Author Topic: To pay or not to pay house off?  (Read 6678 times)

Offline Roundabouts

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To pay or not to pay house off?
« on: April 17, 2012, 03:07:31 PM »
So my friend an I were chatting about being debit free 100%.  We have been in a sorta competition to see who can get their house paid off first.  It's been fun sad challenging rewarding plus a whole lot more over the years.  Putting our heads together to see what would be the best course of action with our individual households $$$.  Any way we are both stumped.  We have hit a brick wall that neither of us seems to have an answer for.  First time in 16 years we have not had an answer.  Usually we can always figure it out. Not this time.  So I told her I would put it out there for you guys to ponder.  By the way the one who gets their house and all other debit paid off first gets a free starbucks.  yeah we are not to big wagers.   ;) Of course the real prize is ZERO debit.  :D

So here are the numbers

owe $32,500.00 on the house @ 4.75% monthly payment for P&I $295.95
You would be paying less than $1100 per year in interest.  Can't deduct on your taxes.


Option one = take $25k out of savings leaves $2000 for a bit of ER fund then make large payments pay off Aug 2012.  Then slam cash into savings.    I tend to take this route only because I am sick of making pots of coffee so we can run the play again and again.  Of course the peace of mind of ZERO debit.  But would be hanging the wind for a few months.

Option two =  pay 600.00 total pay off by Aug 2016 about 55 months? may have to add just a bit to that last pmt Still have monthly money to work with but would love to have that 600 to put towards?

Option three = Just pay the $300 per month and let the loan ride out. pay off in about 11 -12 yrs.  use the additional $300 for building savings and buying silver building preps


option 4=  pay $600 per month hold savings build savings then at the end of the year revisit the situation again.  Could possibly have enough to pay off and have some savings.     

If you have any ideas thoughts.  We both feel that the amount of interest being paid is not that much when you compare it to mortgage interest as a whole.  However every dollar matters an should not be dismissed.  I think this line of thought is where we are getting hung up.   Large purchases we each need to make we both need new roofs soon,  I have fencing of 5 acres and a 6000 survey to pay for.  She has the last bit for her daughters college & a bit on a car.  The dollar amounts we each are looking at are just about the same.  She works real estate makes no money I stay home and work on building the homestead make no money. 

ok guy let her rip.  If you pick the idea I am partial to she makes the coffee for the next meeting.  Thank.



 

Offline kckndrgn

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Re: To pay or not to pay house off?
« Reply #1 on: April 17, 2012, 03:37:58 PM »
Well, just my opinion and probably what I would do if I was in your shoes.

Figure out what I was comfortable with for an emergency fund.  Currently I have about $5k spread out over a couple of sources, so this would be my minimum.

So, based on that take about $22k and make a principle only payment.  Then, since you indicate that you can make up to $600/mo payments make that.  I didn't see this as one of your options.  So if you have $32,500 balance - $22,000 = $10,500.  By kicking in a little more looks like within 12 months you could be free of the mortgage.

I will be interested to see what others have to say.


Offline Cedar

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Re: To pay or not to pay house off?
« Reply #2 on: April 17, 2012, 03:52:53 PM »
Actually as much as I hate loans and love being debt free.. I think if it was me, I would pick Option 3.

$300 a month is not a huge amount. If you were paying $1,200 a month, I would say pay it off. But you need fencing etc. Those are tangible things which up the worth of your land and help you grow food on your land. If you put it into food preps, you are buffering yourself against inflation. Same with fencing etc.

With continuing to pay it at this point, you are 'still building credit'. Regroup 6 months from now and then re-evaluate and see if you can do more. I try to at least make double payments on any loan I have. It didnt happen every month,  but often. When I get the loan I always ask for NO PENALTY FOR EARLY PAYOFF... which I WRITE IN BOLD LETTERS on the loan form and make them sign underneath. I get away with it every time. I do that as even though they say "Sure Sure", it is not ever in writing. I make sure they hold to what they tell me.

At this point I would not use savings and only leave $2,000 for emergencies. Pretty much everyone I know who has been laid off has/had been for over 6 months. But if you have 'spare' this month or that month, sure dump some more on the loan.

You are better off than your friend staying home if she is not homesteading too.

Cedar

Offline lettuceman

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Re: To pay or not to pay house off?
« Reply #3 on: April 18, 2012, 07:02:53 AM »
If you make additional principal payments, watch the accounting on the statements like a hawk. We lost $1,000 that went to money heaven. We consulted with an attorney on the matter and were told this particular institution had a habit of doing dirty deeds.

