Author Topic: Tips to pay Mortgage Off?  (Read 3231 times)

Candyland33

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Tips to pay Mortgage Off?
« on: May 16, 2019, 03:27:39 PM »
Income $100K
Mortgage: $207K
30 year loan on 3.75%
Loan started in August 2017

Current loan amount is $179K. I made a few extra payments over the past 2 years using my savings and tax rebate.

On average i spend $3,700 per month between mortgage, HOA, car and other bills. I do support my parents so about $500 per month towards them, which is included in the $3,700.   I only have car and mortgage as my debt. Car will be paid off next year. 

Below is my budget.

Budget   Type
 $18,600.00     Mortgage
 $600.00     Home
 $420.00     Electricity
 $240.00     Water+Gas
 $1,020.00     Internet
 $4,812.00     Car pmt
 $360.00     Personal Care
 $1,155.00     Car fuel
 $120.00     Health insurance (med, vision, dental, d&d)
 $360.00     Gym
 $420.00     Phone
 $180.00     Tolieties
 $1,200.00     Groceries
 $360.00     Misc.
 $3,240.00     Entertainment
 $6,000.00     Mom&Dad
   
   
   
Annual Expenses   
 $200.00     Clothes
 $1,525.00 Travel
 $280.00     Car maintenance
 $289.38     Car Tax
 $706.80     Car insurance
 $180.00     Haircut
 $400.00     Gifts/Charity
 $300.00     Christmas/T-giving
 $825.00     2 weddings


Where can I improve? Any tips?

I have some savings for emergencies about 30K. Should I put those towards my mortgage? or should I leave for emergencies?

Thank you

Imma

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Re: Tips to pay Mortgage Off?
« Reply #1 on: May 16, 2019, 03:29:16 PM »
Are you saving/investing for retirement at all?

MDM

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Re: Tips to pay Mortgage Off?
« Reply #2 on: May 16, 2019, 04:50:20 PM »
If you are holding bonds or fixed income investments that you expect will return less than 3.75% after tax, selling those and paying ahead on the mortgage would be reasonable.

If you have stock investments, it is likely (but not guaranteed) that holding the stock investments will return more than 3.75% after tax, so not paying ahead on the mortgage and, instead, adding to the stock investments would be reasonable.

See Investment Order for more.

Candyland33

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Re: Tips to pay Mortgage Off?
« Reply #3 on: May 16, 2019, 04:54:28 PM »
I have 401k. Save about 7% there.

frugalecon

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Re: Tips to pay Mortgage Off?
« Reply #4 on: May 16, 2019, 05:28:08 PM »
The question of whether it makes sense to pay off a mortgage early is one of the most controversial on any personal finance site, it seems. One dude who was passionate about not paying off the mortgage has been banned, but his thread about not paying offf the mortgage lives on. Search for Boarder42. An alternative is to create a ďsinking fundĒ in which you accumulate taxable investments until you can pay off the mortgage in one fell swoop, so that you donít sacrifice the opportunity to earn potentially higher gains and liquidity.

There are so many of these threads, Iím not sure there is much new to say.

Laura33

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Re: Tips to pay Mortgage Off?
« Reply #5 on: May 17, 2019, 09:04:31 AM »
I suggest looking up the Investment Order sticky.  A 3.5% mortgage rate is incredibly low by historical standards,* so you should not be prioritizing paying that down at least until you have other higher priorities covered -- like maxing out your 401(k) and IRA.  Remember, when you retire, you will not just need a place to live, but you will need money to live on.  Once you have your retirement accounts on track to support you by the time you FIRE, then you can devote extra money to getting rid of the mortgage debt.

*The stock market has always, always done better than 3.5% over any 30-year period -- even the 30 years that include the Great Depression (lowest average was 8%, see https://awealthofcommonsense.com/2016/05/deconstructing-30-year-stock-market-returns/).  So the way I figure it, if the stock market doesn't do better than 3.5% over the next 28 years, there is something seriously wrong with the economy -- as in, multiple times worse than the Great Depression.  And if that happens, nobody's retiring anyway. 

