Paying off mortgage with 87K left on it

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ryman554
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Joined: Sun Jan 12, 2014 9:44 pm

Re: Paying off mortgage with 87K left on it

Post by ryman554 » Tue Sep 11, 2018 8:28 am

Snowjob wrote:
Tue Sep 11, 2018 8:07 am
Watty wrote:
Mon Sep 10, 2018 11:46 pm
Snowjob wrote:
Mon Sep 10, 2018 11:06 pm
My own situation, I am looking at making an additional large payment up front to reduce the interest costs on the my loan. While they may not be "front loaded" as some have suggested, your payments are fixed through the course of the mortgage.
If you are thinking of making a large prepayment then you can call your lender and ask if they will "recast your mortgage"(Google this). They are not required to do this but they often will for a processing fee of a couple of hundred dollars. They way this works is that if you pay the loan down by 33%(or whatever makes sense) then your required monthly payment will be reduced by the same percentage. The length of the loan and the interest rate stay the same. This can be important if something happens like you are laid off or interest rates go up a lot.
Thanks for the advice, for a few hundred bucks I'll take flexibility all day long -- though Id like to stay on schedule if possible!
If you are going to keep to the same payment schedule (modulo big bolus of money tomorrow!), then feel free to call (or just look on your lender's website!) about the recast, but don't do it unless it's free. If you see a cash flow crunch coming, by all means, do it and lower your monthly payment, but the recast only extends the life of the loan, not shortens it, after a significant prepayment.

Snowjob
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Joined: Sun Jun 28, 2009 10:53 pm

Re: Paying off mortgage with 87K left on it

Post by Snowjob » Tue Sep 11, 2018 9:07 am

ryman554 wrote:
Tue Sep 11, 2018 8:28 am
Snowjob wrote:
Tue Sep 11, 2018 8:07 am
Watty wrote:
Mon Sep 10, 2018 11:46 pm
Snowjob wrote:
Mon Sep 10, 2018 11:06 pm
My own situation, I am looking at making an additional large payment up front to reduce the interest costs on the my loan. While they may not be "front loaded" as some have suggested, your payments are fixed through the course of the mortgage.
If you are thinking of making a large prepayment then you can call your lender and ask if they will "recast your mortgage"(Google this). They are not required to do this but they often will for a processing fee of a couple of hundred dollars. They way this works is that if you pay the loan down by 33%(or whatever makes sense) then your required monthly payment will be reduced by the same percentage. The length of the loan and the interest rate stay the same. This can be important if something happens like you are laid off or interest rates go up a lot.
Thanks for the advice, for a few hundred bucks I'll take flexibility all day long -- though Id like to stay on schedule if possible!
If you are going to keep to the same payment schedule (modulo big bolus of money tomorrow!), then feel free to call (or just look on your lender's website!) about the recast, but don't do it unless it's free. If you see a cash flow crunch coming, by all means, do it and lower your monthly payment, but the recast only extends the life of the loan, not shortens it, after a significant prepayment.
Agreed, on the mechanics, but for a few hundred the option to pay less if I had to is appealing. I guess there is no reason to do it now and I could wait until it was ever needed. The question is if interest rates have doubled then or worse -- its that + a surprise layoff -- maybe they wouldn't offer the recast? For some reason I think this is one of those things like a line of credit where you establish it now when you don't needed it so that when you do its in place. Thoughts? I mean a few hundred bucks seem like an easy insurance policy.

ryman554
Posts: 1104
Joined: Sun Jan 12, 2014 9:44 pm

Re: Paying off mortgage with 87K left on it

Post by ryman554 » Tue Sep 11, 2018 9:55 am

Snowjob wrote:
Tue Sep 11, 2018 9:07 am
Agreed, on the mechanics, but for a few hundred the option to pay less if I had to is appealing. I guess there is no reason to do it now and I could wait until it was ever needed. The question is if interest rates have doubled then or worse -- its that + a surprise layoff -- maybe they wouldn't offer the recast? For some reason I think this is one of those things like a line of credit where you establish it now when you don't needed it so that when you do its in place. Thoughts? I mean a few hundred bucks seem like an easy insurance policy.
Remember, it is *always* in the bank favor to recast a mortgage, regardless of interest rate. They get free money upfront AND they get you on the hook for more interest if you reduce your monthly payment.

