Tactics to pay off Mortgage Early??

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Frugalbear
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Tactics to pay off Mortgage Early??

Post by Frugalbear » Sun Oct 06, 2019 12:16 pm

Good afternoon my fellow Bogleheads!

Just wondering if anyone had a tactic that they used pay off their mortgage early?


The reason I ask this question is because a colleague of mine asked what I would do if I paid my mortgage off tomorrow? I thought about it and I realized the amount of freedom I would have if I did not have to make that payment.

No I will not jeopardize my retirement for this venture, I will continue to max out my roth IRA, full company match on 401k, and throw some in the Emergency fund.

Thank you for your thoughts and advice!

Owe 126,500 @ 3.75%fixed
Last edited by Frugalbear on Sun Oct 06, 2019 3:18 pm, edited 1 time in total.

runner3081
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Re: Tactics to pay off Mortgage Early??

Post by runner3081 » Sun Oct 06, 2019 12:31 pm

For us, we paid it off in 5-years.

1) Live frugally
2) Started a side job

livesoft
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Re: Tactics to pay off Mortgage Early??

Post by livesoft » Sun Oct 06, 2019 12:34 pm

Here's what we did:
1. Invest extra money routinely in Emerging Markets ETF.
2. When it went up 30+% in a year or so and was valued at more than our remaining mortgage, sell it.
3. Use the cash to pay off the mortgage.
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mhalley
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Re: Tactics to pay off Mortgage Early??

Post by mhalley » Sun Oct 06, 2019 12:34 pm

When I had 2 previous mortgages ( the first at 9%, the second at 6) I sent whatever extra principal I could afford each month until they both were paid off. I didn’t set up a goal, like $100 extra month or anything, just whatever I could afford that month. It might not make sense to pay off a low interest mortgage, but if you are maxing out retirement accounts and want to do it, then there are multiple ways:
1, pick a number, $50, 100, 200, and pay that extra each month.
2. Figure when you want it paid off, 10 years, 15, 20, whatever , run an amortization calculation and pay that extra amount each month.
3. Pay biweekly, that gives you an extra payment a year.
4. Pay whatever you can afford each month. Sometimes it’s zero, sometimes 500, whatever.
5. Invest in stocks in a taxable account, and if the market does well pay it off in a lump sum when it grows large enough.

HomeStretch
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Re: Tactics to pay off Mortgage Early??

Post by HomeStretch » Sun Oct 06, 2019 12:49 pm

Spouse and I used three tactics available to us to pay off a 30-year 10% fixed mortgage in 6 years:

1. 1st month of mortgage, I created an amortization schedule and realized an extra principal payment of just $25/month would pay-off mortgage 7 years early so we were on a 23-year payoff track.

2. High mortgage rates were coming down quickly. I did three no-cost refinancings in three years. Final refinancing to a 15-year 7% fixed mortgage resulted in about the same monthly payment as we had been paying for the 30-year original mortgage. Now on a 18-year payoff track.

3. Three years later, spouse declined a relocation but took a temporary 4-month assignment to assist with company’s relocation of headquarters to another state and operations to another country. Spouse received about 2-1/2 years salary for negotiated separation and started a new great job when temporary assignment ended. Spouse decided to use windfall to payoff mortgage.

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SevenBridgesRoad
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Re: Tactics to pay off Mortgage Early??

Post by SevenBridgesRoad » Sun Oct 06, 2019 12:57 pm

Frugalbear wrote:
Sun Oct 06, 2019 12:16 pm

...The reason I ask this question is because a colleague of mine asked what I would do if I paid my mortgage off tomorrow? I thought about it and I realized the amount of freedom I would have if I did not have to make that payment...
This is the best reason to do it: freedom, peace of mind, sleeping well at night. Knowing we (wife and I) were much more bulletproof. Once paid-off, you have a big chunk of money to plow into even more savings and a reasonably early retirement.

Our plan: We paid a set extra amount each month designated as principal payment. This was budgeted just like any bill, along with maxing retirement plan contributions. We mentally made it not optional (i.e. not discretionary) for us. We benefited from a nice income, which made it easier...although buying a house well below our means was key (nowhere near what the rules-of-thumb say) and living in MCOL area. Year-end bonuses went 95% to principal repayment.

You can't imagine the feeling of freedom. Go for it.
Last edited by SevenBridgesRoad on Mon Oct 07, 2019 11:24 am, edited 2 times in total.
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Miguelito
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Re: Tactics to pay off Mortgage Early??

Post by Miguelito » Sun Oct 06, 2019 1:12 pm

I would start by asking you to define “early.” Are you aiming to pay it off many years ahead of schedule (which would require a strong commitment and a decent percentage of the mortgage payment worth of additional payment per month) or do you mean how can you sneak a bit more towards your payment without breaking the bank and hoping this takes off a few years off a 30 year mortgage?

In our case we have a 15-year mortgage already, so that is pretty aggressive. In addition, I round up the payment to the nearest $100 or so, and that will end up shaving another year or two. That rounding up I hardly notice, but I’ll be happy when we pay it off a couple of years early.

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teen persuasion
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Re: Tactics to pay off Mortgage Early??

Post by teen persuasion » Sun Oct 06, 2019 1:27 pm

Our mortgage was 9.75%.

I wrote out an amortization schedule on the back of an envelope, so I could see every month how much was going to principal, and how much to interest. It showed me how many extra months I could knock off with an extra principal payment of $100 or $200, or whatever. Lots more in the beginning, much less in later years, so it motivated me to do it now!

I took a two pronged approach: throw our tax refunds at it annually (minimum $3500) to knock off many months at a time, and try to add at least one extra month's principal payment from found money (rebates, etc). At the very beginning I could easily add 3 or so month's principal payments at a time, realizing I couldn't double up forever.