MoneyizHere

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Re: Tips to pay Mortgage Off?
« Reply #6 on: May 17, 2019, 09:41:50 AM »
If I were you  - I'd look to pay off the car payment as a first step - assuming that the financing is greater than your mortgage financing. And many could debate here as far as whether you should have a nice car in the first place since a car is just

I agree with those who say never pay off your mortgage amount - Having the cash on hand invested is a better idea and the market has grown much greater than 3.75%. (in this sense - the math works out with using this leverage). 

With that being said -I could also appreciate being debt free as well - so once you've grown that taxable account to a level high enough to pay off your mortgage in full - then by all means - throw it at the Mortgage to get final pay-off.  Otherwise - you're wasting your time with accelerated pay-off schedule - you're just throwing money at "invisible equity" that could only be recuperated if you sell, whilst at the same time decreasing your liquidity/options because you don't have the security of the cash-available on hand.  Make just the min payments on your mortgage until you have enough to pay off in full.  3.75% is a pretty good rate. 

Then you could finally pocket the mortgage payment savings and really accelerate your

Finances_With_Purpose

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Re: Tips to pay Mortgage Off?
« Reply #7 on: May 17, 2019, 01:01:26 PM »
Agree fully with @Laura33 .  You have a great mortgage rate. 

Here's what we do, if it helps: we automate everything and prioritize retirement savings.  But if we land free money elsewhere, such as some unexpected side-gig income, we put it on the mortgage.  So, every month, we put a little extra on the mortgage from interest here and there.  We add credit card bonuses and anything like that, too.  We end up paying quite a few extra mortgage payments that way each year without impacting our larger retirement goals. 

Looks like you have a car loan, though, and no car fund, so I might address that first, especially since your car loan almost has to be at a higher rate. 

Candyland33

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Re: Tips to pay Mortgage Off?
« Reply #8 on: May 17, 2019, 01:57:49 PM »
Thank you for advice. My car loan on my Toyota Hybrid 2% and I have 1 year left before finishing to pay it off.

FreeBear

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Re: Tips to pay Mortgage Off?
« Reply #9 on: May 17, 2019, 09:32:18 PM »
Please do not risk your emergency fund to PARTIALLY pay off your mortgage or pay it off faster!  If you lose your job, even with a fully paid off house, you won't have a strong emergency fund to pay for food, gas, and all other living expenses.  On the other hand, if you lose your job with 3-6 months of emergency fund, you can pay your monthly mortgage for several months between jobs.  Also, the emergency fund can be used for other issues like major home or car repair without risking credit card debt.

You spent $5K on entertainment, and travel, and gifts (not including parental support) but only funded your 401K at 7%.  Honestly, I think you are underfunding your retirement account.  Suggest a goal of 10-15% of your gross income, even if you don't have direct plans to retire early. If money is tight, increase your 401K funding 1-2% each year until you max. it out, then look at other investing options (investment order link provided earlier).
 
A great of financial advice I received earlier in my career was to max out my 401k retirement savings, then learn to live on what's left.  Pay your future self first (retirement savings), then pay your monthly mortgage, bills, parents, friends, charity, and fun money.  After all, who is going to take care of you in retirement, or even if you face chronic job issues or health problems or other issues over the years?

Candyland33

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Re: Tips to pay Mortgage Off?
« Reply #10 on: May 20, 2019, 02:44:03 PM »
I updated my 401K to save 15% now and hopefully that'll help.  Thought of retirement is really scary since I don't have much saved there.

Also, I was thinking of doing a Roth IRA or putting into a high savings bank with good APY for the extra money I have.  Might be better than just having it and not making any off of it.  Any thoughts?

ItsALongStory

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Re: Tips to pay Mortgage Off?
« Reply #11 on: May 22, 2019, 05:49:15 AM »
It seems like an awful lot of house for you, but that wasn't your question. I'd fill up the IRA for this year and support other suggestions on maxing out 401k as soon as possible.

Do you have an HSA? Also an underestimated savings vehicle. Not sure of the law but perhaps you could help your parents with medical expenses from your HSA and give pretax money instead.

All in all not the best idea to pay mortgage off early as others have said.

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legalstache

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Re: Tips to pay Mortgage Off?
« Reply #12 on: May 22, 2019, 12:41:02 PM »
As others have suggested, you should start putting money aggressively into tax-advantaged accounts (e.g., 401k, IRA, HSA, etc.) Review the Investment Order thread if you need guidance there.

