For those who paid off house - how did you do it?

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mptfan
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Re: For those who paid off house - how did you do it?

Post by mptfan » Tue Oct 23, 2018 10:21 am

1) Don't buy too much house.
2) Don't pay for space that you will hardly ever use, like "great rooms" or "bonus rooms" or extra bedrooms
3) Do not determine how much house you can afford based on how much a lender is willing to "approve" a mortgage
4) Do not get a mortgage longer than 15 years, and get a fixed interest rate
5) If you are a couple, do not get a mortgage that you cannot afford to pay with only one income
6) Resist the urge to keep up with the Joneses and "upgrade" to a bigger, newer, more expensive house
7) Do not "tap your home equity" by taking out a HELOC
8) Do not "tap your home equity" by refinancing your mortgage to borrow more if your house appreciates in value
9) Live below your means
10) When your friends and family with big mortgages complain about money, keep your mouth shut
Last edited by mptfan on Tue Oct 23, 2018 3:52 pm, edited 4 times in total.

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Tamarind
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Re: For those who paid off house - how did you do it?

Post by Tamarind » Tue Oct 23, 2018 10:30 am

I am a little over halfway to option #1. However I am not paying it off "early". My first mortgage was a 15 year fixed and I just decided I would finish paying mortgage debt at 15 years. The first few years I contributed nothing extra. Once I reached the point where my wife and I could max out all our tax-advantaged accounts, we refinanced to a lower rate ($295 in total refi fees). It's a 10-year ARM but I add enough extra principle to pay it off by the end date of the original mortgage (2025).

There doesn't have to be anything special to it other than picking the cheapest mortgage products you can get and not being tempted to stretch out your term.

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Watty
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Re: For those who paid off house - how did you do it?

Post by Watty » Tue Oct 23, 2018 10:43 am

dm200 wrote:
Mon Oct 22, 2018 10:47 am
Live in the same house for 40+ years ...
+1, but I moved for a job relocation and I actually bought a less expensive house in the new city.

Both houses were much better than a "starter house" but not a McMansion so I never needed to move to upgrade to a better house.

When I was around 30 and I had an itch to buy my first home I moved from the Bay Area, which has always been expensive, to a nice area where I could buy a house for maybe a fifth of what it would have cost in the Bay Area. It is important to remember that in probably 80% of the country you can get a nice house for $250K or even a lot less.

When I moved I was able to find a job with the same salary in the less expensive area which made the home very affordable. My impression is that salaries don't vary by region by as much as you might expect because of the different cost of living. Things like stock options do tend to be a lot higher in high cost of living area in a few select fields like technology.

The mortage payment on my first house, with a 9.75% interest rate, was about the same as my rent had been for a one bedroom apartment in the Bay Area so I felt no pressure about making the mortage payments. As interest rates dropped I refinance a number of times and with inflation after about 10 years my mortage payment was roughly what a large car payment would have been.

I tend to be one of the more pro "pay off the house" crowd when people have a windfall or a lot of cash in the bank but did not I pay mine off particularly early because I did not have a lot of extra cash each month once we had a kid, college expenses, and retirement savings.

I did focus on building up my net worth so that I was able to retire when I was 58.

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c.coyle
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Re: For those who paid off house - how did you do it?

Post by c.coyle » Tue Oct 23, 2018 11:13 am

dm200 wrote:
Mon Oct 22, 2018 10:47 am
Live in the same house for 40+ years ...
Yup. 36 years for us. And we bought plenty of house for our needs, but less house than we could afford.
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Ged
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Re: For those who paid off house - how did you do it?

Post by Ged » Tue Oct 23, 2018 11:21 am

Bought a house in 1992. Fifteen year fixed rate mortgage. Refinanced once when interest rates dropped. Paid the due amount, nothing else every month.

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UpsetRaptor
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Re: For those who paid off house - how did you do it?

Post by UpsetRaptor » Tue Oct 23, 2018 11:41 am

pacodelostigres wrote:
Tue Oct 23, 2018 10:10 am
UpsetRaptor wrote:
Mon Oct 22, 2018 10:23 pm
pacodelostigres wrote:
Mon Oct 22, 2018 12:05 pm
Mortgage interest is a lot less deductible than it used to be for the average taxpayer. It's a risk free after tax return for the portion that is not deductible. If you're paying a 4% mortgage rate and paying 33% in marginal income taxes, and you can't deduct the interest, you're getting 6% risk free return before taxes. Where else can you get that?

If you're investing primarily in tax advantaged accounts where you don't have readily accessible funds, then at a minimum it's worth considering allocating all of the fixed income portion of your portfolio into paying down debt at that kind of return.
I'm not sure if I follow the bolded part. On a 4% mortgage rate, non-deductible, how is the guaranteed risk-free return higher than 4%?
Because your mortgage rate is an after tax yield. You don't have to pay taxes on the reduction in interest due, which is the comparison necessary to the coupon rate you'd otherwise earn. An equivalent riskless investment would have to pay more than 4% to be equal, because the earnings would be taxable.