Offline LdMorgan

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Re: To pay or not to pay house off?
« Reply #4 on: April 18, 2012, 07:35:16 AM »
My admittedly odd viewpoint on the question: If you have savings of $27,000.00 in the bank, you should not leave it there. Inflation will nibble it away, and you'll eventually lose more than its face value in alternative cost if you do not put it to work.

If you have considered paying $25,000 and keeping only a small emergency reserve of $2,000.00 you might well consider actively using some or all of that $25,00.00 so that by Aug of 2016 it will have grown to, say, three times it present size.

And how might you do that?

You could open up a hole-in-the-wall "We Buy Gold & Silver TOP DOLLAR PAID!" shop and carefully avoid paying top dollar. Just pay a reasonable price instead.

At the end of every day or week or whatever, you sell what you've bought to someone who does pay top dollar. Like preppers, for example. They know what gold and silver are worth and what fiat money is not.

Consider that if you made only 10% on each transaction, and you dealt ten thousand dollars a day, you'd be making a thousand dollars a day--and in fifty days you'd have $75,000.00 where you had only $25,000.00 before.

Well--10% is actually kind of conservative...

And $10,000.00 a day is is not an outlandish amount to transact if you consider that an ordinary full set of Sterling silver flatware will have at least $3,000.00 worth of silver in it--and you'd probably wind up buying it for 75% of the melt value at most.

Three a day wouldn't take much time at all. In fact, you could retire in a month.

Then too, in the process of growing your wealth that way you could also convert your extra cash into gold and silver (relatively cheaply!) and just use that paper crap to pay off your debts & ordinary bills.

Just a suggestion. You might run a few beef cows instead. Or wheel & deal some copper. Or hire a few guys to mow lawns for you. Times are hard right now and that makes this is a time of exceptional opportunity.

Do not think only of how your money might be spent, but also of how it might be made to serve you.






Offline Zef_66

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Re: To pay or not to pay house off?
« Reply #5 on: April 18, 2012, 08:15:54 AM »
Everyone's situation is different and there are many factors that should play into big decisions like this.

For me, this is how I would look at it. First, I hate debt and will do all I can to get rid of it. If that means living like a pauper and paying as much as humanly possible to pay it off, so be it. Even if I might "save" some money in the long run somehow, I think all debt should be gone ASAP. So for me in my situation, I would pay off $25k with the savings, then pay as much as possible for the next several months to get it gone. Then I have a lot of disposable income to add to preps, build savings, etc. As Jack has put it before, would you take a loan out for $25k to put the money in the bank for an emergency? Most would not. So why keep the money in the bank and pay additional on your mortgage? Pay it off.

Now, things that go into play here. My current situation, we have no other debt. You have mentioned that you have other things you will need to pay for in the near future. Our house is in good condition and will not need any major repairs that I can see. We are very close with our family, they live close, and most are in good financial standing as well (no debt at all). If something were to happen that we needed financial help, I know either of our parents would help us out in a second. Also, my dad is a jack of all trades that can fix about anything and my FIL is a contractor that can build about anything. So repairs and upgrades are not going to be as costly and take as much of a hit on us as it may others.

These are just a few of the things that you need to consider. With it being such a huge decision, it isn't something that should be done quickly. Take time and think about your own situation before making a decision.

Offline Cedar

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Re: To pay or not to pay house off?
« Reply #6 on: April 18, 2012, 08:21:02 AM »
I was concerned with her only leaving $2,000 in the bank for emergencies. I don't care if she buried that money in the backyard or put it into gold or whatever, I don't think $2,000 is enough for emergencies. They have a one income household and the PNW is still dicey for layoffs.

Cedar

Offline Mr. Bill

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Re: To pay or not to pay house off?
« Reply #7 on: April 18, 2012, 09:20:15 AM »
At this point I would not use savings and only leave $2,000 for emergencies. Pretty much everyone I know who has been laid off has/had been for over 6 months. But if you have 'spare' this month or that month, sure dump some more on the loan.

That's my feeling too.  Add up everything you might need to spend over the next few months in a bad-but-not-worst case scenario (e.g., assume you will need that new roof right away), and keep an adequate cash cushion.  But if you really have some extra cash, apply it to your principal whenever you can.

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Re: To pay or not to pay house off?
« Reply #8 on: April 18, 2012, 09:37:09 AM »
Having nearly enough in the bank to pay off your house is great.  Keep it that way.  I'd go with something like Option 2: $600/month and pay it off in under five years.    That's kind of what we're trying to do, although with a bit longer horizon.