The next step was to increase those tax refunds for the annual big lump sum. When DH's employer cut the 401k match to zero, he wanted to stop contributing altogether. I wanted to double the contribution to make up for the lost match. So I tweaked his withholdings and benefits choices, so that he could double the 401k contributions with little change to take home pay. Digging deeper, that move increased our refundable credits, so we had more to lump sum. I tried again - doubled the 401k contribution again. Looked closer at HOW the refundable credits worked, and how to maximize them. EITC has a 21% phaseout rate, so $100 to the 401k increases our refund $21. Our state matches EITC at 30%, so an additional $6.30. Of course, the tax deferral also saved us $10 in federal tax, and $4 in state tax. So we could save $100 for retirement, and receive $41.30 back in refunds. So I kept looking for little savings, that I could contribute to DH's 401k, to increase our refundable credits, to lump sum on the mortgage.

Eventually I stopped making monthly extra principal payments, just made the tax refund lump sum principal payment, which were ~$10k by then. The year our oldest started college, we were close enough to pay the mortgage off from savings, but opted instead to let the mortgage ride for one more year and maintain liquidity for college expenses. The next year, we began directing the tax refunds to 2 Roth IRAs instead, and without a mortgage payment we could finally max DH's 401k, and he could still cut back on extra work.

The tax refunds no longer fully cover 2 IRAs (increased limits, over 50 catch up, kids aged out of CTC, fewer dependents left at home now).

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grabiner
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Re: Tactics to pay off Mortgage Early??

Post by grabiner » Sun Oct 06, 2019 1:37 pm

One of my standard recommendations for paying off a mortgage early, if you have money to spare, is to refinance to a shorter term at a lower rate. You will make higher payments, but you will pay less interest while you are paying down the mortgage. (I can't do this myself because I paid a lot of points to lower my rate.)

Beyond that, I usually prefer maxing out a 401(k) to making extra mortgage payments. Even if you earn slightly less on low-risk bonds in the 401(k) than on the mortgage payments, you may come out ahead because the 401(k) will continue to grow tax-deferred after the mortgage is gone. The extra 401(k) payments can be withdrawn when you retire if you stlll have a mortgage and want to pay it off.

But this depends on the rate and terms of the mortgage. If you are paying PMI, or have a high rate and don't have enough equity or good enough credit to refinance, or have a high-cost 401(k) and non-deductible mortgage interest, making extra payments makes sense.

Conversely, if you have a low-rate deductible mortgage, it may be better to invest in municipal bonds than to pay down the mortgage (or to invest in stocks and hold your bonds in some other account). When you have enough money to pay off the whole mortgage, you can decide whether this is worthwhile; if you sell stocks, you can money money from bonds to stocks in your 401(k) so that you keep the same stock allocation.
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7eight9
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Re: Tactics to pay off Mortgage Early??

Post by 7eight9 » Sun Oct 06, 2019 1:42 pm

We've had two mortgages. First was taken out in 06/03 - paid off in 12/09. That property was a rental so we weren't as concerned with getting it paid off right away. Cash flow was positive so as long as it was rented it was paying for itself. There was only a one month lapse the entire time we owned it.

Second was taken out in 08/04 - paid off in 08/05. That was our home. We simply threw any money we had towards the mortgage - paying down additional principle each month. It was good that both were paid off by 01/10 because that is when I lost my job and didn't find another until 10/10.

If you want to pay off a mortgage early live inexpensively and throw whatever you can towards the principle. You simply need to make paying it off the highest priority.
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michaeljc70
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Re: Tactics to pay off Mortgage Early??

Post by michaeljc70 » Sun Oct 06, 2019 1:55 pm

In terms of tactics you need to spend less or make more or invest less. I don't see any secret tricks.

I like to think of paying off a mortgage early from both perspectives. It is not just "having a paid off mortgage is great." The money has to come from somewhere. It is more like "would I like a paid off mortgage and $100k less in my portfolio." A lot of people don't seem to think that way (maybe it is my accounting background). Given that my mortgage rate is 3.375%, which I consider very low, I make small additional payments. There is no right answer if your rate is really low.

sport
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Re: Tactics to pay off Mortgage Early??

Post by sport » Sun Oct 06, 2019 1:56 pm

In the early stages of my Mortgage, I could not pay it off. Later, when I had the money to pay it off, Interest rates had climbed so much that my money market fund paid me a much higher rate than my mortgage. So, I was making money by not paying it off. I found that having the money to pay it off gave me the same feeling of freedom as I would have by paying it off. Not paying it off was such a good deal, that the bank tried to get me to refinance at a higher rate by offering additional cash out at (then) below market rates. I just laughed at that offer.

Mortgages are long term propositions. The decision on whether or not to pay it off early should be made in the context of long term considerations. If you have a low rate, there is a substantial probability that rates will be higher in the future and having a low rate mortgage can be financially advantageous.

msk
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Re: Tactics to pay off Mortgage Early??

Post by msk » Sun Oct 06, 2019 2:09 pm

Just take all these discussions to a ridiculous extreme. So you owe $200k on a $500k home. Good not to pay off the loan? Yes, because of the low interest. Go take an additional loan for the underutilized $300k, Silly? Pay off that $200k. A mortgage is a negative bond that implies that you are gearing up your stocks allocation. Gearing on stocks is dangerous...

cashboy
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Re: Tactics to pay off Mortgage Early??

Post by cashboy » Sun Oct 06, 2019 5:07 pm

Frugalbear wrote:
Sun Oct 06, 2019 12:16 pm

Just wondering if anyone had a tactic that they used pay off their mortgage early?

OP, not sure where you are in the mortgage term, or how long the term is, but here goes:

mine was a multi-step approach.