Your goal should not necessarily be to be debt free. Your goal should be to have enough money to support your living expenses (including any debt). You have a good income and your expenses are low enough that you should be able to get your investment account balances up fairly quickly.

Personally, I would start by investing some of that $30k in your emergency fund. $30k would cover 8 months living expenses for you, which is too much in an e-fund by just about any measure.

Candyland33

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Re: Tips to pay Mortgage Off?
« Reply #13 on: May 30, 2019, 09:50:41 AM »
Thank you so much all of you for your help and guidance.

Lan Mandragoran

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Re: Tips to pay Mortgage Off?
« Reply #14 on: May 30, 2019, 01:44:51 PM »
Income $100K
Mortgage: $207K
30 year loan on 3.75%
Loan started in August 2017

Current loan amount is $179K. I made a few extra payments over the past 2 years using my savings and tax rebate.

On average i spend $3,700 per month between mortgage, HOA, car and other bills. I do support my parents so about $500 per month towards them, which is included in the $3,700.   I only have car and mortgage as my debt. Car will be paid off next year. 

Below is my budget.

Budget   Type
 $18,600.00     Mortgage
 $600.00     Home
 $420.00     Electricity
 $240.00     Water+Gas
 $1,020.00     Internet
 $4,812.00     Car pmt
 $360.00     Personal Care
 $1,155.00     Car fuel
 $120.00     Health insurance (med, vision, dental, d&d)
 $360.00     Gym
 $420.00     Phone
 $180.00     Tolieties
 $1,200.00     Groceries
 $360.00     Misc.
 $3,240.00     Entertainment
 $6,000.00     Mom&Dad
   
   
   
Annual Expenses   
 $200.00     Clothes
 $1,525.00 Travel
 $280.00     Car maintenance
 $289.38     Car Tax
 $706.80     Car insurance
 $180.00     Haircut
 $400.00     Gifts/Charity
 $300.00     Christmas/T-giving
 $825.00     2 weddings


Where can I improve? Any tips?

I have some savings for emergencies about 30K. Should I put those towards my mortgage? or should I leave for emergencies?

Thank you

30k is alot of money to have in an emergency fund imo. Like everyone else has said, you'll very likely end up richer if you put that extra in something other than a 3.75% loan.

Yeah... I get the hesitation with starting trying to get to FIRE. It does seem far away, painfully so. Only way to get it closer though is to make it happen.

UnleashHell

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Re: Tips to pay Mortgage Off?
« Reply #15 on: May 31, 2019, 04:26:04 AM »
keep the mortgage!! thats a good rate.

pay off the other debts and build your investments instead.


Dicey

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Re: Tips to pay Mortgage Off?
« Reply #16 on: June 17, 2019, 12:55:07 PM »
Any possibility of getting a roommate? That income could offset the money you send to your parents.

It seems you have very little saved for your retirement. You know how they say "Pay yourself first" and "Put on your own airmask first"? This applies to you. The bank is the primary beneficiary when you prepay your mortgage, and believe me, if things get tough, they will not show one shred of gratitude. It is so much better to watch your 'stache grow. Having a ton of money and investments really does give you lots more choices, and even makes you more financially bulletproof. That is an amazing feeling. I guarantee it's a much more permanent high than killing off a cheap, fixed rate mortgage.

Feel free to join the party here:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/

bilmar

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Re: Tips to pay Mortgage Off?
« Reply #17 on: June 19, 2019, 08:08:54 AM »
I too recommend you keep the mortgage and make more interest with the money you did not pay down the mortgage with.

BUT, when you come close to FIRE consider paying it off then.
Why?  Because your required income will be much less without a mortgage payment and that can really impact your ACA healthcare costs.

So if you need $30k to live with a mortgage, you may only need $15k if it is paid off. An income of $15k makes you 'Poor' in the eyes of US gov so you get the very best ACA plans and rates which could potentially best the benefits of holding on to the mortgage forever.

Bill

Kronsey

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Re: Tips to pay Mortgage Off?
« Reply #18 on: June 19, 2019, 04:39:42 PM »
An income of $15k makes you 'Poor' in the eyes of US gov so you get the very best ACA plans and rates which could potentially best the benefits of holding on to the mortgage forever.