Cash is a great resource in an emergency.  Personally, I'd want it diversified in several different types of investments, a little precious metal, 2-3 savings accounts and CDs with staggered maturity dates, some short-term bonds, some dividend yielding stocks...  I certainly don't trust one bank anymore and I certainly don't trust one class of assets to throw all my money into.


Offline Roundabouts

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Re: To pay or not to pay house off?
« Reply #9 on: April 18, 2012, 10:26:34 AM »
This most defiantly not an easy choice.  I do follow the line on thinking somewhat that we are borrowing the savings as long as we have the mortgage.  That is pretty much why we are questioning the best course of action.   I am more "awake" than she is but she is coming along.  Having your house paid off can be a huge comfort no real worry about losing you home.  At the same time if we can't come up with $300 in a month most likely we have bigger problems.  If anything were to happen to our husbands or the income source having a stash of cash can buy us the time we would need to regroup.  Investing the money or getting our money to make money is the ultimate goal.  For now not acquiring more debit if something goes wrong is so important. 

Funny both the hubbies say pay it off and if something goes wrong we can always refi the house to get the money we may need.  Both us girls say pretty much no way one broken leg or one well problem and poof there it is debit.  Not to mention fees and starting all over agin. 

in short I think  am  comfortable to let things ride for a few more months and revisit. The words "CASH IS KING" keep playing in my head.    I think she has decided to just pay a chunk and then let it ride. 

It is so nice to have someone to talk these types of things over with.  Of course it is still a contest to see who can be debit free first.  So I think we will be adding to win the contest not only do you have to be debit free but you also must have X amount in savings.   Since  she works at making money I work at saving money by growing food and such it will be interesting to see how this turns out.    We laugh and say this is the contest between the country mouse and the city mouse.  She does grow a few tomatoes and I am envious for her huge raspberry patch and plum trees.  She is envious of my eggs.  Works out as a nice trade.   ;)

Thanks for the input. More ways of looking at it are always welcome.

Offline Cedar

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Re: To pay or not to pay house off?
« Reply #10 on: April 18, 2012, 01:30:19 PM »
Funny both the hubbies say pay it off and if something goes wrong we can always refi the house to get the money we may need.

OMG NO!!!!

Cedar

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Re: To pay or not to pay house off?
« Reply #11 on: April 18, 2012, 01:47:30 PM »
I'm with Cedar.  If a SHTF occurs, from a global financial collapse to losing your job, who in the world is going to lend you money then?  Keeping substantial assets liquid is always preferable to having to rely on credit to get you through.

Four months ago my wife broke her ribs in a sledding accident, taking her out of work for three weeks.  Two days later I had a gallbladder attack and ended up needing surgery that took me out of work for two weeks.  Which was more important at that time: lower expenses or cash on hand?  Without cash to pay the doctors, utilities, and other bills we would have been screwed.  The hospital wouldn't even admit me for surgery until I paid my portion of the expected bill after insurance.

Imagine a car accident that a) totals your car, b) costs thousands in medical bills, c) takes you out of work for 2-3 months.  That single event could easily wipe out $15-20k in savings just to get a car again, pay the doctors, and cover expenses.  Now imagine trying to find a bank to loan you money at that time instead. ::)

Offline Fire Ant

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Re: To pay or not to pay house off?
« Reply #12 on: April 18, 2012, 06:36:28 PM »
My wife and I are in a similar situation.  We have enough to pay off about 80% of our mortgage, but not all of it.

If we continue to pay the standard payment each month, it will take another 15 years to pay it off.  But if we both keep working and nothing goes wrong, we will save enough to pay it off in total in only another 5 years.  If something does go wrong in that time, we would have enough in the bank to make payments for years, probably 5 years without a job.  We could keep the house and recover.

If we paid off the 80% now and cut our savings very low we would have no options, no fall back. If one of us lost our job, we would have trouble paying the mortgage.  If we both lost our jobs, we could not pay the mortgage.  If we can not pay, the bank will take the house -- whether we owe $80,000 or owe $8,000.  Then we would have nothing.

Deciding factor:  Seven years ago I was injured and was out of work for 8 months.  I had $6k in savings and we made it through.  During that time I went back to school on-line, finished a degree and now have another job.  Without the savings we could have lost the house.  We have taken that lesson to heart.

We are making standard payments and saving all we can to pay it off when we have saved the payoff plus a safety net ($5000 or so)...