(1)
'when i could afford to' (about 2 years into a 30 year mortgage), and rates went down, i went from a 30 year to a 15 year mortgage.
this got me a higher monthly payment, but i also got a shorter term with lower overall interest costs (which was my goal).

(2)
'when i could afford to' (about 2 years into the 15 year mortgage) i started paying extra each month towards the principal - increasing this amount over time (when possible).
this got me from a 13 year mortgage (13 years left on it after that initial 2 years into the 15 year mortgage) down to about a 9 year mortgage (it would be paid off in about 9 years from that point in time - thereby cutting 4 years off of the remaining term of 13 years and reducing interest paid.

(3)
'when i could afford to' (about 6 years into the 9 years left on the mortgage) i paid it off with savings (thereby cutting 3 years off of the remaining term and reducing interest paid).


so,

from 28 left on 30, to 15

then

from 13 left on 15, to 9

then

from 3 left on 9, to 0.

EDIT: to clarify, the three steps approach above was more of an evolution than a predetermined plan.
rates rise/fall; lenders offer cheap refinancing offers; promotions at work increase salary; etc.
i 'went with the flow' taking advantage of opportunities when the arose; waiting until opportunities arose before acting.
Last edited by cashboy on Sun Oct 06, 2019 6:17 pm, edited 3 times in total.
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Goal33
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Re: Tactics to pay off Mortgage Early??

Post by Goal33 » Sun Oct 06, 2019 5:14 pm

cashboy wrote:
Sun Oct 06, 2019 5:07 pm
Frugalbear wrote:
Sun Oct 06, 2019 12:16 pm

Just wondering if anyone had a tactic that they used pay off their mortgage early?

OP, not sure where you are in the mortgage term, or how long the term is, but here goes:

mine was a multi-step approach.

(1)
'when i could afford to' (about 2 years into a 30 year mortgage), and rates went down, i went from a 30 year to a 15 year mortgage.
this got me a higher monthly payment, but i also got a shorter term with lower overall interest costs (which was my goal).

(2)
'when i could afford to' (about 2 years into the 15 year mortgage) i started paying extra each month towards the principal - increasing this amount over time (when possible).
this got me from a 13 year mortgage (13 years left on it after that initial 2 years into the 15 year mortgage) down to about a 9 year mortgage (it would be paid off in about 9 years from that point in time - thereby cutting 4 years off of the remaining term of 13 years and reducing interest paid.

(3)
'when i could afford to' (about 6 years into the 9 years left on the mortgage) i paid it off with savings (thereby cutting 3 years off of the remaining term and reducing interest paid).


so,

from 28 left on 30, to 15

then

from 13 left on 15, to 9

then

from 3 left on 9, to 0.
Wonder how much you could have saved using 3/1 ARMs the whole way, or starting with a 3/1 ARM and never bother to refinance just stick with the adjustments.
A man with one watch always knows what time it is; a man with two watches is never sure.

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MikeWillRetire
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Re: Tactics to pay off Mortgage Early??

Post by MikeWillRetire » Sun Oct 06, 2019 5:20 pm

I had a 30-year mortgage at 7.375%. When the interest rates dropped, I re-financed to a 15-year mortgage at 5.875%. And later, I got a home equity loan at 1.99%. So instead of 30 years, we paid it off in 22 years. Falling interest rates really helped.

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Que1999
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Re: Tactics to pay off Mortgage Early??

Post by Que1999 » Sun Oct 06, 2019 5:53 pm

livesoft wrote:
Sun Oct 06, 2019 12:34 pm
Here's what we did:
1. Invest extra money routinely in Emerging Markets ETF.
2. When it went up 30+% in a year or so and was valued at more than our remaining mortgage, sell it.
3. Use the cash to pay off the mortgage.
:thumbsup
I second livesoft.

Invest aggressively in equities and sell when your investments outperform your mortgage rate. If the market is down keep buying at cheap prices and wait for the market to recover/outperform to sell and pay the mortgage off. Aim for a return that makes you feel like you can't lose. We aim for an after-tax return of 25-30% to pay off a 4.375% mortgage. If the markets down and there's no urgency in paying the mortgage off, just keep buying stocks.
Last edited by Que1999 on Mon Oct 07, 2019 9:11 am, edited 1 time in total.

JBEB
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Re: Tactics to pay off Mortgage Early??

Post by JBEB » Sun Oct 06, 2019 6:34 pm

While no real advice, just 2 things to think about

What stage of life are you in? While there will be nice not having a mortgage, you still have tax and insurance. With such a low rate, the $ you would use in equity could be making you a ton in the long run

Also, if you are going to pay off early, I would not make extra payments. Save it in a different account earning something and pay it off in full. With smaller payments, you lose access to the money

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Re: Tactics to pay off Mortgage Early??

Post by Dottie57 » Sun Oct 06, 2019 6:44 pm

I used my employers ESPP To purchase company stock and then after purchase I would sell it immediately. I could do up to 10% of salary. The money from sale of stock was applied to my mortgage. It really helped.

The other thing I did was to pay extra on the mortgage each month. I had refinanced to a lower rate so I kept sending the same anount - overage applied to the principal.

Mortgage paid off in 17 years.

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Watty
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Re: Tactics to pay off Mortgage Early??

Post by Watty » Sun Oct 06, 2019 7:19 pm

I don't know where it might fit in your plans but one option to consider is to save up a chunk of money and then call your lender to ask if they will "recast your mortage"(Google this) if you make a large prepayment. The way that this works is that if you prepay 25% of your mortage(or whatever makes sense) then your required monthly mortage payment would be reduced but the same percentage. The length of the loan and the interest rate would stay the say. This could be important if something happens like you are laid off or interest rates go up a lot. Lenders are not required to do this but they usually will for a processing fee of a few hundred dollars, if that.

