Author Topic: How did you pay off your house?  (Read 6361 times)

Hoosier Daddy

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How did you pay off your house?
« on: May 20, 2015, 09:05:36 AM »
This question is geared towards individuals who always max out 401k and IRA contributions each year. I make about $53-60k a year depending on bonuses and so after I max out my retirement accounts, live and pay remaining taxes I don't have a ton of money left. Thus I was wondering if there is a way to payoff your home with 401k balance or if most people just put all of their money after they max their retirement accounts against paying off the house? If so, I guess I just need to make more money! (BTW if it matters I'm 25 single male with no debt working in finance so my salary should grow over coming years and I should experience economies of scale in the event I can convince someone to put up with me as a spouse lol)

lizzzi

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Re: How did you pay off your house?
« Reply #1 on: May 20, 2015, 09:15:13 AM »
I paid cash for a little house in a wonderful location in a low COL area after I left the workforce. I used what I had saved in my state deferred compensation plan to pay for it.

Spork

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Re: How did you pay off your house?
« Reply #2 on: May 20, 2015, 09:21:41 AM »
I paid cash as well.

It was a combination of:
* non-retirement savings
* proceeds of previous home sale
* I spent 5 1/2 years living in a 600 sqft glorified tool shed -- to save on housing costs between houses

MarciaB

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Re: How did you pay off your house?
« Reply #3 on: May 20, 2015, 09:31:55 AM »
Spork - another thing to consider is using cheaper money to pay off the house (essentially do an in-house refi). One way to do that is to look at those credit card checks that come in the mail. They're always advertised as zero-interest, but then have a fee associated with using them. The ones I'm getting (and have used for this very purpose) are at a 2% up front fee on the amount of the check you write. Let's say that's $10,000. That costs you $200.

What does throwing 10K at the mortgage balance save you at this point in the loan? If you don't have an amortization table for your loan, go to Bankrate.com and use one of their (free) calculators to see the life of your loan (use a mortgage calculator and then click the box to have it display the entire loan, month by month). If you're early in the loan, the $10K might save you thousands of dollars in interest, and if you're later in the loan life, it may save you hundreds. So the question is, does spending $200 to save X on interest make sense?

Since you have extra money each month, paying back that credit card balance (don't use the card for anything else or you'll incur interest on the purchases) won't be a problem. They typically give you 15 monthly cycles to do it, and you'll need to make at least a minimum payment.

Another creative refi is to look around and see if anyone you know wants to earn more than the savings-account-pittance they're earning now on some of their cash- and do a personal loan (amortized at a lower rate than your mortgage). Use a promissory note so everything's in writing, and be sure to make a copy of the cancelled checks for your records.


boarder42

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Re: How did you pay off your house?
« Reply #4 on: May 20, 2015, 09:36:31 AM »
I wouldnt pay off my house if i live in america with a good low interest rate see this thread for details on what you're costing your self both pre FIRE and post FIRE by not carrying a mortgage. 

ITS GOOD DEBT!!!

http://forum.mrmoneymustache.com/investor-alley/paying-off-mortgage-early-how-bad-is-it-for-your-fi-date/

DONT DO IT.  Invest it in a taxable account you'll FIRE Sooner.   and be safer while in FIRE.

fartface

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Re: How did you pay off your house?
« Reply #5 on: May 20, 2015, 10:52:37 AM »
Our first home cost $133K. We put 20% down. Each year when we'd get our tax refund, we'd put the entire amount towards principal. When DH would get a bonus, same thing. Any extra surplus we'd put towards mortgage. After five years of this (and a lucrative housing boom) we sold the house @ $198K.

This allowed us to put $100K down on our next, $250K home. We paid the entire thing off within 8 years.

Now, I have a $350K home (wish I were still in the $250K home) and have 48K left on the balance. I'm scheduled to have it paid off within two years, but am not rushing it b/c 92% of my payment goes towards principal.

OH, and we ALWAYS took out 15 year vs 30 year loans.

HenryDavid

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Re: How did you pay off your house?
« Reply #6 on: May 20, 2015, 11:02:04 AM »
Bought house with 25% down. House cost 3 times annual salary.
Made double the minimum payments and stuck with variable rate mortgage, usually around 2%. One big extra payment last year.
13 years later house is 5 months from being paid off with no hardship whatever. Lots of ongoing saving during that time, in addition to wildly extravagant travel and so forth. Living like millionaires really.
The key is buying an affordable house. Couldn't do it in my town today: would be renting.

boarder42

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Re: How did you pay off your house?
« Reply #7 on: May 20, 2015, 12:56:06 PM »
If i had to pick the biggest mistake made by users of this forum its paying off a low interest mortgage vs investing the money. 

Exflyboy

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Re: How did you pay off your house?
« Reply #8 on: May 20, 2015, 04:00:26 PM »
I thought I was going to lose my job so I doubled my mortgage payments.. helped by the fact I got another mortgage payments worth of income in rent.

It took 6 years and I own the roof over my head.

After that I maxed out the 401k and Roth.. Was FI in another 11 years.