Sorry to nitpick, but for anybody reading please be sure to check with your own state to see what the income MINIMUMS are for getting ACA coverage. In some states, an income of $15k would be too low to qualify for ACA and unfortunately you may not qualify for Medicaid/state insurance either.

I understand that you probably just meant "keep your income lower for better ACA APTC" which I completely agree. I am weighing a 15 vs 30 year refi for all the reasons you mention. My FI date should be around 15 years or sooner from now, and it would feel really good to not have a mortgage payment at that time even though I understand the math behind going with the 30 year and investing the difference.

Dicey

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Re: Tips to pay Mortgage Off?
« Reply #19 on: June 20, 2019, 12:06:49 AM »
An income of $15k makes you 'Poor' in the eyes of US gov so you get the very best ACA plans and rates which could potentially best the benefits of holding on to the mortgage forever.

Sorry to nitpick, but for anybody reading please be sure to check with your own state to see what the income MINIMUMS are for getting ACA coverage. In some states, an income of $15k would be too low to qualify for ACA and unfortunately you may not qualify for Medicaid/state insurance either.

I understand that you probably just meant "keep your income lower for better ACA APTC" which I completely agree. I am weighing a 15 vs 30 year refi for all the reasons you mention. My FI date should be around 15 years or sooner from now, and it would feel really good to not have a mortgage payment at that time even though I understand the math behind going with the 30 year and investing the difference.
Trust me, having a shitload of money that you can do whatever you want with feels way better than prepaying your mortgage. And, you can always get a 30 and pay it off on a 15 year schedule.  (This is only a hypothetical; don't do the second part.) That way you are not obligated to make the higher payment. Much more flexible.

And it never hurts to reiterate that if you're not maxing out every retirement vehicle available to you before you prepay the mortgage, you're doing it wrong.

If you will absolutely die if you don't kill the mortgage, then save the money in your own investment account(s) until you have enough to pay it off in one payment. It's the safest way to go. Happily, when most people get to that place, they dig the investment returns they're getting and let the cheap-ass, affordable mortgage ride.

bilmar

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Re: Tips to pay Mortgage Off?
« Reply #20 on: June 20, 2019, 07:17:33 AM »
An income of $15k makes you 'Poor' in the eyes of US gov so you get the very best ACA plans and rates which could potentially best the benefits of holding on to the mortgage forever.

Sorry to nitpick, but for anybody reading please be sure to check with your own state to see what the income MINIMUMS are for getting ACA coverage. In some states, an income of $15k would be too low to qualify for ACA and unfortunately you may not qualify for Medicaid/state insurance either.

I understand that you probably just meant "keep your income lower for better ACA APTC" which I completely agree. I am weighing a 15 vs 30 year refi for all the reasons you mention. My FI date should be around 15 years or sooner from now, and it would feel really good to not have a mortgage payment at that time even though I understand the math behind going with the 30 year and investing the difference.


Fair comment - Some states do require minimum income  of 138% of poverty level or about $17k. Key point is that these numbers will change over the years so do your homework closer to FIRE date and decide IF you want to pay of your mortgage the year before you FIRE to reduce your required income to get lower ACA costs after FIRE.

OurFirstFire

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Re: Tips to pay Mortgage Off?
« Reply #21 on: June 20, 2019, 07:45:41 AM »
The main tactic I would advise is don't pay anything extra on your mortgage until you can pay it all off.  Put that money aside and earn interest and when it's big enough to eliminate the mortgage then you can decide to do so.  If you just make extra payments sure you'll save a bit of interest, but if a huge financial emergency happens that money is not easy to get back from the mortgage lender.  You'll still have to make monthly payments or risk foreclosure, and you don't get leeway because you paid a bunch extra before.  So, keeping your money in your control until it can do real good (completely removing a bank's claim on your house) is the way to go.

ysette9

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Re: Tips to pay Mortgage Off?
« Reply #22 on: June 20, 2019, 08:08:36 AM »
Not to derail things too much, but on the subject of prepaying or not, does the consensus change at all in light of the ability to recast a mortgage if you throw a chunk of $ at it?

Hypothetical since we donít plan on doing it, but we could get our mortgage recast if we put a minimum of $50k on it.