They don't need to know you got laid-off, although if you see times getting tough, go ahead and take the insurance.

It's actually a lot different than a line of credit because they can be shut down at any time. (see 2008) You can't really rely on a HELOC being there to tide you over a job-loss.

Admiral
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Joined: Mon Oct 27, 2014 12:35 pm

Re: Paying off mortgage with 87K left on it

Post by Admiral » Tue Sep 11, 2018 10:05 am

ryman554 wrote:
Tue Sep 11, 2018 9:55 am
Snowjob wrote:
Tue Sep 11, 2018 9:07 am
Agreed, on the mechanics, but for a few hundred the option to pay less if I had to is appealing. I guess there is no reason to do it now and I could wait until it was ever needed. The question is if interest rates have doubled then or worse -- its that + a surprise layoff -- maybe they wouldn't offer the recast? For some reason I think this is one of those things like a line of credit where you establish it now when you don't needed it so that when you do its in place. Thoughts? I mean a few hundred bucks seem like an easy insurance policy.
Remember, it is *always* in the bank favor to recast a mortgage, regardless of interest rate. They get free money upfront AND they get you on the hook for more interest if you reduce your monthly payment.

They don't need to know you got laid-off, although if you see times getting tough, go ahead and take the insurance.

It's actually a lot different than a line of credit because they can be shut down at any time. (see 2008) You can't really rely on a HELOC being there to tide you over a job-loss.
I believe that a recast does not increase interest. It keeps the same loan term and interest rate, but the payment is lower because you've paid down the principal. And in fact you pay less interest overall because (again) the amount you're financing is lower. The bank is giving up some interest but in return is getting a large pre-payment.

In general, if rates are lower you're better off with a refinance (depending on the spread.)

nolesrule
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Joined: Thu Feb 26, 2015 10:59 am

Re: Paying off mortgage with 87K left on it

Post by nolesrule » Tue Sep 11, 2018 11:21 am

Admiral wrote:
Tue Sep 11, 2018 10:05 am
ryman554 wrote:
Tue Sep 11, 2018 9:55 am
Snowjob wrote:
Tue Sep 11, 2018 9:07 am
Agreed, on the mechanics, but for a few hundred the option to pay less if I had to is appealing. I guess there is no reason to do it now and I could wait until it was ever needed. The question is if interest rates have doubled then or worse -- its that + a surprise layoff -- maybe they wouldn't offer the recast? For some reason I think this is one of those things like a line of credit where you establish it now when you don't needed it so that when you do its in place. Thoughts? I mean a few hundred bucks seem like an easy insurance policy.
Remember, it is *always* in the bank favor to recast a mortgage, regardless of interest rate. They get free money upfront AND they get you on the hook for more interest if you reduce your monthly payment.

They don't need to know you got laid-off, although if you see times getting tough, go ahead and take the insurance.

It's actually a lot different than a line of credit because they can be shut down at any time. (see 2008) You can't really rely on a HELOC being there to tide you over a job-loss.
I believe that a recast does not increase interest. It keeps the same loan term and interest rate, but the payment is lower because you've paid down the principal. And in fact you pay less interest overall because (again) the amount you're financing is lower. The bank is giving up some interest but in return is getting a large pre-payment.

In general, if rates are lower you're better off with a refinance (depending on the spread.)
If you continue to pay the same amount as prior to the recast, a recast is a wash with your original mortgage term, because interest is based on principle amounts.

However, the recast itself is a re-amortization. The lower payment is a result of lowering the amount of principle due with each payment in order to extend the loan back to the original due date. So if you take advantage of the lower minimum payment from the recast, you will be putting less to principle than the pre-recast payment and thus you will pay more in interest.