Of course the fact th stock market rebounded helped.

hdatontodo

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Re: How did you pay off your house?
« Reply #9 on: May 20, 2015, 07:22:36 PM »
I probably earn over $10K per year in OT, plus one of my two monthly paychecks covers expenses, plus I get one annual bonus check with $7,500 extra on it, plus 2 extra paychecks per year on 3-payday months. Plus, this year, I downsized cars, and sold a cycle  and a bunch of stuff I had.

We owed 166K on the mortgage Jan 2014 and 99K on Jan 2015. After our Jun payment hits ($4,600 principal) we'll owe $31K. Hope to be done at the beginning of January.

I only did all this since I'll be 55 this year and the contract my company has with the customer who pays for me is going away. Having no mortgage and having a working wife would mean much less digging into my 401K with the after-55-rule.

kpd905

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Re: How did you pay off your house?
« Reply #10 on: May 20, 2015, 07:35:11 PM »
If you are maxing 401k and IRA on $53k a year, don't worry about paying down the house early, just keep making your monthly payments.  Is it 15 or 30 year?  What is the rate?

Trifecta

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Re: How did you pay off your house?
« Reply #11 on: May 20, 2015, 07:47:45 PM »
One thing we did was increase the additional principal every time we got a raise or bonus. Felt really good to get that sucker paid off :-)

Hoosier Daddy

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Re: How did you pay off your house?
« Reply #12 on: May 21, 2015, 04:45:52 AM »
I was curious if there was a way to use tax free earnings to pay off the home. It seems unfortunately we must pay taxes on those dollars before paying on the house, dang it lol. I agree with the points of paying off low internet mortgage vs investing the money. I did some retirement planning and was astounded how much longer I had to work if the only thing I changed was paying off my house early on. I haven't bought yet. With my little salary and maxing my retirement accounts it will take me a couple years to save up the down payment as I just got debt free two months ago. I think there may be another recession coming late 2016, so I'm hoping to be ready for that housing clearance sale lol.

starbuck

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Re: How did you pay off your house?
« Reply #13 on: May 21, 2015, 06:57:51 AM »
Thus I was wondering if there is a way to payoff your home with 401k balance or if most people just put all of their money after they max their retirement accounts against paying off the house? If so, I guess I just need to make more money! (BTW if it matters I'm 25 single male with no debt working in finance so my salary should grow over coming years and I should experience economies of scale in the event I can convince someone to put up with me as a spouse lol)

After we max all of our retirement accounts, we invest our leftover money into our taxable investment account, NOT our house. We were prepaying the mortgage 5 years ago before I came to this forum and learned shitloads and actually developed a plan for our money, rather than just doing whatever my limited knowledge base allowed. I know a lot of people here prefer to kill their mortgage ASAP, but I'm certainly not one of them. I prefer the flexibility that our very liquid investment account provides, rather than the risk of putting all our financial eggs in our house basket. Plus, mathematically it's the better path, and it's hard to argue with math! I prefer to separate my emotions and my finances as much as possible. Money is a tool, that's it. And 30 year, fixed low interest rate loans, that even come with tax breaks?! An awesome tool!

(And if you do purchase a property, you can certainly get a roommate and still experience the economies of scale that others do!)

Farmgirl

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Re: How did you pay off your house?
« Reply #14 on: May 21, 2015, 08:12:51 AM »
Guess I'll add our story, which is paying off the mortgage primarily for cash flow in retirement.

I'm 56 and husband is 61.  We have a small farm that we bought in 2008 (horrible timing).  Anyhow, we decided to kill the mortgage by having me not work for his company any longer (although I still do all of the accounting for "free") and take a "real" job in 2012.  Because husband is self employed, we paid a lot for our family of 4 in health insurance.  So I found an accounting job (yuk) that pays decently for this area and also pays 80% of our healthcare premium.  Everything I make (less a small amount going into my company's 401k to get the employer match) goes to the mortgage.

Additionally, our thinking was that if we decided to sell the farm in the future and downsize, we would be in a better position to wait for the best possible offer, as this property could be hard to sell.

The small side business we run from the farm is finally profitable and will provide some chump change in retirement.  Plus we have clear land to raise chickens and garden, so that's good too.

So, 22 more payments and we are mortgage free.  Once that mortgage is gone, we will be able to live on 4% SWR.  Can't wait!


Gumbo1978

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Re: How did you pay off your house?
« Reply #15 on: May 21, 2015, 12:22:01 PM »
Refinanced at 3.625% several years ago.  Probably the best thing I got out of the Great Recession.  I have the $ in brokerage/cash to pay off the rest of my mortgate (~ $130k), but why would you with rates that low?  I could pull money out of my brokerage account a couple of times a year to pay the mortgage for that year if needed.  That $ needs to keep working for me.

GuitarStv

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Re: How did you pay off your house?
« Reply #16 on: May 21, 2015, 01:22:48 PM »
My wife and I rented a house with several roommates to split costs for four and a half years after university to save up a large down payment on our 400k house.  We should be finished with the mortgage next year (6 years total).