I used easy, round numbers as an example, but just divide your mortgage rate by (1 - your marginal tax rate) to determine your personal breakeven point. My personal example was 3.125%, 25% federal and 4.25% state taxes, so .03125/(1-.2925) = 4.42% I couldn't get that rate in fixed income 7 years ago, so my tax advantaged investments were nearly all to equity and I aggressively paid down my mortgage with free cash flow.
I see what you're saying, in your first paragraph. Why formulate based on marginal tax rate though, as opposed to LTCG?

Mr.BB
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Re: For those who paid off house - how did you do it?

Post by Mr.BB » Tue Oct 23, 2018 11:49 am

Did and extra 2x mortgage once to twice a year, occasionally threw some extra money at the principal too.
About 2 years ago I decided to sell some stocks and one of our mutual funds (and the profits it came with) to pay off the rest of the mortgage.
Not having that payment makes a huge difference In terms of stress. Sometimes it's not always the best financial move, but for some people it really helps with their overall stress.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

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Re: For those who paid off house - how did you do it?

Post by Sagefemme » Tue Oct 23, 2018 12:00 pm

Bought the house in 1996 with a 30 year fixed. Refinanced for better rate on a 15 year fixed in 2002. Paid the usual amount every month for 15 years. I paid so little attention to the mortgage (direct withdrawal from bank account monthly) that it took me by surprise when I realized our last payment was coming up (March 2017). I said to my husband, "hey, do you realize that after the March payment we will own the house?" His answer was, "really, how can that be?" Time flies when you're busy doing other things. So we did nothing clever or extra, but I don't think we lost anything much, either. I did consider at one point refinancing again for a better rate, but it didn't seem like enough savings to be worth the hassle. It is a nice feeling to be done, and to be in a house I continue to really like. Our friends who had fancier houses are now downsizing for retirement/old age, but we are already in the perfect house for the golden years. Was maybe a little tight when our two kids were living at home and we had out of town guests, but not any huge inconvenience. Hurrah for not buying too much house!

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Re: For those who paid off house - how did you do it?

Post by Andyrunner » Tue Oct 23, 2018 12:09 pm

I have two parts:

1) put an extra payment on the mortgage each month
2) I have a goal line of what I want my checking and savings accounts to be. After tax refunds/pay in, if its above the goal line I put the difference onto the principal.

I kind of dream/worry about all of the extra cash flow we will have once its paid off.

WhiteMaxima
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Re: For those who paid off house - how did you do it?

Post by WhiteMaxima » Tue Oct 23, 2018 12:13 pm

I am doing mega Roth. No intend to pay off house anytime soon. At 3% plus tax deduction loan, i decide to maximize Roth IRA 1st as long as my return is > 3%.

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Re: For those who paid off house - how did you do it?

Post by Luke Duke » Tue Oct 23, 2018 12:17 pm

Gleops2 wrote:
Mon Oct 22, 2018 2:13 pm
I inherited money after my Mom passed away, and before I could fritter it away on nonsense or depreciating assets like a new vehicle which I didn't need, I paid off the mortgage.

That was December 2016.

I still save the mortgage payment each month, but now it's in MY account not the banks!!!

Make sure you don't cut yourself off of cash in case you need to make an expensive repair. in other words, don't use every dime of available cash to do it.

To me, there is NOTHING like the feeling of having no mortgage. And, because I live in a relatively moderate cost of living area, it's really peanuts to live right now.

I am retired and still banking money from my pension! Life is great!
So you keep it under the mattress? The bank is now lending your money out and pocketing the interest.

jvini
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Re: For those who paid off house - how did you do it?

Post by jvini » Tue Oct 23, 2018 12:51 pm

We chose #2. My 30 year rate was 3.75% on a 30 year. My extra money every month went into a brokerage account where I bought small, mid, and large cap, and international etf's in essentially equal weights. I dollar cost averaged year in and year out, through the great recession. This money is for retirement and if we wanted, for the mortgage.

After about 14 years, including this historically long 10 year bull market, where my etfs outperformed the 3.75% mortgage rate, I felt comfortable selling enough to pay off my mortgage.

I knew I didn't have to pay off the mortgage if I didn't feel comfortable with where my portfolio was, which I liked. But my tax advantaged holdings, as well as my brokerage account, had grown a lot and I was comfortable selling those etfs. Had I put extra money towards the mortgage every month, I wouldn't have had that option, nor would my portfolio have grown as much. Once paid towards the mortgage, I considered it illiquid, as I didn't want to get a second mortgage.

Yes, I paid long term capital gains taxes, but I made more this way than if I had put money into the mortgage each month. Now we own our house which has risen in value quite a bit, have enough in our 529s to fund 2 private colleges when the time comes, and at 52 feel like we have a very large nest egg, but will keep working for 4-7 years depending on how we feel about it after 4 years. I guess most people chose #1, but it just didn't make sense to me.

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HomerJ
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Re: For those who paid off house - how did you do it?

Post by HomerJ » Tue Oct 23, 2018 1:03 pm

sojirovs wrote:
Mon Oct 22, 2018 10:45 am
I searched forum about paying off mortgage but wasn't able to find good information how they did.