Admiral
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Joined: Mon Oct 27, 2014 12:35 pm

Re: Paying off mortgage with 87K left on it

Post by Admiral » Tue Sep 11, 2018 11:32 am

nolesrule wrote:
Tue Sep 11, 2018 11:21 am
Admiral wrote:
Tue Sep 11, 2018 10:05 am
ryman554 wrote:
Tue Sep 11, 2018 9:55 am
Snowjob wrote:
Tue Sep 11, 2018 9:07 am
Agreed, on the mechanics, but for a few hundred the option to pay less if I had to is appealing. I guess there is no reason to do it now and I could wait until it was ever needed. The question is if interest rates have doubled then or worse -- its that + a surprise layoff -- maybe they wouldn't offer the recast? For some reason I think this is one of those things like a line of credit where you establish it now when you don't needed it so that when you do its in place. Thoughts? I mean a few hundred bucks seem like an easy insurance policy.
Remember, it is *always* in the bank favor to recast a mortgage, regardless of interest rate. They get free money upfront AND they get you on the hook for more interest if you reduce your monthly payment.

They don't need to know you got laid-off, although if you see times getting tough, go ahead and take the insurance.

It's actually a lot different than a line of credit because they can be shut down at any time. (see 2008) You can't really rely on a HELOC being there to tide you over a job-loss.
I believe that a recast does not increase interest. It keeps the same loan term and interest rate, but the payment is lower because you've paid down the principal. And in fact you pay less interest overall because (again) the amount you're financing is lower. The bank is giving up some interest but in return is getting a large pre-payment.

In general, if rates are lower you're better off with a refinance (depending on the spread.)
If you continue to pay the same amount as prior to the recast, a recast is a wash with your original mortgage term, because interest is based on principle amounts.

However, the recast itself is a re-amortization. The lower payment is a result of lowering the amount of principle due with each payment in order to extend the loan back to the original due date. So if you take advantage of the lower minimum payment from the recast, you will be putting less to principle than the pre-recast payment and thus you will pay more in interest.
Hmm. I would have to run this thru a mortg. calculator, but if one puts a sizeable chunk of money down during the re-cast (let's say a 4 figure amount) and we assume the rate and the loan length don't change, that would mean the payment would be lower (as it would have to be, to keep the same terms) which -- as you point out -- may mean more interest is paid (percentage wise) on each payment versus pre-recast. However, because the principle amount is lower, the TOTAL interest paid should be lower.

Or are you saying it would be higher? Or the same?

nolesrule
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Joined: Thu Feb 26, 2015 10:59 am

Re: Paying off mortgage with 87K left on it

Post by nolesrule » Tue Sep 11, 2018 11:48 am

Admiral wrote:
Tue Sep 11, 2018 11:32 am
nolesrule wrote:
Tue Sep 11, 2018 11:21 am
Admiral wrote:
Tue Sep 11, 2018 10:05 am
ryman554 wrote:
Tue Sep 11, 2018 9:55 am
Snowjob wrote:
Tue Sep 11, 2018 9:07 am
Agreed, on the mechanics, but for a few hundred the option to pay less if I had to is appealing. I guess there is no reason to do it now and I could wait until it was ever needed. The question is if interest rates have doubled then or worse -- its that + a surprise layoff -- maybe they wouldn't offer the recast? For some reason I think this is one of those things like a line of credit where you establish it now when you don't needed it so that when you do its in place. Thoughts? I mean a few hundred bucks seem like an easy insurance policy.
Remember, it is *always* in the bank favor to recast a mortgage, regardless of interest rate. They get free money upfront AND they get you on the hook for more interest if you reduce your monthly payment.

They don't need to know you got laid-off, although if you see times getting tough, go ahead and take the insurance.