That may or may not be a good ideal but it is an alternative to just sending in a bit more each month which only reduced the length of your loan.
Frugalbear wrote:
Sun Oct 06, 2019 12:16 pm
No I will not jeopardize my retirement for this venture, I will continue to max out my roth IRA, full company match on 401k, and throw some in the Emergency fund.
It sounds like you are not maxing out your 401k. Unless you are in a very low or zero tax bracket then I would put more into the 401k before I would pay down the mortage. There might be some complex situations that might make that less desirable but that is an expensive trax break to give up.

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Frugalbear
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Re: Tactics to pay off Mortgage Early??

Post by Frugalbear » Sun Oct 06, 2019 8:35 pm

Watty wrote:
Sun Oct 06, 2019 7:19 pm
I don't know where it might fit in your plans but one option to consider is to save up a chunk of money and then call your lender to ask if they will "recast your mortage"(Google this) if you make a large prepayment. The way that this works is that if you prepay 25% of your mortage(or whatever makes sense) then your required monthly mortage payment would be reduced but the same percentage. The length of the loan and the interest rate would stay the say. This could be important if something happens like you are laid off or interest rates go up a lot. Lenders are not required to do this but they usually will for a processing fee of a few hundred dollars, if that.

This has come across my mind!



It sounds like you are not maxing out your 401k. Unless you are in a very low or zero tax bracket then I would put more into the 401k before I would pay down the mortage. There might be some complex situations that might make that less desirable but that is an expensive trax break to give up.
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adios_logic
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Re: Tactics to pay off Mortgage Early??

Post by adios_logic » Sun Oct 06, 2019 9:07 pm

I think about/track my portfolio in two ways, excluding home equity and including home equity. I have a target allocation to home equity (I think in practice it is a moving target)... if my equity portfolio went up, I would allocate more of my investible money to my mortgage.

runner3081
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Re: Tactics to pay off Mortgage Early??

Post by runner3081 » Sun Oct 06, 2019 10:36 pm

SevenBridgesRoad wrote:
Sun Oct 06, 2019 12:57 pm
Frugalbear wrote:
Sun Oct 06, 2019 12:16 pm

...The reason I ask this question is because a colleague of mine asked what I would do if I paid my mortgage off tomorrow? I thought about it and I realized the amount of freedom I would have if I did not have to make that payment...
This is the best reason to do it: freedom, peace of mind, sleeping well at night. ....
You can't imagine the feeling of freedom. Go for it.
Interesting, most people talk about that feeling after paying the mortgage off. My wife and I didn't really have any relief. Just another transaction.

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Re: Tactics to pay off Mortgage Early??

Post by whodidntante » Sun Oct 06, 2019 10:46 pm

runner3081 wrote:
Sun Oct 06, 2019 10:36 pm
Interesting, most people talk about that feeling after paying the mortgage off. My wife and I didn't really have any relief. Just another transaction.
I suspect you are not extremely debt-averse. Not that anyone likes debt. There is a rational level of debt aversion. Below or above that level can lead to outcomes that are less than optimal, or even problematic.

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Re: Tactics to pay off Mortgage Early??

Post by Grt2bOutdoors » Sun Oct 06, 2019 10:49 pm

runner3081 wrote:
Sun Oct 06, 2019 10:36 pm
SevenBridgesRoad wrote:
Sun Oct 06, 2019 12:57 pm
Frugalbear wrote:
Sun Oct 06, 2019 12:16 pm

...The reason I ask this question is because a colleague of mine asked what I would do if I paid my mortgage off tomorrow? I thought about it and I realized the amount of freedom I would have if I did not have to make that payment...
This is the best reason to do it: freedom, peace of mind, sleeping well at night. ....
You can't imagine the feeling of freedom. Go for it.
Interesting, most people talk about that feeling after paying the mortgage off. My wife and I didn't really have any relief. Just another transaction.
You may be flush with extra disposable income or have high employment security. Housing expense for many is the largest monthly expenditure, the relief of not having a mortgage payment due on the 1st of the month should not be overlooked or seen as just another transaction. It is the release of the highest burden on many minds and shoulders. I know my folks were happy to see their largest expense disappear when their mortgage was extinguished.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

stoptothink
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Re: Tactics to pay off Mortgage Early??

Post by stoptothink » Sun Oct 06, 2019 11:02 pm

No specific tactics. We're approaching 4yrs, hoping to have it paid off at the 5yr mark (Jan. 1 2021). Not sure if we'll make it, but that's the goal. After maxing a pair of 401ks, Roth IRAs, family HSA, and pair of 529s up to state max, we just throw everything else at the mortgage; that's anywhere from an extra $500-$5000/month. I'm extremely debt averse, I've wanted it paid off since the second we signed the loan docs.

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Re: Tactics to pay off Mortgage Early??

Post by spammagnet » Sun Oct 06, 2019 11:11 pm

The tax benefits of additional 401k tax-deferred contributions may surpass any interest savings gotten from paying off the mortgage early. Yes, you'll have to pay ordinary tax when withdrawn but, if your present marginal tax bracket is higher than what you can forecast it will be in retirement, it's a net gain.

This does not ignore the difference between the certain "return" of interest avoidance and the possible return of investments, nor does it ignore the cash flow benefits of not having debt. But it is an aspect of the decision that should be considered.

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Re: Tactics to pay off Mortgage Early??