I have a question for those who paid off your house(s), can you share how you did it?
FYI: if it matters, I max out 401k, IRA, and HSA. Contributes some $ into 529 every month, have 6 months ER fund.
Interest rate @ 3.625% 30 years, 28 years remaining. I want to pay off house asap.
Here are my possible ways of doing, let's assume I have $2,000 per month to play with.
1. Send $2000/mo toward extra principal each month. By doing this way will take me 10 years.
2. Invest $2000/mo into taxable account and let it grow until the amount reaches equivalent to remaining mortgage balance, take all out and pay off. (Side question: how's tax implication?). Projecting 8 years.
3. Invest X% into taxable and pay X% extra to principal, for example, 50% and 50%. Then pay off similar to #2.
Please share your experience with me. Thanks!
Number 3 here. Also every once in a while, we'd throw a chunk from taxable into the house.

We didn't want to be cash poor, so we always kept $50k at least in taxable/EF. But if it grew to $90k or so, we'd take $40k and throw into the house.
The J stands for Jay

jvini
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Re: For those who paid off house - how did you do it?

Post by jvini » Tue Oct 23, 2018 1:04 pm

jvini wrote:
Tue Oct 23, 2018 12:51 pm
We chose #2. My 30 year rate was 3.75%. My extra money every month went into a brokerage account where I bought small, mid, and large cap, and international etf's in essentially equal weights. I dollar cost averaged year in and year out, through the great recession. This money is for retirement and if we wanted, for the mortgage.

After about 14 years, including this historically long 10 year bull market, where my etfs outperformed the 3.75% mortgage rate, I felt comfortable selling enough to pay off my mortgage.

I knew I didn't have to pay off the mortgage if I didn't feel comfortable with where my portfolio was, which I liked. But my tax advantaged holdings, as well as my brokerage account, had grown a lot and I was comfortable selling those etfs. Had I put extra money towards the mortgage every month, I wouldn't have had that option, nor would my portfolio have grown as much. Once paid towards the mortgage, I considered it illiquid, as I didn't want to get a second mortgage.

Yes, I paid long term capital gains taxes, but I made more this way than if I had put money into the mortgage each month. Now we own our house which has risen in value quite a bit, have enough in our 529s to fund 2 private colleges when the time comes, and at 52 feel like we have a very large nest egg, but will keep working for 4-7 years depending on how we feel about it after 4 years. I guess most people chose #1, but it just didn't make sense to me.

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Re: For those who paid off house - how did you do it?

Post by prairieman » Tue Oct 23, 2018 1:14 pm

We never kept a budget and lived below our means. As a result, deposits were greater than withdrawals most months, and money tended to accumulate. When the bank account had a high balance, we lowered it by purchasing something, paying down the mortgage, or whatever we wanted to do at the time.

FootballFan5548
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Re: For those who paid off house - how did you do it?

Post by FootballFan5548 » Tue Oct 23, 2018 1:28 pm

I'm a bit weird with round numbers and chose your option #3. Basically I have fixed amounts going into 401k, 529's, taxable VTSAX, etc every month. The same amount, every month leaves my MM account and buys into these accounts.

I also overpay my monthly mortgage by about $180 (using round numbers, my mortgage is $3420, so I pay in $3600 each month).

Midway through the month if my principal mortgage balance is some odd number like, $712,546.54 and I if I have some money laying around I'll pay down $546.54 to make it an even $712,000. The mortgage is my only debt, so I like to see nice clean round numbers for what I owe and my net worth.

I usually track my total "extra principal" I've paid at the end of each year and it's usually about $10k total in additional principal paid down all said and done.

Mako52
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Re: For those who paid off house - how did you do it?

Post by Mako52 » Tue Oct 23, 2018 1:49 pm

Question for those who are making extra payments towards principal.

We are now almost 7 years into our 30 year mortgage (payment #81 out of 360). Due to extra principal payments over the last 6 years, the mortgage balance is now at what it would have been at payment #125, roughly $50k less than it was at #81. So in a sense we have "dodged" 44 monthly payments.

So are we actually ahead by that amount, less the $49k in extra principal payments we've made?

I'm not sure the right way to look at this. All I know is that our total number of mortgage payments with no further additional principal payments from here out is 315, not 360.

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Re: For those who paid off house - how did you do it?

Post by tesuzuki2002 » Tue Oct 23, 2018 1:55 pm

sojirovs wrote:
Mon Oct 22, 2018 10:45 am
I searched forum about paying off mortgage but wasn't able to find good information how they did.

I have a question for those who paid off your house(s), can you share how you did it?
FYI: if it matters, I max out 401k, IRA, and HSA. Contributes some $ into 529 every month, have 6 months ER fund.
Interest rate @ 3.625% 30 years, 28 years remaining. I want to pay off house asap.
Here are my possible ways of doing, let's assume I have $2,000 per month to play with.
1. Send $2000/mo toward extra principal each month. By doing this way will take me 10 years.
2. Invest $2000/mo into taxable account and let it grow until the amount reaches equivalent to remaining mortgage balance, take all out and pay off. (Side question: how's tax implication?). Projecting 8 years.
3. Invest X% into taxable and pay X% extra to principal, for example, 50% and 50%. Then pay off similar to #2.
Please share your experience with me. Thanks!

I have been doing option 2. I like options. but it is starting to drag on me.. paying extra all the time... If you really focus on it with 1... it might cause you to accelerate faster towards it.. I haven't had that benefit.