It's actually a lot different than a line of credit because they can be shut down at any time. (see 2008) You can't really rely on a HELOC being there to tide you over a job-loss.
I believe that a recast does not increase interest. It keeps the same loan term and interest rate, but the payment is lower because you've paid down the principal. And in fact you pay less interest overall because (again) the amount you're financing is lower. The bank is giving up some interest but in return is getting a large pre-payment.

In general, if rates are lower you're better off with a refinance (depending on the spread.)
If you continue to pay the same amount as prior to the recast, a recast is a wash with your original mortgage term, because interest is based on principle amounts.

However, the recast itself is a re-amortization. The lower payment is a result of lowering the amount of principle due with each payment in order to extend the loan back to the original due date. So if you take advantage of the lower minimum payment from the recast, you will be putting less to principle than the pre-recast payment and thus you will pay more in interest.
Hmm. I would have to run this thru a mortg. calculator, but if one puts a sizeable chunk of money down during the re-cast (let's say a 4 figure amount) and we assume the rate and the loan length don't change, that would mean the payment would be lower (as it would have to be, to keep the same terms) which -- as you point out -- may mean more interest is paid (percentage wise) on each payment versus pre-recast. However, because the principle amount is lower, the TOTAL interest paid should be lower.

Or are you saying it would be higher? Or the same?
You can make the lump sum payment with or without a recast. So that's a wash as far as reduction of interest is concerned.

Pre-payment of principle always shortens the length of the loan. This compounds as you continue to make your regular mortgage payments since you will pay less interest each month compared to your original amortization schedule.

But if you recast, you get a new payment amount that's lower in order to extend the loan back to the original payoff date. If you pay this lower payment, it slows down the reduction in principle, so you would effectively pay more in interest compared to continuing to pay down the original loan after making the lump sum.

nolesrule
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Re: Paying off mortgage with 87K left on it

Post by nolesrule » Tue Sep 11, 2018 11:58 am

I'll give you an example, with my mortgage that I prepay a bit.

20 year mortgage, 3.125%. Current balance is 214859.01. Payment 1318.06 If I continue to make the regular payment with no additional principle at this point, I will be done in 19 years and 8 months due to some prepayments and I will pay 65161.24 in interest from now till the end of the loan.

If I were to recast back to 20 years exactly, my new payment would be 1301.84 and I would pay a total of 66338.06 in interest on the remaining balance.
Last edited by nolesrule on Tue Sep 11, 2018 1:46 pm, edited 1 time in total.

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Que1999
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Re: Paying off mortgage with 87K left on it

Post by Que1999 » Tue Sep 11, 2018 1:21 pm

I look at mortgage payments and prepaying a little different than most. I'm not so much about the rate, but about the CASH interest I'm paying to the bank. In my mind, the rates are inconsequential compared to how much cash is going to principal vs. interest(wasted!). I saved hundreds of thousands prepaying the first 15-20 years of my mortgage early on.

My rate is 4.375%. But I have less than 6 years left on my loan. I paid my mortgage down to just around the half-way mark within the first few years I had it to save interest on all those initial up-front years, and chipped away at it so that now in year 6 of my mortgage I have 6 years left. I'm still going to chip away until the 2-3 year mark, because I have decided that those last few years of interest in terms of CASH payments is inconsequential. I think over the last 3 years the total interest in terms of CASH was around $2k. I will invest in taxable instead and let it ride out for a few years until it finishes up.

Take a look at your amortization chart and see how much cash you're comfortable with giving to the bank. And then see where that lands on the chart... Prepay up until that point and then just let it ride into the sunset.

