[How should I pay off my mortgage?]

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Colorado
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[How should I pay off my mortgage?]

Post by Colorado » Tue Apr 17, 2018 5:11 pm

[Moved into a new post from: I did it and feel great about it (paid off mortgage) --admin LadyGeek]

Hello! After much research and deliberation I have decided that killing my home mortgage makes sense for me. However, I have a mechanical question for the group. I currently have ~$375K outstanding on the mortgage and I think that I can start paying extra on it in August 2018 and have it paid off by February 2020. However, the industry I am in is somewhat unstable and I am hesitant to get halfway through the payoff and then get laid off while still having a mortgage payment. I do keep a year's expenses in cash and three year's expenses in easily accessible securities outside of tax-deferred accounts, so that does give some comfort. But my question is: did you save money on the side until you had enough to write a check for the balance, or simply throw cash at the balance until it was gone (like I propose above)? If you threw cash at it each month, what multiple of monthly expenses gave you peace-of-mind about having the extra cash tied up in your home while you still had a mortgage payment?

SimonJester
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Re: [How should I pay off my mortgage?]

Post by SimonJester » Tue Apr 17, 2018 7:31 pm

We started making extra payment to principal each month, then when it got down to a certain dollar amount we ordered a payoff quote and wired the payment. As far a peace of mind, we saved up a 6 - 8 month emergency fund, had no other debt expect the mortgage, maxed out the 401K contributions, and started the kids college fund all before tackling the mortgage.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

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randomizer
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Re: [How should I pay off my mortgage?]

Post by randomizer » Tue Apr 17, 2018 7:34 pm

If you think you could get laid off, then that is a clear sign to me that you shouldn't race to pay it off. If you needed to tap some money in an emergency (beyond your savings), you can't unpay the mortgage (and trying to use HELOC or get a loan may be ill advised), but you can liquidate investments. I wouldn't be in such a rush, unless the interest rate is too high.
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Grt2bOutdoors
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Re: [How should I pay off my mortgage?]

Post by Grt2bOutdoors » Tue Apr 17, 2018 7:37 pm

randomizer wrote:
Tue Apr 17, 2018 7:34 pm
If you think you could get laid off, then that is a clear sign to me that you shouldn't race to pay it off. If you needed to tap some money in an emergency (beyond your savings), you can't unpay the mortgage (and trying to use HELOC or get a loan may be ill advised), but you can liquidate investments. I wouldn't be in such a rush, unless the interest rate is too high.
+1.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Pajamas
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Re: [How should I pay off my mortgage?]

Post by Pajamas » Tue Apr 17, 2018 7:45 pm

I agree that if your future finances are uncertain that you might best hold off on applying extra money to lower your mortgage principal.

People typically pay it down as they have extra money available rather than waiting until they have the full amount as that reduces the amount of interest charged every month and accelerates the payoff date. Even just a few thousand extra dollars a year can cut years off a mortgage and save huge amounts of interest over the life of the loan.

Just make sure that any extra payments you make are applied to principal and not to your regular monthly payments. Also make sure there are no fees or penalties. I think these issues are much less common than they once were.

bradpevans
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Re: [How should I pay off my mortgage?]

Post by bradpevans » Tue Apr 17, 2018 9:16 pm

What is your regular payment compared to this extra? Seems like you”ll be paying 12K/month which is I massive amount headed into job uncertainty

Mortgage rates are low so you aren’t getting much return on it. Plus your liquidity is dropping

You could add it to your emergency fund until you know more about your job

Mine is 3.75% and i itemize. My theory is I don’t want to pay it down (extra) until I can pay it off completely. This is based on: cash flow, low interest rate, high percent equity and good job security

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Watty
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Re: [How should I pay off my mortgage?]

Post by Watty » Tue Apr 17, 2018 9:54 pm

One option to consider is to save up 25%(or whatever) of the loan balance then call your lender and ask if they will "recast your mortgage"(Google this) if you make a large prepayment. They are not required to do this but they often will for only a processing fee of a couple of hundred dollars. The way this works is that your required mortgage payment is reduced by the same percentage. The length and interest rate stay the same. This would help if you do get laid off since your mortgage payment would be smaller.

Goal33
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Re: [How should I pay off my mortgage?]

Post by Goal33 » Tue Apr 17, 2018 9:57 pm

Liquidity concerns are why I would prioritize taxable investing over paying down mortgage. I assume similar ROI either way but liquidity can be very comforting.
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raisinsaregrapes
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Re: [How should I pay off my mortgage?]

Post by raisinsaregrapes » Tue Apr 17, 2018 10:07 pm

We recently paid ours off, it was great. But my job is so secure that I can't quit, and paying off the house was part of the of separating-from-the-military-plan. In your shoes I would probably heavily invest in taxable until I have the funds to pay it off all at once. If your job goes away before then you still have boat loads of money to pay bills. They hard question would be where to put the money. Bonds may be good but taxes suck, stocks could plummet just prior to paying off the house, CDs give very little return. I would probably do a low risk diversified bond/stock/treasuries and keep adding to it until it's greater than my principle.

Colorado
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Re: [How should I pay off my mortgage?]

Post by Colorado » Tue Apr 17, 2018 10:40 pm

Thanks, all. There are some good ideas here. I probably overstated the job security issues in my industry and I suspect that our situation is in line with what SimonJester outlined above. I tend to be more risk-averse than average and this discussion has been helpful.

gr7070
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Re: [How should I pay off my mortgage?]

Post by gr7070 » Wed Apr 18, 2018 12:01 am

Colorado wrote:
Tue Apr 17, 2018 5:11 pm
I do keep a year's expenses in cash and three year's expenses in easily accessible securities outside of tax-deferred accounts,
The guy's got a *4 year* emergency fund and posters think that's not enough?! That's laughably absurd.

If you want to pay off the house early go for it!

NextMil
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Re: [How should I pay off my mortgage?]

Post by NextMil » Wed Apr 18, 2018 10:49 am

I split the difference. Half extra principal to mortgage half to taxable earmarked for payoff to diversify my pay down.

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