I'm down to $40K balance... I pay around $100 a month in interest.. so 1200 a year it seems ok, but I'm working towards complete pay off in 2021.

heyyou
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Re: For those who paid off house - how did you do it?

Post by heyyou » Tue Oct 23, 2018 2:03 pm

by mptfan
1) Don't buy too much house.
2) Don't pay for space that you will hardly ever use, like "great rooms" or "bonus rooms" or extra bedrooms
3) Do not determine how much house you can afford based on how much a lender is willing to "approve" a mortgage
4) Do not get a mortgage longer than 15 years, and get a a fixed interest rate
5) Resist the urge to keep up with the Joneses and "upgrade" to a bigger, newer, more expensive house
6) Do not "tap your home equity" by taking out a HELOC
7) Do not "tap your home equity" by refinancing your mortgage to borrow more if your house appreciates in value
8) Live below your means
9) When your friends and family with big mortgages complain about money, keep your mouth shut
Being laid off for six weeks about a year after getting my first mortgage was an eye opener to the risks of borrowing.
In retrospect, a very good lesson at the ideal time in my life.
Didn't lose the house, but subscribed to the above list from then forward.
When your mortgage ends, switch where that payroll deduction amount is directed so you never see the increase in your take home income.

DorothyB
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Re: For those who paid off house - how did you do it?

Post by DorothyB » Tue Oct 23, 2018 2:10 pm

I did option 1 (after maxing out my retirement savings options, I put all extra towards mortgage).

The issue w/ option 2 and 3 is that the market might lose money for a 3 or 4 year period.

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White Coat Investor
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Re: For those who paid off house - how did you do it?

Post by White Coat Investor » Tue Oct 23, 2018 2:33 pm

# 1 Got a 15 year mortgage.

# 2 Didn't do anything extra for about 5 years.

# 3 Then started doing your # 2 (investing in taxable with plan to possibly pay off mortgage when they were equal.)

# 4 Had income go up dramatically and just paid the thing off in two big lump sums at year 6 and 7. Used the appreciated taxable shares for charitable giving.

It's been over a year now. I'm not super diehard pay off debt dude about it. I'm slightly more glad I paid it off than kept it. It's a nice luxury to not have to use that sort of leverage to reach our goals. But I think I'd be ahead if I'd kept it. Maybe not with the downturn this month. I'd have to run the numbers.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

pacodelostigres
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Re: For those who paid off house - how did you do it?

Post by pacodelostigres » Tue Oct 23, 2018 2:46 pm

UpsetRaptor wrote:
Tue Oct 23, 2018 11:41 am
I see what you're saying, in your first paragraph. Why formulate based on marginal tax rate though, as opposed to LTCG?
Because comparable riskless assets usually pay an interest rate rather than capital gains. A comparison between the return on paying down your mortgage and the equity market isn't really very applicable. If you're 100% equity and keep very little fixed income or cash, then you'd also be dabbling in asset allocation decisions and it would be a lot more complicated.

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Jimbo9911
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Re: For those who paid off house - how did you do it?

Post by Jimbo9911 » Tue Oct 23, 2018 2:48 pm

I did #1.
Paid off the 15 year mortgage in 8 years.
Jim

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Que1999
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Re: For those who paid off house - how did you do it?

Post by Que1999 » Tue Oct 23, 2018 3:26 pm

My mind switches back and forth regularly on whether to pay it off or invest in taxable.

I pre-paid heavily for the first 5 years, and right now I've got around 5.5 years left until fully paid. My thinking for today is to fund taxable, especially if the market stays in the red like it has been recently, and then reassess when I've got enough to sell stocks and pay it off in one lump sum IF I'm in a good place at the time w/my gains... If market is in a downturn, I'll just continue buying stocks at a discount and let the mortgage run its course.

That's the plan for today... Tomorrow it might be different.... :|

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Re: For those who paid off house - how did you do it?

Post by bloom2708 » Tue Oct 23, 2018 3:31 pm

Mako52 wrote:
Tue Oct 23, 2018 1:49 pm
Question for those who are making extra payments towards principal.

We are now almost 7 years into our 30 year mortgage (payment #81 out of 360). Due to extra principal payments over the last 6 years, the mortgage balance is now at what it would have been at payment #125, roughly $50k less than it was at #81. So in a sense we have "dodged" 44 monthly payments.

So are we actually ahead by that amount, less the $49k in extra principal payments we've made?

I'm not sure the right way to look at this. All I know is that our total number of mortgage payments with no further additional principal payments from here out is 315, not 360.
Correct. Your extra payments are moving you ahead on the payoff scale. You dodged the interest on those 44 payments. Each regular payment now consists of more principal and less interest. More principal only payments will keep it going.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

birdy
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Re: For those who paid off house - how did you do it?

Post by birdy » Tue Oct 23, 2018 3:45 pm

Paid additional principle (equal to what I was required to) every month. When interest went down refinanced to 15 year mortgage and continued to do the same thing. I didn't really worry about not having the interest to deduct. I just wanted to get rid of the debt! Interest rates went down one more time and so refinanced to 10 yrs and paid balance off in 5. I saved a lot by not having to pay the interest on my house for 30 years!


birdy

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Re: For those who paid off house - how did you do it?