Oh yea, one more thing. If you were to pay the mortgage off, one thing that can't be discounted is the 'efficiency' of your money improves. What I mean is that your cash-flow will increase by the amount you paid to the mortgage each month. In my case, my mortgage is around $900 per month. Once it is paid off, I will stop doing overtime to the tune of $900 cash take-home each month and still be able to maintain the exact same quality of life that I did with my $900 mortgage. Not only that, but that could potentially bump you into lower tax-brackets, where again, the efficiency of your earned dollar will increase because you may be paying less taxes since you're earning less income. This is especially true if you're in a high-tax City/State like I am. I pay 10% extra City/State tax on my top dollars earned, so reducing my income while maintaining my current lifestyle is huge gain for me.

ryman554
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Joined: Sun Jan 12, 2014 9:44 pm

Re: Paying off mortgage with 87K left on it

Post by ryman554 » Wed Sep 12, 2018 8:25 am

Admiral wrote:
Tue Sep 11, 2018 11:32 am
nolesrule wrote:
Tue Sep 11, 2018 11:21 am
Admiral wrote:
Tue Sep 11, 2018 10:05 am
ryman554 wrote:
Tue Sep 11, 2018 9:55 am
Snowjob wrote:
Tue Sep 11, 2018 9:07 am
Agreed, on the mechanics, but for a few hundred the option to pay less if I had to is appealing. I guess there is no reason to do it now and I could wait until it was ever needed. The question is if interest rates have doubled then or worse -- its that + a surprise layoff -- maybe they wouldn't offer the recast? For some reason I think this is one of those things like a line of credit where you establish it now when you don't needed it so that when you do its in place. Thoughts? I mean a few hundred bucks seem like an easy insurance policy.
Remember, it is *always* in the bank favor to recast a mortgage, regardless of interest rate. They get free money upfront AND they get you on the hook for more interest if you reduce your monthly payment.

They don't need to know you got laid-off, although if you see times getting tough, go ahead and take the insurance.

It's actually a lot different than a line of credit because they can be shut down at any time. (see 2008) You can't really rely on a HELOC being there to tide you over a job-loss.
I believe that a recast does not increase interest. It keeps the same loan term and interest rate, but the payment is lower because you've paid down the principal. And in fact you pay less interest overall because (again) the amount you're financing is lower. The bank is giving up some interest but in return is getting a large pre-payment.

In general, if rates are lower you're better off with a refinance (depending on the spread.)
If you continue to pay the same amount as prior to the recast, a recast is a wash with your original mortgage term, because interest is based on principle amounts.

However, the recast itself is a re-amortization. The lower payment is a result of lowering the amount of principle due with each payment in order to extend the loan back to the original due date. So if you take advantage of the lower minimum payment from the recast, you will be putting less to principle than the pre-recast payment and thus you will pay more in interest.
Hmm. I would have to run this thru a mortg. calculator, but if one puts a sizeable chunk of money down during the re-cast (let's say a 4 figure amount) and we assume the rate and the loan length don't change, that would mean the payment would be lower (as it would have to be, to keep the same terms) which -- as you point out -- may mean more interest is paid (percentage wise) on each payment versus pre-recast. However, because the principle amount is lower, the TOTAL interest paid should be lower.

Or are you saying it would be higher? Or the same?
To make is clear what nolesrule said: What you are calling a "recast" is really two separate actions.

Step 1: Pre-payment of a mortgage by a large amount (4 figure is not a large amount. 5 might be, 6 is.)
Step 2: Ask the bank for a recast to re-amortize your loan.

Step 1 reduces interest, period. It also locks up cash and does nothing to reduce monthly debt obligations, but does accelerate payoff date.
Step 2 allows you to reduce monthly debt obligations, for a small fee. The nice side effect (from bank perspective) is that you pay them more interest -- simply because you hold the loan longer (back to the original term) while paying the same interest rate.

Step 1 is completely independent of step 2, although step 2 needs step 1 do be done first. When we talk about recasting, we are always talking about step 2. The decision to pre-pay (in the OP case, anyhow) has already been made.

