Paying down our mortgage

eyrehead · **Paying down our mortgage**

With the 1st payment we made in 2004, we started sending in $500 extra toward the principle of our mortgage. In July of 2004, we get a letter from GMAC, listing our options if we were to re-fi at 5.5% interest, which at the time was 3/4% lower than what we were paying. Our options were to re-fi going from the 30 year to a 15 year mortgage @ 5.5%; leaving the current payment & terms (30years) the same, and taking the cash option (would have given us about $28,000); or do the re-fi at 5.5%, leaving it as a 30 year mortgage, and lowering our monthly payment considerably. We opted to re-fi at the lower rate, and take it from 30 to 15 years. Our monthly payment went up slightly, and thank God, we've been so blessed and fortunate, and while we can't afford the extra $500 per month, we have been able to manage an extra $300 per month toward the principle. Some months are extremely tight when we do this, but the idea of having our mortgage paid off BEFORE our twins graduate from high school is something I thought was next to impossible when Brian said he wanted to have it paid off by the time we are 45 (might be doable), but I'm thinking we'll be closer to 48! lol The thought of not having to make that big monthly payment is something I can not wait for, and it's one of the reasons we've been scaling back in some areas of our budget. I think in 2008, anytime we can swing it, I'll be sending more than the $300 extra.

It's one of the reasons I am so glad to have found you all. I can glean ideas from you, share what few ideas I may have, and hold myself accountable for my spending. I am definitely the spendthrift here....Brian is way better at not spending than I am!

ember15 · 09-19-2007, 11:15 AM

Thats Great completly paying off all your debts is a desirable goal. But I have also heard that paying down your morgage isn't the best think. I think you have to weigh it against investments. If for say you have investements that are making 7-10% interest would it not be better to invest then to pay off a morgage.

Plus all that interest you are paying has tax advantages when you itemize

It is kind of controversial what is better a solid investment that is making you money or getting to the point of being debt free faster. I mean if you invest enough you could get to the point where the interest off your investments pays that big monthly payment.

I have my Student load debt and am paying only the min because where am I going to find a 20K loan at 3% even my rinky dink savings bonds make more then 3%

Kim · 09-19-2007, 11:33 AM

I am one that says paying the mortgage down isn't always the best idea. At a 5.5% rate, you are probably one that could do better socking your extra $300 away elsewhere. Here are my reasons why:

Investing conservatively could yield 7-10% over time. (Even the Paypal money market pays 5.25% with no risk at all.) In general, as long as your rate when investing is higher than the rate on your mortgage, you're financially farther ahead.

Investing it allows you more flexibility. You still have the money, and could always use it to pay of your mortgage if you choose to do so.
Your cash is available to you for other things (emergencies, business investments, etc.). When you pay down your mortgage, the only way to access that money is through a home equity loan. When you take out a home equity loan, you're paying interest on the money you've already paid in! Having funds more liquid, to me, is more financially reassuring than having a mortgage paid off.

chopey · 09-19-2007, 11:39 AM

Quote:

Originally Posted by Kim

I am one that says paying the mortgage down isn't always the best idea. At a 5.5% rate, you are probably one that could do better socking your extra $300 away elsewhere. Here are my reasons why:

Investing conservatively could yield 7-10% over time. (Even the Paypal money market pays 5.25% with no risk at all.) In general, as long as your rate when investing is higher than the rate on your mortgage, you're financially farther ahead.

Investing it allows you more flexibility. You still have the money, and could always use it to pay of your mortgage if you choose to do so.
Your cash is available to you for other things (emergencies, business investments, etc.). When you pay down your mortgage, the only way to access that money is through a home equity loan. When you take out a home equity loan, you're paying interest on the money you've already paid in! Having funds more liquid, to me, is more financially reassuring than having a mortgage paid off.

I agree.