Post by Darth Xanadu » Tue Oct 23, 2018 4:02 pm

Mako52 wrote:
Tue Oct 23, 2018 1:49 pm
Question for those who are making extra payments towards principal.

We are now almost 7 years into our 30 year mortgage (payment #81 out of 360). Due to extra principal payments over the last 6 years, the mortgage balance is now at what it would have been at payment #125, roughly $50k less than it was at #81. So in a sense we have "dodged" 44 monthly payments.

So are we actually ahead by that amount, less the $49k in extra principal payments we've made?

I'm not sure the right way to look at this. All I know is that our total number of mortgage payments with no further additional principal payments from here out is 315, not 360.
I believe you would sum the total interest you would have paid with Payments #316 through #360 to determine the amount you saved with the additional principal payments (since this accelerates the payoff date).
"A courageous teacher, failure is."

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Re: For those who paid off house - how did you do it?

Post by Zonian59 » Tue Oct 23, 2018 6:07 pm

heyyou wrote:
Tue Oct 23, 2018 2:03 pm
by mptfan
1) Don't buy too much house.
2) Don't pay for space that you will hardly ever use, like "great rooms" or "bonus rooms" or extra bedrooms
3) Do not determine how much house you can afford based on how much a lender is willing to "approve" a mortgage
4) Do not get a mortgage longer than 15 years, and get a a fixed interest rate
5) Resist the urge to keep up with the Joneses and "upgrade" to a bigger, newer, more expensive house
6) Do not "tap your home equity" by taking out a HELOC
7) Do not "tap your home equity" by refinancing your mortgage to borrow more if your house appreciates in value
8) Live below your means
9) When your friends and family with big mortgages complain about money, keep your mouth shut
Being laid off for six weeks about a year after getting my first mortgage was an eye opener to the risks of borrowing.
In retrospect, a very good lesson at the ideal time in my life.
Didn't lose the house, but subscribed to the above list from then forward.
When your mortgage ends, switch where that payroll deduction amount is directed so you never see the increase in your take home income.
These "9 Commandments" are very good rules to follow, especially rule #1, 3, 5, and 8.

Exceptions:
#2 (buying more space than needed) has to be carefully thought out. Buy with built-in growth potential or add later when needed? If the additional space or room can be obtained in the beginning within your budget, so much the better.

#4: FIXED 15 year vs 30 year: If you have the income to make the 15 year payments without fear of not being able to meet payments during unexpected emergencies or layoffs, that would be preferrable.

For years I lived below my means (Rule #8) so that I could save up for a significant downpayment, i.e., 20% or greater. By having a significant downpayment meant I didn't have to borrow as much and I could have lower monthly payments and still make additional payments toward principal or opt for a 15-year mortgage. By the way, make sure the mortgage doesn't have prepayment penalties.

#3 is a very important rule. Combined with the amount of downpayment, I could have bought a $700k house. My budget was to buy no more than $450k as I planned to pay off the mortgage early.

In 2010 I was fortunate to buy a house at $435k that had the bonus of a large den (contrary to #2 and avoiding #5) and still stay within my budget. I had built-in future growth in mind and the den will be handy when I revive a model railroad hobby (that I enjoyed as a child with my father) in my retirement years.

I calculated that regular payments plus equal payment toward principal, results in a payoff in around 10-11 years , which would time it by the time I retire or earlier. This would not be possible had I borrowed up to the maximum approval lending amount.

#2: 15 yr vs 30 yr mortgage. I chose a fixed rate 30 year mortgage with the intent of making additional payments toward principal each month. Again, make sure there are no prepayment penalties in the terms and conditions.
By opting for the 30 year mortgage, I had the flexibility to forgo the extra payment to principal if I was laid off or incurred an emergency without fear of defaulting.

Early in the mortgage I aggressively made extra payments toward principal above and beyond the planned extra payments when I could. This significantly reduced the payable interest throughout the remaining mortgage payments and also shortened the mortgage duration. I know the additional payments toward principal also reduced the interest I could deduct from taxes, but that was not a primary concern; not having mortgage payments in retirement was the goal.

I had planned to pay off the mortgage by 2020. I was laid off in 2016.
Used the severance pay toward the principal helped reduced the balance. Accrued vacation pay went into cash emergency/reserves. Again, as a result of following Rule #8, I found at the time of layoff I had enough cash reserves to continue making regular payments plus extra payments within the planned 2020 payoff schedule without tapping into my investments, 401(k) or Roth IRA. (Actually at the time of layoff, I could have paid off the mortgage in its entirety had I wanted to.)

Had I not made the additional payments toward principal early and continued to do so, I would have found myself in 2016 laid off with a mortgage balance of about $300k.

I decided to pay off the remainder of mortgage balance including payoff fees, reconveyance title fees, etc., in November 2018 so I can enter calendar year 2019, the year I turn 60, mortgage DEBT FREE.

I hope I can be faithful to rule #9, and I hope to avoid committing #6 and 7 during retirement years.

TallBoy29er
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Re: For those who paid off house - how did you do it?

Post by TallBoy29er » Tue Oct 23, 2018 8:01 pm

Scrabbled and saved as much as we could every month for a number of years. Sometimes I sent two extra payments per month, if I found enough to make a very small dent. It was hard. But it gave us a goal, and put us in a very good position for the future. It also forced us to save, and the tangible end game of driving down a specific target was much more fun than just getting a savings account to rise as much as we could make it.