Post by HEDGEFUNDIE » Sun Oct 06, 2019 11:12 pm

Grt2bOutdoors wrote:
Sun Oct 06, 2019 10:49 pm
runner3081 wrote:
Sun Oct 06, 2019 10:36 pm
SevenBridgesRoad wrote:
Sun Oct 06, 2019 12:57 pm
Frugalbear wrote:
Sun Oct 06, 2019 12:16 pm

...The reason I ask this question is because a colleague of mine asked what I would do if I paid my mortgage off tomorrow? I thought about it and I realized the amount of freedom I would have if I did not have to make that payment...
This is the best reason to do it: freedom, peace of mind, sleeping well at night. ....
You can't imagine the feeling of freedom. Go for it.
Interesting, most people talk about that feeling after paying the mortgage off. My wife and I didn't really have any relief. Just another transaction.
You may be flush with extra disposable income or have high employment security. Housing expense for many is the largest monthly expenditure, the relief of not having a mortgage payment due on the 1st of the month should not be overlooked or seen as just another transaction. It is the release of the highest burden on many minds and shoulders. I know my folks were happy to see their largest expense disappear when their mortgage was extinguished.
Once my mortgage is gone I would still owe ~$30k per year in property tax, maintenance, insurance. That is 1/3 the expense of my PITI.

Not to mention my house would become my single largest asset by far. An illiquid asset no less.

How does any of this help me sleep at night?

stoptothink
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Re: Tactics to pay off Mortgage Early??

Post by stoptothink » Sun Oct 06, 2019 11:20 pm

HEDGEFUNDIE wrote:
Sun Oct 06, 2019 11:12 pm
Grt2bOutdoors wrote:
Sun Oct 06, 2019 10:49 pm
runner3081 wrote:
Sun Oct 06, 2019 10:36 pm
SevenBridgesRoad wrote:
Sun Oct 06, 2019 12:57 pm
Frugalbear wrote:
Sun Oct 06, 2019 12:16 pm

...The reason I ask this question is because a colleague of mine asked what I would do if I paid my mortgage off tomorrow? I thought about it and I realized the amount of freedom I would have if I did not have to make that payment...
This is the best reason to do it: freedom, peace of mind, sleeping well at night. ....
You can't imagine the feeling of freedom. Go for it.
Interesting, most people talk about that feeling after paying the mortgage off. My wife and I didn't really have any relief. Just another transaction.
You may be flush with extra disposable income or have high employment security. Housing expense for many is the largest monthly expenditure, the relief of not having a mortgage payment due on the 1st of the month should not be overlooked or seen as just another transaction. It is the release of the highest burden on many minds and shoulders. I know my folks were happy to see their largest expense disappear when their mortgage was extinguished.
Once my mortgage is gone I would still owe ~$30k per year in property tax, maintenance, insurance.

Not to mention my house would become my single largest asset by far. An illiquid asset no less. It’s no different than if I sold all my VTSAX and bought MSFT instead.

How does any of this help me sleep at night?
For some of us, taxes, maintenance, and insurance are nowhere near $30k/yr. We're averaging under 1/5th of that (and that includes HOA which covers all outside maintenance and most utilities). Furthermore, the value of our home is <1/3rd the size of our retirement portfolio. Evaluate your own situation, it is a better option for some of us than others.

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Re: Tactics to pay off Mortgage Early??

Post by basspond » Sun Oct 06, 2019 11:21 pm

Refinanced to 15 year from a 30 year after one year. I like the set it and forget it method, like you are doing in your savings. If you count our first house, we weren’t barn burners. Took us 21 years to rid mortgages from our life.

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SevenBridgesRoad
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Re: Tactics to pay off Mortgage Early??

Post by SevenBridgesRoad » Sun Oct 06, 2019 11:34 pm

HEDGEFUNDIE wrote:
Sun Oct 06, 2019 11:12 pm
Grt2bOutdoors wrote:
Sun Oct 06, 2019 10:49 pm
runner3081 wrote:
Sun Oct 06, 2019 10:36 pm
SevenBridgesRoad wrote:
Sun Oct 06, 2019 12:57 pm
Frugalbear wrote:
Sun Oct 06, 2019 12:16 pm

...The reason I ask this question is because a colleague of mine asked what I would do if I paid my mortgage off tomorrow? I thought about it and I realized the amount of freedom I would have if I did not have to make that payment...
This is the best reason to do it: freedom, peace of mind, sleeping well at night. ....
You can't imagine the feeling of freedom. Go for it.
Interesting, most people talk about that feeling after paying the mortgage off. My wife and I didn't really have any relief. Just another transaction.
You may be flush with extra disposable income or have high employment security. Housing expense for many is the largest monthly expenditure, the relief of not having a mortgage payment due on the 1st of the month should not be overlooked or seen as just another transaction. It is the release of the highest burden on many minds and shoulders. I know my folks were happy to see their largest expense disappear when their mortgage was extinguished.
Once my mortgage is gone I would still owe ~$30k per year in property tax, maintenance, insurance. That is 1/3 the expense of my PITI.

Not to mention my house would become my single largest asset by far. An illiquid asset no less.

How does any of this help me sleep at night?
My "mortgage is gone" and my property tax, maintenance and insurance are much less than $30K/year, and my house is nowhere near my largest asset (market value is way below means according to rules-of-thumb).

I'm not sure why debt and being legally on the line monthly to pay someone else so you can own your house helps you sleep better, if that's what you are suggesting. But I know from other posts you are a smart guy and smart investor (I mean this), so I realize debt/leverage works for you. But not for me. One thing about BH forum, one learns there are different kinds of people and lots of ways to be successful. :sharebeer
Last edited by SevenBridgesRoad on Sun Oct 06, 2019 11:42 pm, edited 1 time in total.
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LittleMaggieMae
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Re: Tactics to pay off Mortgage Early??

Post by LittleMaggieMae » Sun Oct 06, 2019 11:40 pm

I paid off my house early (had a 15 year mortgage that I paid in 12 - cause every one said how wonderful it was to have a paid off house...) and it was just kind of "meh" - my property tax and insurance are so high the PI part of the equation is pretty inconsequential. IT wasn't all that freeing -- I still had to "pay" a substantial amount in property tax/insurance every month to keep my house.

