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Question about paying house off early
Old 03-30-2012, 03:21 PM   #1
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Question about paying house off early

I have refinanced my mortgage last month and I'm down to $80k @ 3.375% for 15 years. My house appraised at $139k. The actual loan part of the payment is about $600 per month with taxes and insurance consisting of an additional $300 per month.

I read these stories about how it's such a great feeling not having to make the house payment every month, how it frees up income, etc. But does $600 per month really make that much of a difference? Taxes and insurance still cost $300 per month. You still have to pay the same utilities @ $200 per month.

$600 a month doesn't seem like a big weight to be taken off my shoulders. What am I missing here?
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Old 03-30-2012, 03:22 PM   #2
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We paid ours off and it was only $420 a month on a 15. And yes, it was and is a great feeling to have that final debt gone. YMMV.
And we pay the insurance and taxes annually.
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Old 03-30-2012, 03:23 PM   #3
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You are not missing anything. It's all relative. To some $600/month is a burden and to others it is not. Best Wishes.
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Old 03-30-2012, 03:29 PM   #4
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In a negative real interest rate environment as we have now, to optimize ROI the math says to have as large a mortgage as possible. Conversely doing the opposite, minimizing a mortgage, can be emotionally comforting. As in many situations, emotions are often at odds with wise investment decisions. The mortgage thing depends on your preference.
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Old 03-30-2012, 03:33 PM   #5
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If you're comfortable with the debt load and the cash flow and the mortgage rate is that low, I wouldn't worry about it either way. Personally I love the feeling of being debt-free and that has some value to me above and beyond the actual numbers, but that doesn't apply to everyone.
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Old 03-30-2012, 03:36 PM   #6
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If you're comfortable with the debt load and the cash flow and the mortgage rate is that low, I wouldn't worry about it either way. Personally I love the feeling of being debt-free and that has some value to me above and beyond the actual numbers, but that doesn't apply to everyone.
Oh I totally agree about the feeling of being debt free.

Actually now that I think about it, the first time I refinanced and saw that I saved $102k over the life of the loan, I felt like a big weight was taken off of my shoulders. I guess with this latest refinancing, I didn't really save that much over the life of the loan so it doesn't really feel like I made a big impact.
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Old 03-30-2012, 04:01 PM   #7
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I refied to 3.375% over 15 years in January simply because I think my investments will do better over the next 15 years and I'll actually come out a couple percent to the good. If I can't earn 3.375% on my investments over the next 15 years, then the mortgage will be the least of my concerns. I recognize that I am taking a calculated risk.

As other posters have mentioned, many just feel better about being mortgage free. I can understand that but I get about the same feeling knowing that I could pay my mortgage at any time simply by liquidating some investments and paying off the mortgage with the proceeds.
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Old 03-30-2012, 05:09 PM   #8
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Do what makes you feel good. I paid off mine when rates were higher. Now I would probably borrow as much as possible and invest my nest egg.
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Old 03-30-2012, 06:06 PM   #9
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You will feel a lot better paying it off when the market is tanking than when it is going up.
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Old 03-30-2012, 06:38 PM   #10
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Well, a thought...you are paying interest to a bank that you would otherwise keep and spend on yourself or invest. Yes, you get a tax deduction, but another way to look at it is you're (hypothetically) paying $3,000 in mortgage interest a year to pay $1,000 less in taxes (yes, I am just rounding, assuming 30%'ish taxes).