Starfish
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Re: For those who paid off house - how did you do it?

Post by Starfish » Tue Oct 23, 2018 8:19 pm

pacodelostigres wrote:
Tue Oct 23, 2018 10:10 am
UpsetRaptor wrote:
Mon Oct 22, 2018 10:23 pm
pacodelostigres wrote:
Mon Oct 22, 2018 12:05 pm
Mortgage interest is a lot less deductible than it used to be for the average taxpayer. It's a risk free after tax return for the portion that is not deductible. If you're paying a 4% mortgage rate and paying 33% in marginal income taxes, and you can't deduct the interest, you're getting 6% risk free return before taxes. Where else can you get that?

If you're investing primarily in tax advantaged accounts where you don't have readily accessible funds, then at a minimum it's worth considering allocating all of the fixed income portion of your portfolio into paying down debt at that kind of return.
I'm not sure if I follow the bolded part. On a 4% mortgage rate, non-deductible, how is the guaranteed risk-free return higher than 4%?
Because your mortgage rate is an after tax yield. You don't have to pay taxes on the reduction in interest due, which is the comparison necessary to the coupon rate you'd otherwise earn. An equivalent riskless investment would have to pay more than 4% to be equal, because the earnings would be taxable.

I used easy, round numbers as an example, but just divide your mortgage rate by (1 - your marginal tax rate) to determine your personal breakeven point. My personal example was 3.125%, 25% federal and 4.25% state taxes, so .03125/(1-.2925) = 4.42% I couldn't get that rate in fixed income 7 years ago, so my tax advantaged investments were nearly all to equity and I aggressively paid down my mortgage with free cash flow.

Your capital gains are not taxed at today's marginal tax rate. They can be taxed at LTCG rate or even 0 with Roth conversions or low income in retirement.

Starfish
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Re: For those who paid off house - how did you do it?

Post by Starfish » Tue Oct 23, 2018 8:27 pm

mptfan wrote:
Tue Oct 23, 2018 10:21 am
1) Don't buy too much house.
2) Don't pay for space that you will hardly ever use, like "great rooms" or "bonus rooms" or extra bedrooms
3) Do not determine how much house you can afford based on how much a lender is willing to "approve" a mortgage
4) Do not get a mortgage longer than 15 years, and get a fixed interest rate
5) If you are a couple, do not get a mortgage that you cannot afford to pay with only one income
6) Resist the urge to keep up with the Joneses and "upgrade" to a bigger, newer, more expensive house
7) Do not "tap your home equity" by taking out a HELOC
8) Do not "tap your home equity" by refinancing your mortgage to borrow more if your house appreciates in value
9) Live below your means
10) When your friends and family with big mortgages complain about money, keep your mouth shut
All true, except 4, 7, 8 and 1.
4, 7,8 are just not true. The interest rates are low and inflation will hit. Taking advantage of this climate is a no brainer.
1 is point of regret for me. I was too conservative and I bought a small house. Too small after the kid grew up a little. Now the bigger houses I want to buy are very expensive becuase prices went up a lor and come with a terrible property tax. Plus I would have to pay the transaction costs.
It was a wrong move. I should have bough a bigger house from the beginning.

Mako52
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Re: For those who paid off house - how did you do it?

Post by Mako52 » Tue Oct 23, 2018 9:04 pm

bloom2708 wrote:
Tue Oct 23, 2018 3:31 pm
Mako52 wrote:
Tue Oct 23, 2018 1:49 pm
Question for those who are making extra payments towards principal.

We are now almost 7 years into our 30 year mortgage (payment #81 out of 360). Due to extra principal payments over the last 6 years, the mortgage balance is now at what it would have been at payment #125, roughly $50k less than it was at #81. So in a sense we have "dodged" 44 monthly payments.

So are we actually ahead by that amount, less the $49k in extra principal payments we've made?

I'm not sure the right way to look at this. All I know is that our total number of mortgage payments with no further additional principal payments from here out is 315, not 360.
Correct. Your extra payments are moving you ahead on the payoff scale. You dodged the interest on those 44 payments. Each regular payment now consists of more principal and less interest. More principal only payments will keep it going.
OK.....total interest on payments 82-125 would have been $72,644. Interest on payments 315 to 360 would be $9,912. Nice savings on the former, not so much on the latter given $48k in extra principal payments to date.

Will look to refinance should interest rates ever drop.

harvestbook
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Re: For those who paid off house - how did you do it?

Post by harvestbook » Tue Oct 23, 2018 9:22 pm

I bought my house solo in 2004 (after a divorce where I "lost" a house). Even though I had a low income, I always paid extra every month, usually just rounding up to the next hundred or adding an extra hundred. I refinanced at some point to a 15-year in the mid 3-percent range. I started a business that took off around 2010 and ended up paying it off in lump sums in 2011 and 2012ish. I've always maxed my IRA and got married in the meantime, but I was kind of ignorant about investing--especially in a taxable account. I was so dumb I was at Edward Jones, so I was actually better off not investing.