I got a HELOC (so, I paid money to use money I had put into paying off the house... ) as a way to access $$ and wound up using it as a down payment on an investment property (the bottom of the housing market). I paid off the HELOC in 18 months. That worked so well, I remortgage my house and used the proceeds to purchase another investment property (I bought an uninhabitable house and fixed it up). 5 years later I sold it (but kept the mortgage on my house) - and am applying the proceeds to a really nice investment property. I could pay it off the mortgage on my primary home -but then if I wanted to use the equity - I'd have pay again to use it! I'll just keep the low interest mortgage.

I currently have quite a bit of mortgage debt - but it doesn't keep me up at night. It's borrowed money that's working hard for me. :)

That said, I'm not really a big fan of aggressively paying off a mortgage with a low interest rate... the only way you can use the 'value' (equity) in a paid off house is to PAY to get at the money. I'd not bother to pay down the mortgage - I'd invest the extra money. When you get to the final years of the mortgage you can then decide if you want to be done with it and pay it off in a lump sum.

What I've found freeing is having a big 401K balance, a growing Roth balance, and after tax investments equal to 1 year of income. I need to be able to afford the property tax, insurance, and upkeep expenses on my house in retirement. :)

HEDGEFUNDIE
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Re: Tactics to pay off Mortgage Early??

Post by HEDGEFUNDIE » Sun Oct 06, 2019 11:55 pm

What I find inconsistent is that many of the same folks who claim they would sleep better at night without a mortgage are the same folks who worry about inflation.

A fixed rate mortgage is God’s gift to men who fear inflation!

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Re: Tactics to pay off Mortgage Early??

Post by SevenBridgesRoad » Mon Oct 07, 2019 12:51 am

HEDGEFUNDIE wrote:
Sun Oct 06, 2019 11:55 pm
What I find inconsistent is that many of the same folks who claim they would sleep better at night without a mortgage are the same folks who worry about inflation.

A fixed rate mortgage is God’s gift to men who fear inflation!
God's gift? The SevenBridgesRoad Bible says, "If your home comes coupled to a payment book and that same home has a title with a lender's name ("the man") embossed upon it and thus registered to The State, you must first pay the man each month no matter what your life circumstances bring. The man and The State care nothing of job loss, groceries for the month, other leverage, IQ, clever arbitrage, black swans or pestilence. This is not the way to freedom, no. It is the road to being awakened in the night with worry and sleeplessness and even your pillow being soaked with sweat that is cold."
Retired 2018 age 61 | "Not using an alarm is one of the great glories of my life." Robert Greene

HEDGEFUNDIE
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Re: Tactics to pay off Mortgage Early??

Post by HEDGEFUNDIE » Mon Oct 07, 2019 1:42 am

SevenBridgesRoad wrote:
Mon Oct 07, 2019 12:51 am
HEDGEFUNDIE wrote:
Sun Oct 06, 2019 11:55 pm
What I find inconsistent is that many of the same folks who claim they would sleep better at night without a mortgage are the same folks who worry about inflation.

A fixed rate mortgage is God’s gift to men who fear inflation!
God's gift? The SevenBridgesRoad Bible says, "If your home comes coupled to a payment book and that same home has a title with a lender's name ("the man") embossed upon it and thus registered to The State, you must first pay the man each month no matter what your life circumstances bring. The man and The State care nothing of job loss, groceries for the month, other leverage, IQ, clever arbitrage, black swans or pestilence. This is not the way to freedom, no. It is the road to being awakened in the night with worry and sleeplessness and even your pillow being soaked with sweat that is cold."
In many states, the State is your friend. Two words: non-recourse loan.

vested1
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Re: Tactics to pay off Mortgage Early??

Post by vested1 » Mon Oct 07, 2019 5:30 am

Sorry in advance for the length of this tome, but since you asked:
I entered retirement in early 2016 at age 63.5 having a mortgage with 24 years left on it. Life had intervened, and what should have been a paid off mortgage in 2024 if I had stuck with the original loan, rather than 2040 , was extended due to unavoidable circumstances, compounded by bad decisions. Retirement allowed me the extra time to delve into the various methods of paying off the mortgage. I took a step back and engaged in an overview of what our long term goals were, and how to accomplish them. Paramount was the desire to not have a mortgage at age 88. Rather than limiting my perspective to one aspect, such as maintaining portfolio balance, negative aspects of over-taxation, estimated increases in income, and our ancillary desire to relocate, I incorporated all of it into a plan.

I was criticized by a few members of this forum when I posted it, my best friend whom I share financial information with, and my own brother over the plan. Detractors considered it too aggressive and risky to implement during early retirement. I had about 1 million in TIRA, with zero in taxable. My mortgage balance was about 198k. In my estimation, a longer view of estimated TIRA balances in previous years, tracking goals that were consistently surpassed over time, and my realization that the portfolio had over-performed and that after implementing my plan I would still be a better position than initially estimated, I pulled the trigger. Luck and timing were on my side.

The tools used were:

- An advanced online amortization calculator that allowed various inputs for regular extra payments, and/or lump sum payments against principle. The tool allowed me to determine total interest paid and payoff dates when different amounts were plugged in.
- An online federal and State tax calculator which showed tax liability for different levels of taxable income.
- Writing down numerous variations of the plan through the onset of RMD's and running the final version by my CPA daughter to get her opinion. Although she said that it would work, she added that I was surprisingly "strategic" in nature, (which I'm not sure was a compliment).