DebbieL · 09-19-2007, 01:34 PM

I personally would want to pay the sucker off as quickly as possible. I don't like debt though (plus in Canada our mortgage interest isn't tax deductible - but I know that I'd still want to pay it off quickly whether it was or not). I don't have a mortgage (prices are too insane here), but I would try my best to pay it off if I ever did.

brensmom · 09-19-2007, 03:25 PM

i agree with both sides paying off and keeping a mortgage.
i would keep my mortgage if i knew for a fact that i could invest and come out ahead of the game.

i would pay it off if i only met the standard deductions on my return even with my mortgage interest to write off and i felt financialy secure enough that i would not need to take out an equity loan.

eyrehead · 09-19-2007, 07:20 PM

We've been talking about investing some money, but neither of us really knows where to start when it comes to investing. My step-dad plays the market a lot, but he's more into the high risk stocks; sometimes he's made money hand over fist, and other times he's lost bunches too. I know there is always risk involved when you invest, no matter where you invest. I'd like to be able to sock a little money away for the kids' education, so their financial burden isn't so heavy if they choose to go to school. And it doesn't help that Brian and I aren't always on the same page when it comes to managing and/or investing our money. And right now, as long as we're able to, we're happy with putting the extra toward the mortgage. With that being said, I totally see your point Kim, and will work on getting through to Brian, without being a total nag (hopefully) about it! lol I guess I'm just thrilled after years of struggling, trying to get his business going, we're finally able to get ahead somewhate. We've been blessed, that's for sure. I know how fortunate we are, that we're able to do this, as I know so many are barely making ends meet.

jenmose · 09-20-2007, 08:32 AM

Quote:

Originally Posted by eyrehead

With the 1st payment we made in 2004, we started sending in $500 extra toward the principle of our mortgage. In July of 2004, we get a letter from GMAC, listing our options if we were to re-fi at 5.5% interest, which at the time was 3/4% lower than what we were paying. Our options were to re-fi going from the 30 year to a 15 year mortgage @ 5.5%; leaving the current payment & terms (30years) the same, and taking the cash option (would have given us about $28,000); or do the re-fi at 5.5%, leaving it as a 30 year mortgage, and lowering our monthly payment considerably. We opted to re-fi at the lower rate, and take it from 30 to 15 years. Our monthly payment went up slightly, and thank God, we've been so blessed and fortunate, and while we can't afford the extra $500 per month, we have been able to manage an extra $300 per month toward the principle. Some months are extremely tight when we do this, but the idea of having our mortgage paid off BEFORE our twins graduate from high school is something I thought was next to impossible when Brian said he wanted to have it paid off by the time we are 45 (might be doable), but I'm thinking we'll be closer to 48! lol The thought of not having to make that big monthly payment is something I can not wait for, and it's one of the reasons we've been scaling back in some areas of our budget. I think in 2008, anytime we can swing it, I'll be sending more than the $300 extra.

It's one of the reasons I am so glad to have found you all. I can glean ideas from you, share what few ideas I may have, and hold myself accountable for my spending. I am definitely the spendthrift here....Brian is way better at not spending than I am!

Have you read Dave Ramsey at all? His book is called Total Money Makeover.
Everyone has an opinion of paying off the mortgage. If that is your goal, go for it! How nice to then be able to invest several thousand dollars a month after the house is paid off!

saversue · 09-20-2007, 09:06 AM

Good for you!! We have the same goal. We are probably 4 years out from paying off our mortgage.

We ran all the numbers millions of times before deciding to pay off versus invest the money. The tax benefits are very little. You think you are saving off more in taxes but it turns out to be a pitiful amount these days with the mortgage interest rates being so low.
Also, you have more fiancial security in times of recession.

Every one differs with opinon but I think having no debt is always the way to go. BTW, we do have savings outside paying down the house.

djevans3 · 09-20-2007, 09:54 AM

YOU GO, GIRL!!! I have to weigh in in favor of paying down your mortgage. The traditional arguments against it don't apply to everyone, and I know they don't apply to me. here's why:
1. The tax deduction--you get a standard deduction anyway, so you don't actually write off all your mortgage interest to begin with. Even what you do write off, you are only saving a small percentage of. (would you rather save $100 in interest, or 15-25% of $100 in taxes?)I don't even pay enough interest anymore to meet the standard deduction, so none of my mortgage interest is deductable.
2. Investing the money--we all know investments aren't a sure thing. In theory it sounds so great to invest the money and earn more interest than you pay on your mortgage, but after taxes are you really coming out that much further ahead for your $300 a month?? Wouldn't it be great to pay off your mortgage and have your entire house payment freed up every month to invest??
Good luck to you on your path to becoming totally debt free!!!