If I knew what I know now, I probably would've done it differently, but the peace of mind is great, plus we've invested heavily (more than 50 percent of income since then) so it's allowed us to invest more aggressively. But mostly I've just always hated debt.
I'm not smart enough to know, and I can't afford to guess.

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IcedDog
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Re: For those who paid off house - how did you do it?

Post by IcedDog » Tue Oct 23, 2018 11:02 pm

celia wrote:
Mon Oct 22, 2018 2:20 pm
We paid if off by making 360 monthly payments. When we refinanced, we kept the same term to pay off in the original 30 years. I don't understand people who refinance and keep starting over with another 30-year term.
I refinanced in 2015 and went with another 30-year fixed. My reasoning was that if I encountered a hardship (job loss, serious illness, etc.) I could at least fall back on a low mortgage payment...but I also knew I was disciplined enough to keep making several one-off payments off the principal every year.

I would essentially alternate throwing a grand at my savings or toward a one-off mortgage payment whenever my checking account reached a certain threshold...so in my case I wasn't "all in" on extra mortgage payments, but rather kept a balance between that and savings. So far so good, and I'll have it paid off within 2 years (bought in 2009, lucky time to buy).

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cheese_breath
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Re: For those who paid off house - how did you do it?

Post by cheese_breath » Wed Oct 24, 2018 7:47 am

IcedDog wrote:
Tue Oct 23, 2018 11:02 pm
celia wrote:
Mon Oct 22, 2018 2:20 pm
We paid if off by making 360 monthly payments. When we refinanced, we kept the same term to pay off in the original 30 years. I don't understand people who refinance and keep starting over with another 30-year term.
I refinanced in 2015 and went with another 30-year fixed. My reasoning was that if I encountered a hardship (job loss, serious illness, etc.) I could at least fall back on a low mortgage payment...but I also knew I was disciplined enough to keep making several one-off payments off the principal every year...
When I refinanced I reduced the mortgage term to keep the same monthly payment as on the previous mortgage.
The surest way to know the future is when it becomes the past.

RetiredInTheWest
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Re: For those who paid off house - how did you do it?

Post by RetiredInTheWest » Wed Oct 24, 2018 8:14 am

#1, mortgage paid off in 7 years, with one refinance for a lower mortgage rate along the way. We were also maxing 401(k)s etc. A huge help was an overseas assignment at the end. Instead of blowing the extra windfall from that assignment, we put even more against the mortgage.

On the day the mortgage was paid off, we set up an automatic withdrawal from our checking account. It moved the same payment out every month, but instead of going to the bank, it went to a passive low cost equity index fund at Vanguard. So, at the time, we couldn't tell any difference in our checking account month to month. Then we forgot about it for over ten years. Later that index fund allowed us to be a lot more brave in our jobs, plus retire much sooner and easier.

It's still sometimes a surprise to me how well that whole compounding thing really works - either in your favor or against.

tindel
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Re: For those who paid off house - how did you do it?

Post by tindel » Wed Oct 24, 2018 8:17 am

bhsince87 wrote:
Tue Oct 23, 2018 9:59 am
After losing my job unexpectedly at age 33, I learned the value of liquidity.
+1. I had a similar experience. I now gather cash like a squirrel gathers nuts for winter.

I'm currently 2 years into a 15 year mortgage with an interest rate of 2.875%. I'm in no hurry to pay it off. I'd rather buy a 10 year bond.

I sleep well at night.

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Sandtrap
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Re: For those who paid off house - how did you do it?

Post by Sandtrap » Wed Oct 24, 2018 8:17 am

Rented until full price of a home was saved up.
Bought "very" modestly.
Debt averse. :shock:

quantAndHold
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Re: For those who paid off house - how did you do it?

Post by quantAndHold » Wed Oct 24, 2018 8:31 am

Sagefemme wrote:
Tue Oct 23, 2018 12:00 pm
Bought the house in 1996 with a 30 year fixed. Refinanced for better rate on a 15 year fixed in 2002. Paid the usual amount every month for 15 years. I paid so little attention to the mortgage (direct withdrawal from bank account monthly) that it took me by surprise when I realized our last payment was coming up (March 2017).
This was us, except in 2014, we realized the principal balance was low enough that we could just write a check and pay the thing off. So we did.

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djpeteski
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Re: For those who paid off house - how did you do it?

Post by djpeteski » Wed Oct 24, 2018 8:52 am

#1 but also scored a sweet refi deal.

I went into my bank and inquired about getting a home equity loan, fixed rate and first position, for the lowest possible interest rate. They responded with a 7 year loan at 2.62% and no closing cost. It was lower than the teaser rate they were advertising. I was lucky because the banker I was working with understood what I was trying to do: get the lowest possible interest rate regardless of the terms.

In the end, it was not really necessary because the deal only saved me $1,000 or so. Sure it was nice to have that, but not life changing. They key is throwing anything you can find at the principle.
sojirovs wrote:
Mon Oct 22, 2018 10:45 am
1. Send $2000/mo toward extra principal each month. By doing this way will take me 10 years.
In three or five years you will not be making the 2k extra payments, they will be higher and perhaps much higher. If you maintain focus, this mortgage will be gone in 5 to 7 years.

stoptothink
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Re: For those who paid off house - how did you do it?