I implemented the plan in August of 2018, with a lump sum payment of 60k against principle, 30k of which came from an unexpected inheritance (strike while the iron is hot) and 30k from TIRA. This immediately increased the amount of principle going toward the mortgage balance on regular payments, accelerating the reduction in principle. I made the next lump sum payment of 30k from TIRA in April of 2019, resulting in a mortgage balance of around 90k, 108k less than a year earlier due in part to larger principle reductions on regular payments. Since the taxable income was spread over multiple years the impact of taxes was lessened. An increase in income in July of 2018 due to my wife's filing on her own SS record, and me simultaneously filing a restricted application on her record at my FRA more than made up for the additional taxes.

I then put our small 62 year old home on the market at just the right time during the peak of the market in May, and sold it for 10k over asking, and 40k over comps. I had a great RE agent who told me she was doing lump sum payments on her mortgage as well, and ended up paying off her similarly sized mortgage in 1 year. My wife and I took the proceeds of the sale and bought a much newer home with twice the square footage on a lake in a different State with more favorable taxation, and were able to buy the added furniture needed as well as two boats, all for cash.

The obvious rebuttal to this plan is that I should have just taken the money out of the TIRA and paid off the mortgage instead of following my plan. Someone on this forum actually suggested I do this, adding 198k of taxable income in a single tax year. That would have resulted in selling the house at a less favorable time, as well as a much larger tax bill. It would have also stretched our resources to a point where it would have been difficult to accomplish the relocation with all of the expense that entailed, and the extras, such as the new furniture and boats. It would have negated the flexibility of the plan as well, which partially relied on a booming market, and extracting over-performance in multiple instances, rather than one.

If the highly anticipated recession would have hit I would have simply ratcheted down the plan to accomplish it in a longer term. Our TIRA's are now at about the same level as when we implemented the plan 14 months ago, with no mortgage.

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Re: Tactics to pay off Mortgage Early??

Post by FIREmeup » Mon Oct 07, 2019 6:30 am

As you can see there are many different opinions on this personal finance subject. Mathematically does it make sense to pay it off early? Historically, no. But who knows what the next 15 years will bring.

My wife and I determined we do want to pay it off smartly. First you should max out tax deferred space, do not forego any of it. Next we determined our stock and bond percentage each month for taxable contributions. Instead of buying a bond index we have put that towards our mortgage. Yeah our mortgage is only 3.875%. If a money market was out that would be higher than that we would stop the extra payments but the rates never quite got there. We are on pace to be mortgage free by 2021 after buying in 2012. We can pay it off now and not really even notice a drop in our investments but we are sticking to the plan. We have lived below our means and look forward to the mandatory payment for housing being cut down 80%. We will then start actually investing a in a bond fund.

Hindsight, yeah absolutely should have plowed everything in the market but oh well. Good luck to you.

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Re: Tactics to pay off Mortgage Early??

Post by forgeblast » Mon Oct 07, 2019 7:19 am

After reading the automatic millionaire, we decided to do this.
Figured out how much one-two extra payments a year were, divide it across our bill and then set it and forget it.

nolesrule
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Re: Tactics to pay off Mortgage Early??

Post by nolesrule » Mon Oct 07, 2019 7:50 am

Frugalbear wrote:
Sun Oct 06, 2019 12:16 pm
No I will not jeopardize my retirement for this venture, I will continue to max out my roth IRA, full company match on 401k, and throw some in the Emergency fund.
Put more in the 401k.

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JoeRetire
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Re: Tactics to pay off Mortgage Early??

Post by JoeRetire » Mon Oct 07, 2019 8:03 am

Frugalbear wrote:
Sun Oct 06, 2019 12:16 pm
The reason I ask this question is because a colleague of mine asked what I would do if I paid my mortgage off tomorrow? I thought about it and I realized the amount of freedom I would have if I did not have to make that payment.
Is this "freedom" just a warm feeling? Are you currently struggling to sleep at night due to your low-interest mortgage?

Assuming you had $126,500 available, what would this freedom do for you that $126,500 in the bank wouldn't, if you used the money to pay off your mortgage balance?
Don't be a lemming.

Reamus294
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Re: Tactics to pay off Mortgage Early??

Post by Reamus294 » Mon Oct 07, 2019 8:48 am

Our main tactic is increased income. We weren't paying much extra at the beginning.

I am paid every other week so we put my 3rd paycheck twice a year towards the mortgage. We had an 80% loan and 15% loan (which I wouldn't do today, but worked in our favor due to rising property prices). We paid off the 15% loan early so we also pay the same amount today but put it towards the monthly principal. Hopefully our 30 year mortgage will only take about 16 years total. If there is large drop in the market (like 2008-2009), we will put the extra we pay on the mortgage to work in the market. After we pay off the mortgage, the plan is to put that money towards a savings account for a year or two for some remodeling, this is incentive for us too.

Our retirement accounts would be much higher if all of the extra payments were going into the market instead. It doesn't make much sense, but it is easier for me to put extra money towards the mortgage rather than retirement. We had some credit card debt after school, which has made us risk averse against debt.

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Re: Tactics to pay off Mortgage Early??

Post by EddyB » Mon Oct 07, 2019 9:45 am

SevenBridgesRoad wrote:
Mon Oct 07, 2019 12:51 am
HEDGEFUNDIE wrote:
Sun Oct 06, 2019 11:55 pm
What I find inconsistent is that many of the same folks who claim they would sleep better at night without a mortgage are the same folks who worry about inflation.

A fixed rate mortgage is God’s gift to men who fear inflation!
God's gift? The SevenBridgesRoad Bible says, "If your home comes coupled to a payment book and that same home has a title with a lender's name ("the man") embossed upon it and thus registered to The State, you must first pay the man each month no matter what your life circumstances bring. The man and The State care nothing of job loss, groceries for the month, other leverage, IQ, clever arbitrage, black swans or pestilence. This is not the way to freedom, no. It is the road to being awakened in the night with worry and sleeplessness and even your pillow being soaked with sweat that is cold."
When you lost your job ten years ago, you didn’t feel like you would rather have had the cash that you had tied up in early mortgage payments? I just don’t get it. You took the money you could have used for expenses (including the mortgage) and locked it up to reduce one expenses, but not all of them. Why do you think that’s a better situation? You deprived yourself of choice.

