Author Topic: What to do with the house?  (Read 3128 times)

Mika M

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What to do with the house?
« on: July 29, 2014, 08:57:39 AM »
I currently live in a townhouse in the DC suburbs. Being veterans my husband and I bought the house with no downpayment through the VA. We refi'd last year with Navy Fed and started alloting 100 extra per month to the principal (~$295K 30-yr fixed at 3.25%). Well we discovered MMM this year and promptly started working to become more frugal. As our "frugal muscles" have started to grow and our spending has been dramatically decreasing every month my husband decided to allot and extra 300 a month on the principal.

He found the MMM argument to pay off your mortgage ASAP convincing, but my issue is that our dream, once we reach FI (in <10 yrs hopefully), is not to stick around this area if we can help it. (Current idea is to move out west - possibly western WA State, to a small city with low housing costs... and less sprawl/crazy traffic/stressed-out east coast vibe/etc.)

Anyway, my question is, if we don't plan to stay live in the DC townhouse indefinitely, is it worth it to pay down the mortgage faster?

(I haven't decided on whether to rent it out; I guess that would depend on how much it's worth when we're ready to move and is also complicated by how far away we end up)

waltworks

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Re: What to do with the house?
« Reply #1 on: July 29, 2014, 09:36:03 AM »
At 3.25% fixed, I'd pay it off as slowly as possible and invest in other things. But if you're more comfortable with paying down the mortgage faster instead, do what makes you happy.

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Numbers Man

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Re: What to do with the house?
« Reply #2 on: July 29, 2014, 10:13:17 AM »
You might want to consider diversifying your assets and not put every dime into the house. Are you putting money into a retirement plan?

Johnny Aloha

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Re: What to do with the house?
« Reply #3 on: July 29, 2014, 10:22:37 AM »
I would only pay the minimum.  I also have a 0% down, 3.25% 30 year fixed loan and will not pay an extra penny on it.  The extra cash can earn more in other areas (index fund, other RE, etc).

Mika M

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Re: What to do with the house?
« Reply #4 on: July 29, 2014, 11:58:34 AM »
Yes, we already weren't doing terribly as far as saving and investing goes. We bought the house when only I had a job (and he was going to school with the GI Bill) so the bank would only give us a loan based on my salary (a number which we made the mistake of just about maxing out), but for the past couple of years we've both had similar-salary jobs leaving lots of room for saving.

We currently have almost $300K between 401ks, TSPs, and stocks/funds/CDs/REITs/P2P-lending investments. (Unfortunately the non-retirement investments are not too impressive yet as far as growth and interest/dividend yields since we only recently found the courage to venture out of the giant cash cushion/mutual funds & CDs mentality.)

I have my 401k maxed out with 6% matching from my employer and now that I've slashed down "latte factor" and "lady temptations" spending plus things like cell phone, internet, and insurance bills, I have half my net paycheck going into my savings account (with the intent of dumping more into my non-retirement investments by the quarter) and the other half going into checking (to cover daycare, gas, utilities, and groceries/toiletries/baby & kitty supplies). My husband allots 10% to his 401k with 10% matching, most of his Reserves payments into his TSP, recently dumped a lot of his spare cash into stocks and funds, with most of his remaining income covering the mortgage.

Since we have no other debt, I guess he views paying down the mortgage as a form of diversification. And since we can't actually predict whether or not we'll still be here in 5 or 10 years or indefinitely, with all those other investments there's probably not a big need to push my husband against that extra money to the mortgage. (Especially considering ERE's "death-grip ripoff" view on mortgages.) With our hope of retiring in 5-10 years, I suppose the relative stability of paying down a 3.25% mortgage faster helps balance out stocks for such a short term goal.

On the other hand, having become a bit obsessive about FI the question will continue to toss around in my head. ;)

waltworks

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Re: What to do with the house?
« Reply #5 on: July 29, 2014, 12:12:19 PM »
$300 a month to the mortgage is chump change in your financial situation. If it makes DH happy, let him do it.

If/when you make a decision on staying in the area, you will be in the catbird seat with a cheap fixed mortgage and lots of savings. Lots of options. You're kicking ass.

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pksr

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Re: What to do with the house?
« Reply #6 on: July 29, 2014, 12:30:24 PM »
I'd consider splitting the decision - should you pay off your mortgage, and should you pay off the mortgage with a little extra each month?

I think paying off the mortgage does make sense (of course we all do at some point), but I'd agree with others that paying the minimum right now is the right call. Have your DH put the $300 / month in a special account (hopefully with higher expected returns than the mortgage cost) if he chooses and mentally net it against the mortgage - when you finally hit the number just go into your bank with a wheelbarrow to pay it off.

Paying just a little extra each month against the actual mortgage does increase your risk a little in that it locks up more in your home equity without actually reducing your required payment, and with the cost of your mortgage it isn't providing an eye-popping return.

In any event it looks like you're headed to the promised land - congratulations and good luck!

escolegrove

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Re: What to do with the house?
« Reply #7 on: July 29, 2014, 12:50:27 PM »
Taking with a grain of salt that a huge part of our FIRE strategy is rentals so I like handling them.

I would continue to pay that extra money towards an additional retirement "basket". The DC area has always appreciated well compared to the midwest. Therefore if trends stay the same you could have a significant basket to work with. Than way when you fire you have two options.

1) Sell the house and take the money to buy a house out west in cash.
2) Rent the house out. Using the "cash flow" to pay for the next house. By doing so you would now have two assets.


lhamo

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Re: What to do with the house?
« Reply #8 on: July 29, 2014, 01:16:47 PM »
I would put the extra into Roths first, before paying down the mortgage.  You'll be able to access the amount you put into the Roth at any point, so it can be a de facto EF or moving fund. 

Ideally you will be able to max income/minimize expenses so you can do everything.  But I'd still do Roths before mortgage paydown in your situation.