Post by stoptothink » Wed Oct 24, 2018 9:12 am

This is our first home and we are just <3yrs in on a 15yr at 3.125%, on track to have it paid off sometime in 2021. I have it automated to pay an additional $1k/month and when our savings/EF gets over the amount we feel comfortable with, I send in an additional payment. We are maxing all available tax-advantage retirement space, and that is priority #1, but I am extremely debt-averse and have no intentions of ever taking out another loan once this is paid off. We are anxious to begin saving to purchase our "forever" home in cash when this debt is gone.

Grt2bOutdoors
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Re: For those who paid off house - how did you do it?

Post by Grt2bOutdoors » Wed Oct 24, 2018 9:35 am

Took a 30 year, paid on it as if it were a 15 year. In case of job disruption, would revert back to 30 year schedule. Higher mortgage interest rate was a small insurance fee to pay. Any extra money (bonus) went into mortgage. It helped that bank allowed me to recast mortgage twice as rates were dropping at the lower rate in return for a nominal fee. Paid it off in less than ten years. Now redirecting mortgage payments into taxable account. Glad I did not take out a bigger mortgage or buy the home with the “great room” and “higher taxes”.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

OB_Hitting3
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Re: For those who paid off house - how did you do it?

Post by OB_Hitting3 » Wed Oct 24, 2018 9:37 am

Just want to post that if you’re in an expensive part of CA or NY or anywhere your home values have skyrocketed and have owned your home for a long time, please consider whether paying off the mortgage is actually the proper goal.

I retired five years ago and still had a mortgage. The home was worth 2.75M and I had a $700k mortgage. Paying down that mortgage would have reduced my investment account by $700k while I was paying 2.875 on an interest only mortgage. Contrary to what many people think, paying off my mortgage made no sense provided I could earn returns exceeding that cost (including deduction of interest, which has changed).

My friends and neighbors, probably 3-10 years older than me, seem oddly attached to the concept of paying off the mortgage. Make sure you think about it in the whole sphere of your portfolio. I paid it off when I sold the home a year ago. I have not done the math, but the return I earned on that $700k over the last 17 years (when I could have paid it off) were staggering.

Grt2bOutdoors
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Re: For those who paid off house - how did you do it?

Post by Grt2bOutdoors » Wed Oct 24, 2018 9:42 am

mptfan wrote:
Tue Oct 23, 2018 10:21 am
1) Don't buy too much house.
2) Don't pay for space that you will hardly ever use, like "great rooms" or "bonus rooms" or extra bedrooms
3) Do not determine how much house you can afford based on how much a lender is willing to "approve" a mortgage
4) Do not get a mortgage longer than 15 years, and get a fixed interest rate
5) If you are a couple, do not get a mortgage that you cannot afford to pay with only one income
6) Resist the urge to keep up with the Joneses and "upgrade" to a bigger, newer, more expensive house
7) Do not "tap your home equity" by taking out a HELOC
8) Do not "tap your home equity" by refinancing your mortgage to borrow more if your house appreciates in value
9) Live below your means
10) When your friends and family with big mortgages complain about money, keep your mouth shut
Here here. +1. Pay special attention to All of it!!! Specifically number 10. If you are under 55 with a paid off mortgage, you will be the outliers in your neighborhood.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

GAAP
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Re: For those who paid off house - how did you do it?

Post by GAAP » Wed Oct 24, 2018 10:19 am

#0 -- not buying more house than I needed in the first place.

#0.5 -- put 20% or more down to minimize the mortgage.

Finally, #1 -- plus whatever other excess funds became available.

Bir48die
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Re: For those who paid off house - how did you do it?

Post by Bir48die » Wed Oct 24, 2018 10:31 am

Stretched on first house @ $63k then waited for my income to catch up.

Refinanced to 15 years as soon as I could.

Bought next house on 15 year mortgage.

Remarried after wife died and used a portion of new wife's gain on her sale to pay off and do improvements.

Bought nice "forever" home. Only owed $70k and paid off in three years with yearly bonuses.

ThankYouJack
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Re: For those who paid off house - how did you do it?

Post by ThankYouJack » Wed Oct 24, 2018 11:43 am

I stayed in the same house and kept doing no-cost refinances when rates dropped. I'd then add some extra largish payments to make up for the loan getting extended. I also invested in my taxable account and when that got bigger than my mortgage, I just figured might as well. The feeling was better than I anticipated.

Mr.BB
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Re: For those who paid off house - how did you do it?

Post by Mr.BB » Wed Oct 24, 2018 1:24 pm

Mako52 wrote:
Tue Oct 23, 2018 1:49 pm
Question for those who are making extra payments towards principal.

We are now almost 7 years into our 30 year mortgage (payment #81 out of 360). Due to extra principal payments over the last 6 years, the mortgage balance is now at what it would have been at payment #125, roughly $50k less than it was at #81. So in a sense we have "dodged" 44 monthly payments.

So are we actually ahead by that amount, less the $49k in extra principal payments we've made?

I'm not sure the right way to look at this. All I know is that our total number of mortgage payments with no further additional principal payments from here out is 315, not 360.
Overtime, that 30 yr mortgage payment becomes a 15 year payment with that extra mortgage payment
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

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