Offline Cedar

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Re: To pay or not to pay house off?
« Reply #13 on: April 18, 2012, 07:48:43 PM »
If we can not pay, the bank will take the house -- whether we owe $80,000 or owe $8,000.  Then we would have nothing.

When we do our urban walking there is many empty houses. Not all have for sale signs on them. One had something tapes to the door. The bank had put the name of the people and how much they owed and why it was foreclosed. It was for less than $2,000. I might just take a pic of it and show you guys with their names blacked out.

Cedar

Offline Bradbn4

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Re: To pay or not to pay house off?
« Reply #14 on: April 18, 2012, 08:49:31 PM »
It is a very hard choice I know - I am about 2 years, 9 months or so from paying of my home loan. 

I just have enough to pay off the house; but I have decided not to do it.  If everything went perfect it would be the best thing to do - but nothing really perfect ever happens.  At least not with me involved in the project :)

Right now I am working on when to do the "sprint" to finish off the loan when I hit the point where there will no longer be any tax advantage.    During this sprint I do not plan to impact any established funds - but may cut back on adding additional monies to long term savings. 

It is a hard choice to make - but remember to keep a good safety net no matter what your choice is.

Offline burbot

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Re: To pay or not to pay house off?
« Reply #15 on: April 19, 2012, 10:50:16 PM »
First off congratulations, I would love to have your "problem".  I'm working hard, but still a long ways off.  Putting myself in your shoes, here's my twist:

You obviously are unsure of the "right" decision.  How about you figure out how much extra you think you can pay each month towards the mortgage (sounds like $300).  Take that dollar amount and put half toward the mortgage and half into savings.  Continue each month until the amount in your savings is equal to the amount you feel is a true emergency fund (money to cover a job loss for a few months is a good starter idea) plus the remainder on your ever decreasing mortgage.  As soon as you have enough in savings to pay off the mortgage and still have enough savings to feel comfortable you can handle the typical financial issues you may face, you go for it.  Take the bolt cutters into the bank and cut that chain!

Good luck and remember that you are in good financial shape so even if things don't work out exactly as you may plan you should still be able to land on your feet.

   

Offline Roundabouts

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Re: To pay or not to pay house off?
« Reply #16 on: April 20, 2012, 01:30:36 AM »
All good responses.  It's not always an easy cut and dry for sure.  The very nature of the situation says there isn't enough money.  If there was there would not be a question.  As far as my hubbys job goes this is the safest time for the next 4 yrs.  For what that is worth.  It is very true that an injury or illness can take you out of commission  in a blink of an eye.  Believe me I know about injuries Queen of the klutzes here.  Go ahead an laugh Cedar you know what I'm talking about  ;).  Throw in the uncertainty of the economy and it all gets muddled. 

I have been thinking about this hard.  I think I have managed to find a way to save a bit on the interest for me any way.  What we owe on the house is in the form of a HELOC (no fees)  If I take a small chunk lone out on the variable side currently @3% ( been at that rate for 2 yrs now)  put it to the principle on the locked in portion, then slam the variable out pay it off in a few months,  that would save 1.75% on that portion of the money.    If the rate started to rise I could just take the money out of savings to pay it off since I wouldn't do more than I can handle.  If I figured right it would save time on the loan and interest.

My friend has a conventional loan so she can't do that.  She was thinking about taking out a heloc but if they came on very hard times that type of loan is not forgiven.  It would be good to have on deck if you can be sure you wont touch it.  Which is another reason I want to pay mine off sooner.  I wouldn't close the heloc down which means we wouldn't have the deed.  Ultimately  I won't have a draw or balance on it either.  It is there if we were to need it for major shtf.  Job loss combined with injury illness we just take a draw.  I like having that option. 

Man I miss the days of allowance/babysitting when it was easy.  1/2 money went to piggy bank 1/4 went to candy (except for the months Nov -Feb & again in April) 1/4 went to misc.  fun stuff.  horse books horse posters plastic army & indian toys clay animal food.  You know when you finally got to your first $50 and thought "I'm rich! I'm rich! :happydance:  oh to be a kid again  ;)   Shoot just 15 yrs ago me and my friend would dream if we could just make 50K a year we wouldn't be rich but… a savings no debit vacations college braces dinner out and maybe even a house cleaner once every other month.   They say inflations not that bad bull crap.  I remember grandma and grandpa talking like that but they had 30-40+ yrs pass.  sorry rambling again.  Thanks for the input.