I personally struggle with that because I enjoy reducing my taxes as much as possible even though I know the logic I just laid out above...does that make me a bad person?! ;-)
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Old 03-30-2012, 07:20 PM   #11
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You will feel a lot better paying it off when the market is tanking than when it is going up.
+1 That's for sure!
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Old 03-30-2012, 07:34 PM   #12
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I paid off my house recently. For years, I resisted the temptation to pay down the mortgage because I thought I could do a lot better in the market. And, I did (+16.2% annualized since I bought the house in 2005 - mortgage was 5.5% fixed). But as most investments started to look kinda expensive, I felt like it was time to realize my market gains and pay off the house. And I am glad I did.
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Old 03-30-2012, 08:23 PM   #13
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I think a $600 mortgage payment is relatively low in comparison to what most people are paying. Our mortgage was close to $300k when we took it out three years ago, original interest rate was 3.75%, since adjusted to 4.25% (there are no fixed interest rates on mortgages here in China). Our payments are around $1900/month. We're not making extra payments at the moment because the system in China doesn't allow for it -- you can make a large pre-payment in one lump sum, but it has to be at least 25% of the mortgage amount. Also given the low interest payment and the declining value of the US$ compared to the RMB, it is better for us to keep the mortgage and build up other investments/cash reserves at the moment.

But ultimately I hope to have enough in accessible investments (i.e. non-retirement and college accounts) and cash reserves to be able to pay the mortgage off in a lump sum should we wish to do so. Not having to pay that $1900/month would make a BIG change in our monthly spending patterns.
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Old 03-31-2012, 10:22 PM   #14
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We have refinanced twice since 2004 when our mtg on an investment property was 14.5% and we could get 11%, then again to our current 8.5%. We always take cash out as we believe the Dollar will go a lot lower over time and we can pay it lump sum with the debased currency.
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Old 03-31-2012, 11:16 PM   #15
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I paid off the mortgage about 5 years ago. I saw it as one more thing to check off the list on the way to retirement to be entirely debt free. I pay taxes and insurance on an annual basis.

I would say if you are questioning the wisdom of doing it then just revisit the whole subject at a later date.
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Old 04-01-2012, 06:46 AM   #16
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We just decide to pay off a 68k mortgage with 11 years left at 6.25. Talked about refinancing at 3.5, but it only saved us 100 a month (from 850 to 750). Even at 750: 750 x 132 = 99k. That's 31k in interest. Put that 750 a month in investments for 11 years, and what do you have?
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Old 04-01-2012, 07:03 AM   #17
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We paid ours off 2007 and it was nice to be done. On the road to paying it down early came only after we maxed out 401Ks and put away our savings goals each month. Like you our payment was not a big impact and have found since then we still spend about the same. We have updated the house, bought one new car and spend more on travel.
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Old 04-01-2012, 11:35 AM   #18
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Do what is comfortable to you.... some are ok with the monthly spend, some rather invest it, it's more of a personal decision.

For me, it was about reducing monthly spend and the monthly mailing (before online payment was popular). I teased DW and brother that making me think of writing a monthly check then finding a stamp was a chore that I disliked (half true, half lazy), so I made extra payments after my 401k and taxable investing was met.
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Old 04-01-2012, 11:47 AM   #19
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$600 per month would fuel a Roth IRA or T-IRA each year, and you'd have enough to pay the cable bill.

It depends on what your 80K in the bank is doing for you, if you have that much sitting, and earning a dollar here and a dollar there.

If it were me (and wife), we would (and did) double-up on principal payments. In the first house (7 years) this meant we had enough equity to purchase a larger home, in a better neighborhood. Now we have all equity in second home (15 years), and are looking forward to a few life changes as we move into a third home in 5 years (maybe).

I guess my point is that you are young, and we are older.

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Old 04-01-2012, 12:17 PM   #20
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Quote:
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Put that 750 a month in investments for 11 years, and what do you have?
And that's the rub. You don't know if you'll wind up financially ahead investing the $750/mo for 11 yrs or leaving the $99k fully invested but having the mortgage payment to make.

IMHO, and in all probability, there isn't going to be a big difference if interest rates are determined in a rational market, rational and prudent investment decisions are made and no game changing crisis or boom time scenario materializes.

As post after post indicates, it's primarily an emotional decision with only small financial consequences if you assume rational and prudent courses of action with either decision.
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