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Re: Tactics to pay off Mortgage Early??

Post by SevenBridgesRoad » Mon Oct 07, 2019 10:50 am

EddyB wrote:
Mon Oct 07, 2019 9:45 am

When you lost your job ten years ago, you didn’t feel like you would rather have had the cash that you had tied up in early mortgage payments? I just don’t get it. You took the money you could have used for expenses (including the mortgage) and locked it up to reduce one expenses, but not all of them. Why do you think that’s a better situation? You deprived yourself of choice.
If I had lost a job, I would have felt less stress by not having a house payment during a job search. I get it that you feel differently: you lost your job and feel less stress by having a larger war chest not tied up in a house. Different people stressed by different situations.

There are two camps on this topic, those who think it's a bad idea to pay off a mortgage and those who think its a good idea. You are in one camp and I'm in the other. All the discussion in the world isn't going to change that. Look at all the electrons used by two camps endlessly debating international allocation, leverage, sectors, etc. So many subjects with two camps. I think each camp has laid out their opinions/arguments on mortgage repayments and we will just have to agree to disagree.
Retired 2018 age 61 | "Not using an alarm is one of the great glories of my life." Robert Greene

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Re: Tactics to pay off Mortgage Early??

Post by Grt2bOutdoors » Mon Oct 07, 2019 11:12 am

HEDGEFUNDIE wrote:
Mon Oct 07, 2019 1:42 am
SevenBridgesRoad wrote:
Mon Oct 07, 2019 12:51 am
HEDGEFUNDIE wrote:
Sun Oct 06, 2019 11:55 pm
What I find inconsistent is that many of the same folks who claim they would sleep better at night without a mortgage are the same folks who worry about inflation.

A fixed rate mortgage is God’s gift to men who fear inflation!
God's gift? The SevenBridgesRoad Bible says, "If your home comes coupled to a payment book and that same home has a title with a lender's name ("the man") embossed upon it and thus registered to The State, you must first pay the man each month no matter what your life circumstances bring. The man and The State care nothing of job loss, groceries for the month, other leverage, IQ, clever arbitrage, black swans or pestilence. This is not the way to freedom, no. It is the road to being awakened in the night with worry and sleeplessness and even your pillow being soaked with sweat that is cold."
In many states, the State is your friend. Two words: non-recourse loan.
You live in an alternate universe. What happens in a non-recourse state has zero bearing on what happens in a recourse state. You default on your mortgage in a recourse state not only will the bank foreclose on the home, any difference in judgement amount you are liable for.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

soccerrules
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Re: Tactics to pay off Mortgage Early??

Post by soccerrules » Mon Oct 07, 2019 11:15 am

your interest rate is pretty solid. I would just pick a set amount each month to ADD to principal above the payment.

About 10 years ago when we refi'd, our payment dropped several hundred dollars. I continued to pay the previous mortgage payment for a few years until there was a need to for more "cash flow". We have a 15 year anyway, but it will allow us to retire the mortgage 3 years earlier.
Don't let your outflow exceed your income or your upkeep will be your downfall.

cashboy
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Re: Tactics to pay off Mortgage Early??

Post by cashboy » Mon Oct 07, 2019 11:36 am

the OP's mortgage is $126,500

to some posters that might be a lot of money that they do not like hanging over their heads (for whatever reason); while to others it is a small amount that they do not mind carrying (again, for whatever reason).

me? i cannot recall ever seeing groups of homeowners complain that they regretted paying off their mortgage - on time or early.


the OP asked for tactics to pay off a mortgage early; he received several pieces of tactical advice for his consideration (including mine further above).

OP, what are your plans?
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Frugalbear
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Re: Tactics to pay off Mortgage Early??

Post by Frugalbear » Mon Oct 07, 2019 1:55 pm

Thank you all for posting your thoughts and tactics you have used or do use.

So here is what I have done and what I plan to do:

1. I called up my mortgage company in regards to my PMI and I am getting my PMI waived.

2. I ran a bunch of scenarios through an amortization calculator.

3. After playing with the numbers, I can afford to put an extra $360/month on the principal.

30 year mortgage to 17 years

barnaclebob
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Re: Tactics to pay off Mortgage Early??

Post by barnaclebob » Mon Oct 07, 2019 3:35 pm

I round up to the nearest $100 then add an extra 100 a month each year on top of that

If we are ahead of our taxable savings plan then the rent money from the basement apartment goes to the mortgage.

We attempt to put $5000 worth of our yearly bonus money to the mortgage.

With this plan we hope to be mortgage free in about 9 to 12 years, 10 years ahead of schedule.

Mako52
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Re: Tactics to pay off Mortgage Early??

Post by Mako52 » Mon Oct 07, 2019 4:03 pm

I have a question for those in their 40s and 50s who decided to pay off their mortgage early. Not extra payments here and there, but a lump sum of 25% or more of its original value.

What was your monthly P&I as a percentage of your total expenses, including Federal, state, and local taxes?

RobLyons
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Re: Tactics to pay off Mortgage Early??

Post by RobLyons » Mon Oct 07, 2019 4:08 pm

$221k @ 3.50% 30-year fixed here (23 years remaining)

Just started making $150 / month additional principal payments. Plan to increase once other debts are settled. I want to refi to a 15 but with closing costs and such, it doesn't make a lot of financial sense unless rates drop much more. Good luck!
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