Hail Damage, Settlements and Paid-Off Mortgages, Oh My?!

[mr shankly]

Greetings Mustachians,

I'm still doing my own maths on this question but thought I should run the idea past the wise ones here:

We recently experienced hail-damage on our nearly paid-off home.  Insurance will replace the roof, siding on the garage,  several windows on the home, along with some painting on the home's wood siding.

Current settlement, with deductible already applied, and 7-year depreciation is around $20k.

The kicker:  Bank signed the check over to us, since payoff on the mortgage is around $13k.  We agree to make all the necessary repairs which have to be done within 12 months to recover any additional insurance (i.e. the depreciation; we have 100% replacement policy).

Since we have 12 months to make all the repairs, I'm considering the idea of paying off the mortgage now, holding $7k to begin making the repairs, and paying ourselves the mortgage payment (around $750 / mo) over the next 12 months to build up the rest of the funds for the repairs. 

I think the roof is going to cost between $10k and $12k, so we'll get the remainder of the settlement on the roof portion when that work is complete. 

Since I'm growing a mustache I am open to doing the garage siding & windows myself, but not sure if that will gain us any additional settlement funds (depreciation) since I wouldn't be using a contractor and I'm guessing insurance isn't paying me for my own labor.  (I will hire out the roof as this is a two-story turn of the century home with a scary pitch.)

We will make the repairs on the home, and won't take the money and run, but it looks like we could come out ahead with the proper use of sweat equity, frugality and cunning.

Any thoughts on this?  I'm open to all sound advice and punches in the face.

Cheers,

Paul

[Gone Fishing]

I'm a bit confused about how the final payments work.  But ask yourself this:


Can I walk away from this deal with a fixed house and extra money in my pocket?

Or, can I pay off the mortgage,  live with the damage/do inexpensive minor cosmetic/functional repairs, add the remainder to my 'stache' and wait until I actually need to replace the windows/siding (not what you asked but what I would try to do)

Or, am I just reducing the amount the insurance company will have to pay out because I am willing to do the work myself?

[Villanelle]

To me, it wouldn't be worth it.  You have 7k which you can invest for maybe 10 months, in an extremely conservative investment.  You'd make a couple % and then you'll save however much you get from accelerating the mortgage pay off.   And then, ~two months before the deadline, you have to scramble to make sure all the work gets completed, when you are dealing with trades that cab be unreliable, possible weather delays, and other issues.

And as I understand it, you save nothing by trying to do this work yourself, and in fact lose money because that's time away from projects that could actually save you money.  It sounds like they will pay you if the work ends up costing more than $20k, but only if the work is done within 12 months. So sweat equity gets you nothing other than experience and satisfaction. But you have to deal with making sure you meet that 12 months deadline, and your only return is a very small bit of interest on a late-stage mortgage and a minuscule amount you can make by investing $7k for ~10 months. 

[mr shankly]

Thanks for the replies !

Yeah this isn't so much about sweat equity and satisfaction as much as it is getting our mortgage paid off a bit more quickly... I was trying to think outside the box a bit.

Frankly we've been working very hard to pay the house off, probably to the detriment of other investments. 

Interest is down to about $70 per month so perhaps it makes the most sense to get the repairs done by the contractor as needed, and when all is said and done if we come out a little ahead, put any extra cash on the mortgage.

Still need to run all the numbers but appreciate the advice.

Thanks again!

--pc

[CowboyAndIndian]

If the roof is damaged, would you take the risk of furthur water damage in the rest of the house?

If there are further water damages due to the damaged roof, you may not get an insurance payout.

[mr shankly]

If the roof is damaged, would you take the risk of furthur water damage in the rest of the house?

If there are further water damages due to the damaged roof, you may not get an insurance payout.

You are correct.  The shingles are damaged but not in a way that causes the roof to leak, it just cuts down on the life of the shingles.  We'll definitely get the roof replaced.

We had a storm like this 7 years ago and it was literally softball sized hail.  You wouldn't believe it unless you saw it.  Incredible.

Roof was replaced back then too, what are the chances of this happening twice in 7 years?  Crazy.

In that case many people had holes in their roof from the hail.  This storm was more like golf all sized hail, but it came in at an angle and knocked the granules off the shingles where it hit.