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Old 09-29-2008, 12:53 AM   #21
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I think your balanced approach makes a lot of sense. I am in the camp of putting less (but some) in home equity and more in the market. For some reason, I really like to have money being fluid and putting a lot into principal seems to tie it down to much. Also, your mortgage rate is so low that I can't imagine over a long horizon the investment return would be that low.

Congratulations! Steady investment wins the game, and you're in great shape.
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Old 09-29-2008, 09:07 AM   #22
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So, you paid an average of $2666/mo extra. That's a big hunk of change. Congrats.

But my point still stands. Anytime along the way, the sh*t may have hit your fan, and you could have risked foreclosure---through no fault of your own. All it takes is one hit-and-run red-light runner, or one gravel truck with bad brakes. In that case you could have lost your house and all your equity.
FWIW, that is exactly what happened to my neighbor 3 houses down. Uninsured illegal-alien driver ran a redlight and smacked into him on his way to work. Time in the hospital, time in rehab, unable to fully recover, lost his job, couldn't get another job due to head injury, eventually couldn't keep up the house payments. The good new (for him!) is that they somehow managed to get a 125% LTV equity loan. So even though they lost the house they still had some money left over.

Or maybe you might have come across a need for a chunk of quick cash---like perhaps buying up a bunch of cheap vacant lots where the house had washed away when the levee broke.

The advice of "put the extra into savings until the savings balance equals the mortgage balance" does have a slight extra cost--the difference in the interest rates. But that's the price of insurance. Remember that the purpose of insurance is to protect you against a low-probability event.

BTW, your numbers don't seem to add up. I ran them through a savings calculator, and $2666/mo at 2% compounded grows to $133K in 4 years. That's $5K more that your payoff, but you said it would have been $10K less. That's a $15k difference. You did say that your payments were lumpy, but even so I can't see it being that large of a difference.

Hmmmmm, an interest rate difference of 3% (6% mtg and 3% interest) is $3840/yr or $15,360 in 4 years. Mybe that's how you got $15,070?

Regards & congrats!
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Old 09-29-2008, 09:24 AM   #23
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Congrats Laurence! Isn't it great having "extra" money around?

(btw, we paid our mortgage off early with the "extra" money we had, but you're not an old phart like me...ymmv)
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Old 09-29-2008, 01:53 PM   #24
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So, you paid an average of $2666/mo extra. That's a big hunk of change. Congrats.

But my point still stands. Anytime along the way, the sh*t may have hit your fan, and you could have risked foreclosure---through no fault of your own. All it takes is one hit-and-run red-light runner, or one gravel truck with bad brakes. In that case you could have lost your house and all your equity.
FWIW, that is exactly what happened to my neighbor 3 houses down. Uninsured illegal-alien driver ran a redlight and smacked into him on his way to work. Time in the hospital, time in rehab, unable to fully recover, lost his job, couldn't get another job due to head injury, eventually couldn't keep up the house payments. The good new (for him!) is that they somehow managed to get a 125% LTV equity loan. So even though they lost the house they still had some money left over.

Or maybe you might have come across a need for a chunk of quick cash---like perhaps buying up a bunch of cheap vacant lots where the house had washed away when the levee broke.

The advice of "put the extra into savings until the savings balance equals the mortgage balance" does have a slight extra cost--the difference in the interest rates. But that's the price of insurance. Remember that the purpose of insurance is to protect you against a low-probability event.

BTW, your numbers don't seem to add up. I ran them through a savings calculator, and $2666/mo at 2% compounded grows to $133K in 4 years. That's $5K more that your payoff, but you said it would have been $10K less. That's a $15k difference. You did say that your payments were lumpy, but even so I can't see it being that large of a difference.

Hmmmmm, an interest rate difference of 3% (6% mtg and 3% interest) is $3840/yr or $15,360 in 4 years. Mybe that's how you got $15,070?

Regards & congrats!
I have 100k of disability, if that's what you are reffering to. If you mean if I get killed, my life insurance will set DW pretty much for life (hopefully she still thinks I'm worth more alive than dead!). In 2 to 3 years we may have enough in my 401k and reduced the mortgage balance enough that in an emergency we could self direct and buy the house with the 401k (actually, I'd have to buy the value, not just the mortgage balance I think, so that may not work).

We will have a pad of six months living expenses, but we'll also have many funds to draw upon if it gets that bad. I will chew on this.
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Old 09-29-2008, 02:00 PM   #25
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Congrats LWill! Must feel great! It sounds like you two work very well together to meet your financial & life goals. The vacation sounds like an appropriate reward!
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Old 09-29-2008, 02:09 PM   #26
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BTW, your numbers don't seem to add up. I ran them through a savings calculator, and $2666/mo at 2% compounded grows to $133K in 4 years. That's $5K more that your payoff, but you said it would have been $10K less. That's a $15k difference. You did say that your payments were lumpy, but even so I can't see it being that large of a difference.

Hmmmmm, an interest rate difference of 3% (6% mtg and 3% interest) is $3840/yr or $15,360 in 4 years. Mybe that's how you got $15,070?

Regards & congrats!
I got the $15,070 from the actual cash sent in during the time period involved (I am a little OCD about keeping such records meticulously). This can be figured with vs without the irregular lump sum payments. My computations of what my payoff would be with the lump sum payments were within a dollar of what it was. (It's easy to compute with a decent mortgage amortization spreadsheet that can handle irregular payments.)

It was pretty easy to find out how much principal I would have owed after that same period of time had I paid no lump sums. So, that plus the regular payment amounted to $15,070 more than the total that I paid (regular payments plus lump sums).

The reason that it is such a HUGE savings is that when you pay down the principal, no more interest accrues on that. If you don't pay down the principal early, your payments are mostly interest for quite a while.
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Old 09-29-2008, 02:12 PM   #27
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I remember the feeling when we got our last loan paid off. Felt like I hit the jackpot (I hadn't, but it felt great).

Why not savor a little of your success now? If you have $2k each month to invest, maybe do that with $1500 and enjoy the extra $500 a month. That will pay for some nice dinners, extra toys for the kids, or just putter it away on a vacation or other enjoyable activity. You earned it, and life is filled with too many uncertainties to put every penny of discretionary income into retirement savings.

In any event, congratulations.


Wise words. I second the statement. Life is too short to bet on one outcome.
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