I expect the answer would involve a lot of complicated spreadsheet on my end to look at ACA subsidies, MAGI calculations, and taxes, and my head is spinning at the very thought.

Kronsey

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Re: Tips to pay Mortgage Off?
« Reply #23 on: June 20, 2019, 11:04:47 AM »

Trust me, having a shitload of money that you can do whatever you want with feels way better than prepaying your mortgage. And, you can always get a 30 and pay it off on a 15 year schedule.  (This is only a hypothetical; don't do the second part.) That way you are not obligated to make the higher payment. Much more flexible.

And it never hurts to reiterate that if you're not maxing out every retirement vehicle available to you before you prepay the mortgage, you're doing it wrong.

If you will absolutely die if you don't kill the mortgage, then save the money in your own investment account(s) until you have enough to pay it off in one payment. It's the safest way to go. Happily, when most people get to that place, they dig the investment returns they're getting and let the cheap-ass, affordable mortgage ride.


I think you were responding to me, so I'll try to explain my situation better. I've been participating on this thread and the DON'T Payoff Your Mortgage thread. I don't think I've fully shared my concerns for 15 yr vs 30 yr refi on this thread.

I understand and agree with the math, logic, and flexibility behind "go with the 30 year and invest the difference". My own situation has a few more curve balls compared to most (at least in my own mind :)

I am already maxing out pre-tax retirement accounts to the tune of $75K plus per year. That includes full 401K deferral for me, for my wife, company match on the 401K amounts, a profit sharing contribution from my business for both of us (I am self employed but have the business setup as an S-Corp and pay myself and my wife a salary to maximize all pre-tax retirement space), and we max out a TIRA each. All that combined gives us an extremely favorable taxable income to the point that insurance is as close to "free" as is currently possible.

The free/heavily discounted insurance is very important for us. My wife does help me with some admin duties, but primarily takes care of our home and our two young sons. I have Crohn's disease and take a few medicines that help me live a much better quality of life. If I were to try to pay for those medicines out of pocket or purchase insurance without the APTC subsidies, those costs would be more than our TOTAL monthly spending currently. So staying in the perfect income range is so important that it could double our current monthly spending if something were to go wrong.

Within our current monthly budget, we could easily afford the $1,248/mo for the 15 year mortgage vs the $893 for the 30 year mortgage. I 100% believe that I would have more money if I got the 30 mortgage and put the extra $355 in a taxable account and purchased VTI each and every month. The problem is that I am unsure of what that growing balance would throw off in additional income plus future capital gains. I'm not afraid of paying some additional taxes. I am afraid the potential additional income would screw up the ACA and APTC planning that I work hard to achieve. I also understand our healthcare situation is a complete crap shoot. I do not expect it to look and act the same way it does currently, but I don't have a crystal ball to predict the future of the healthcare system. So I am stuck trying to plan based upon the current system we have in place at the moment.

Does that help? And if so, do you still think I'm being foolish? I'm literally waiting to refi after considering all of the above over the last couple weeks. Rates are pretty good, but I don't think interest rates are going to shoot up too much as the fed just announced they may be lowering interest rates in the very near future so I guess I'm not in a huge hurry either.


Dicey

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Re: Tips to pay Mortgage Off?
« Reply #24 on: June 20, 2019, 07:08:10 PM »
First and foremost, congratulations on your progress. You are making an intelligent, informed decision.  You are not blindly trying to kill your mortgage for fear of debt, nor are you doing it (or proposing to) at the expense of retirement savings. You are, in medical jargon, more of a zebra. IMO, you deserve a lot more leeway, because you are doing the math. You understand the ramifications of your decision.

I'm not a CPA or a tax expert, but there is not a direct correlation between investments and income. More investments does not equate to more income until you hit RMD's in your early seventies, unless you buy dividend paying stocks, so don't do that. Easy.

I would pay heed to stories like nereo's and make sure you have sufficient cash or cash equivalents to make a LOT of mortgage payments. "Get a 30, pay in 15" still gives you more flexibility, but the monthly differential is not that huge in your case.

Finally, even if you are a zebra, re-read my last paragraph. It offers the least risk for the majority of situations, including your own. Even if the advantage is somewhat less for you specifically, it is more than zero.

BTW, congratulations on your zebra status!