances to pay it off.

[mnnice]

We are and we are actually not that far off from having it paid off. If we pay no more extra it would be about 18 months and should be more like 6-8 months.

Part of our motiviation is that if DH job goes kaput we could get by on my income, DH unemployment, long enough to figure out a game plan (DH field is pretty specialized and he has very few job opportunities in our current geographical area). There also been talk of transferring him to a much larger city that neither of us want to live in.

Our other movitivation is just not owning anyone anywhere any money

[Lucky Charm]

We refinanced last year, then added another $400 to principal monthly, and we should have it paid in about 9 years (longer than your 5, but much better than the initial 30yrs we signed up for)..

We have never really had a budget, per se. Maybe you could PM me some ideas?

[ladywolf]

I will pay off our 30 year mortgage in 15-16. The trick is to get one full payment (whatever you pay a month) towards principal a year.

[oldgirl,newtricks]

We put in more than a year's worth each year. We ran the numbers and for our loan, we get the best savings off the end of the loan by pre-paying $300 a month. Our 15 year loan will be done in 9 years.

[cassiemommy]

We have a variable rate mortgage (it was a std fixed rate TWENTY-FIVE YEAR one when we bought our hse in 2000, but when rates dropped we changed) and on paper, should be done in 2010, but barring major changes in rates, should be done sometime in 2009. All our extra $ goes to the mortgage so sometimes I do feel like we can't afford anything, but this way I will be able to go part-time and I also don't like owing anyone $. Can't wait!

[phathui5]

Right now we're paying an extra $20 a month on the principal. It's not much, but it's all we can add on at present and it still feels good to do something.

[Luckiestgirl]

We will be done in 2 1/2 years. At that point, we'll channel the extra $$ toward retirement savings and a larger home.

[anarchamama]

Originally Posted by sweetbaby3

We refinanced last year, then added another $400 to principal monthly, and we should have it paid in about 9 years (longer than your 5, but much better than the initial 30yrs we signed up for)..

We have never really had a budget, per se. Maybe you could PM me some ideas?

This is basically what we did. We started with a 50,000, we paid minimum payments the first 5 years while dh was in school (was 400$ a month). This year dh graduated and got a job, so we rolled his student loan into the mortgage (cheaper interest and i hate dealing with student loans!) when it came up for renewal. Adding his student loans in took our mortgage back up to 50,000: BUT we increaes our monthlt payment sto $600 which cut it from 15 years to 8! Right now thats allwe can afford as we have some other debt to pay off to, but I certainly hope to increase that as time goes by. But the key for us was increasing our regular payments so that we just came to think of that as the payment instead of "extrA" I'm pretty happy with it.

[Starr]

We are in the middle of selling current home and buying property to build. We are going to build a very, very small but efficient house and it should come out cheaper than our house payment now. So we owuld continue making payments like we are now to get it paid off sooner.

[Stone Fence]

We're paying $70 extra each month

We refinanced, went from a 30 year (25 years left) to a 20 year. If we keep up what we're doing the house will be paid off by the time DS goes to college. Once we lose the student loans (3.75 years to go!) we'll put more towards retirement and mortgage.

[velochic]

We're not. Our investments are earning us double our mortgage rate right now (before taxes). Usually it doesn't make any sense to pay off a mortgage early because it's such cheap money.

[Herausgeber]

Yeah, same here. It would hurt me financially in the long run to pay extra on my mortgage in lieu of saving/investing elsewhere.

[anarchamama]

Originally Posted by velochic

We're not. Our investments are earning us double our mortgage rate right now (before taxes). Usually it doesn't make any sense to pay off a mortgage early because it's such cheap money.

I hear what you are saying in a strict financial way, BUT I view the security of owning my home outright as worth more than any dollar amount. If something should happen and we fall on hard times or there is a depression etc, we will always have our house, the kids will at least have the security of not having to move etc.... that is why it is such a priority for me.

[Herausgeber]

It's interesting to me that many people perceive owning their home outright as a form of security, whereas I see it as very, very risky. I would never want that much of my net worth tied up in a single asset.

[whateverdidiwants]

Originally Posted by Herausgeber

It's interesting to me that many people perceive owning their home outright as a form of security, whereas I see it as very, very risky. I would never want that much of my net worth tied up in a single asset.

ITA. Not to mention the tax benefits of being able to write off mortgage interest. Sure you have no house payment, but your taxable income will go way up as a result.

[greenegirl]

Originally Posted by whateverdidiwants

ITA. Not to mention the tax benefits of being able to write off mortgage interest. Sure you have no house payment, but your taxable income will go way up as a result.

Actually, the last statement is not necessarily true. Your taxable income is only going to go up if you were previously itemizing your deductions. Just because you have a mortgage does not mean that that you are itemizing your deductions rather than taking the standard deduction.

For example, one of the people above mentioned that her mortgage is $50,000. I just put that amount into an online amortization calculator at a 7% interest rate (have no idea what she actually pays, but that was the default the calculator came up at, so I didn't change it). On a 15 year loan, the interest for the first year is $3,438 and it decreases in subsequent years. The standard deduction for a married couple is $9,800. Unless she has charitable giving or medical expenses or something, she is not itemizing her deductions and her mortgage interest therefore saves her absolutely nothing.

In addition, even if someone has a higher mortgage amount, like I do, there will come a point when the interest paid in a year will fall below the deductable amount since mortgages are structured to have you pay more interest up front. So when you get to that point, prepaying on your mortgage doesn't hurt you on the tax front.

I also seriously hate the argument that you should keep a mortgage for the sole purpose of being able to take a tax deduction. I personally do itemize my taxes, so I do get the benefit of the mortgage interest deduction. However, if I pay $15,000 in interest this year, this works out to saving $4500 in taxes (calculated at 30% -- I think we are actually in the 25% bracket). So if I pay off my mortgage, my total outgoing cash flow is $4500 vs. $10,500 (actually more since this is only using the interest amount and does not include any principal portion of the payments I am making). Therefore, my total cash flow is reduced by $6,000 annually. That is a serious chunk of change.

I totally understand the arguments re: how cheap it is to borrow mortgage money and other investments earning more, etc. However, a financial plan is about the big picture of where you want to be. And owning a home outright means that you do need less investments in order to be able to maintain your lifestyle because it lowers the actual amount of cash you need to have on an annual basis in order to pay your bills.

When we bought our home a year and a half ago, we got a first and second mortgage. We very agressively made payments on the second mortgage and paid it off in a year (this was 15% of the value of the house at the time we purchased it). Now we are making additional principal payments at a much more modest rate. I do expect to stop doing that in the next few months in order to pursue some other financial goals. We just bought a car with a loan and I'd prefer to pay that off before paying extra on the house. In addition, we want to build our emergency savings up a bit.

I totally understand the owning a house as security concept. There was a two year period when DH and I essentially lived off of our savings. This was before we bought our house and we were terrified that there was going to come a point when we would not be able to afford a place to live. Fortunately, we never got to that point before we had adequate income again. I strongly feel that a good financial plan is about increasing savings while decreasing expenses, including mortgage payments -- this is why I hang out here in the frugality boards!