Offline summer98

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Re: To pay or not to pay house off?
« Reply #17 on: April 22, 2012, 09:08:42 AM »

Figure out what I was comfortable with for an emergency fund.  Currently I have about $5k spread out over a couple of sources, so this would be my minimum.

So, based on that take about $22k and make a principle only payment.  Then, since you indicate that you can make up to $600/mo payments make that.  I didn't see this as one of your options.  So if you have $32,500 balance - $22,000 = $10,500.  By kicking in a little more looks like within 12 months you could be free of the mortgage.

I have to second this recommendation, but then, I've always believed in becoming debt free as soon as possible. You don't know what's going to happen in the next 10-12 years; if you get laid off, or get disabled and can no longer work, you will lose the house regardless of how much you have left on the balance.
I would leave six months of expenses in the bank, apply the rest of the savings to the mortgage, and then pay the remaining balance off as quickly as possible. Most of your remaining payments will go to principal instead of interest if you do it this way.

Most people don't realize that the majority of their payments go towards the interest due until they hit year 22 or thereabouts in their loan; only then do principal payments really kick in. The sooner you pay it off, the less you will pay in total, and the more money you will have to do other things with.

Offline RiskManagement

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Re: To pay or not to pay house off?
« Reply #18 on: May 13, 2012, 09:16:42 AM »
There is not really enough info - the best thing to do depends on your situation - variables you probably don't want to post like how much you make and how secure your income sources are.  Also - if anyone in your family takes meds - you should call the pharmacy and figure out how much they would cost w/out insurance.  If you are used to paying a $30 copay for your meds it may not occur to you that w/out insurance they may cost $1,000/mo.  If you are in that boat - you need to have enough savings to cover COBRA continued health insurance payments if you lose your job - and that will not be cheap.  A small payment like you currently have is a minor blip as long as you have an income - but losing your job and having little savings could be catastrophic.  I agree 100% that it would be better to be debt free, but ask yourself what the scenario is where you would be unable to make a small payment like that, especially if you have $35k in the bank... it could happen... but it is probably not as likely as losing your job and needing 6 mos to find a new one.  Yes - if you keep the loan you are paying interest - but you may want to look at the interest as insurance - protecting you from various catastrophic outcomes if you lose your job and are not able to find a new one right away.  Is that worth it?  I don't know - if you work in some high demand field and could get another job easily it may not be worth it.  I just went through a similar thought process - for me - the answer was keep the small mortgage payment which has me paying about $200/mo in interest, but make double payments on the mortgage.  For the $200/mo "wasted" on interest I am ensuring that I have enough cash to pay COBRA and living expenses for the entire time I would be eligible for COBRA if I lost my job, which means my wife would keep getting the meds she needs, food and a roof.  I'll knock the mortgage out...no doubt it is the smart thing to do...but I don't have to be totally out from under it *NOW*

Offline Roundabouts

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Re: To pay or not to pay house off?
« Reply #19 on: May 13, 2012, 04:37:17 PM »
RiskManagement secure income?  Well not sure what that would be.  Hubby is the only "income" provider at this point.  Most likely would be hard pressed to find another job as good as the one he has now @ Boeing.  Since both of us are hard workers I can imagine that self employment would be the replacement income.  As long as we are both able.  My job is currently setting up our homestead so that we can produce 50 - 75% of our own food.  No one is on meds knock on wood. 

Things have come up that we really didn't want to spend money one but need to for the greater good.  One being a land survey.  So the option of paying the house off will have to wait.  Build savings as much as possible pay cash for all the projects we have going on.  Let the house ride.   

If things got really bad we can always file a hardship for the 401k,  If it got super duper major beyond belief our kids said they could and would help out.  Then of course we would have a huge yard sale and sell every thing including blood before I would take money from my boys.  I do love that they offered.  Of course we would be there for them also if need be. 

Good input and it is important to think about.  I am sure I will think about it the smaller the balance gets. 

Offline RiskManagement

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Re: To pay or not to pay house off?
« Reply #20 on: May 14, 2012, 04:40:02 PM »
Heh...I hear you... by "secure income" I was thinking of someone getting a military pension or similar.  Pretty much, unless (real) zombies take over, those checks will keep coming.

Offline Herbalpagan

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Re: To pay or not to pay house off?
« Reply #21 on: May 14, 2012, 05:36:13 PM »
If it were me, I would get the fencing up and fix the roof. Then I would take half of the remaining savings and pay it on the morgage and continue making larger principle payments. This would give you a decent amount of savings still to fall back on in case of job loss or emergency, and the house would still be paid of in a much shorter time.