And I should point out -- Step 2 is the "recast". Step 1 is a "pre-payment". You do not do Step 1 during Step 2. You do it first. Then you do step 2.

rakish_weasel
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Re: Paying off mortgage with 87K left on it -- DONE

Post by rakish_weasel » Sat Sep 15, 2018 7:38 pm

OP here, to happily report that armed with the wisdom and advice of BH this past week, I fully paid off the remaining $87k on the mortgage on Thursday! First, some notes..
  • Confirmed that there would be no pre-pay penalty (there wasn't on prior principal paydowns, but wanted to ensure none on a payoff, too)
  • Confirmed that there would be no "extra interest" penalties -- some banks will try to grab 3 mos' of interest when you try to pay off in full, rather than just the partial amount of the current month.
  • The only notable fee was a $21 "recording fee" -- wasn't a fan of this, but it was small enough that I didn't blanch, given the above two items' absence.
  • Confirmed they would release the deed of trust, and mail the certificate of satisfaction, cancelled promissory note, and cancelled deed of trust. They said it would take 'up to' 60 days to complete all of that.
  • Will contact homeowner's insurance co. to ensure the bank is removed, and to inquire about possible HOI discount.
  • Will contact the city's local recorder in November to confirm their records have been updated to show me as the owner in full.
  • Property tax bill and HOI bill require no changes -- I've paid them myself directly (no escrow) for a number of years now.
So... first thing I have to say, is that this is just an incredible, amazing feeling. Fully recognise that we acclimate to good news and that an 'ideal' financial situation is one that is largely 'boring', because everything is as it should be. But at the same time, no real interest in downplaying the feeling of having this mortgage completely paid off, and owing not a dime to anyone in the world. Hasn't even fully sunk-in yet, and there will come a time sometime soon where this will be "the new normal"... but for now I'm just enjoying that "lightened" feeling of knowing there are no mortgage payments tomorrow, or Oct 1st, or Nov 1st, or ever again if one so chooses. The feeling of relaxation and calm is a bit surprising, since one can argue that there isn't much difference between "owing 87K and having 87K on hand to pay it off at any time", versus "owing nothing and not having the 87K in hand". And yet.... there it is. It *still* feels better with it gone :)

Much of what I've read the past half year, and in this BH thread, is that a big component of paying off a mortgage early really isn't financial at all -- it's that intangible feeling of peace and calm, the happiness that goes with knowing you own your home free & clear. That really does seem to be true. Even if the EF is lower now than it was, the fact that it still holds 1-1/2 yrs of (newly-halved) monthly expenses coupled with the total elimination of that $1900/mo mortgage payment... makes it worth it, even if hindsight 5 years from now indicates that I might've made more money by investing some of that 87K in the markets instead.

I think the key that made this work is that the 87K to pay it off came exclusively from savings accounts -- nothing from the Vanguard taxable account, no decrease in the maximum contribs to 401k/IRA, no decrease in monthly contribs to the Vanguard taxable acct. A guaranteed 3.75% return instead of the 1.85% at the online bank. I won't claim this was the absolute best decision for maximising future wealth, because that A) isn't knowable until some years have passed, and B) it likely isn't. But it's the right move for me. 10 years in to this bull market, I am comfortable diverting some funds to a guaranteed 3.75% alongside the max'd out retirement account contribs.

The plan going forward, as discussed earlier in this thread, is to rebuild that EF back up to 2 yrs' worth. Monthly expenses should be ~$1800 but for EF purposes will round up to $2k. Two years' worth is $48k, which we'll call $50k. That is probably overkill for a mortgage-free existence, but it's also literally half of the amount I previously had in this EF earning a paltry 1.85%, and it's a small portion of the overall NW for sleeping easy at night.

The plan is to put $1k of the previous $1900 mort payment into the EF each month (plus 600 more), and DCA the remaining $900 into VTI/VXUS in the Vanguard taxable account. That should flesh out the EF in about 10 mos, whilst not neglecting equities. Once that's complete, then everything can be directed towards the BH 3-fund portfolio. Comments on this plan, if any, are welcomed.

At any rate, just wanted to follow-up and thank each of you for your advice and guidance, and to let you know that it got paid off and that it really does feel incredible and akin to a financial milestone. And to also note how nice it is to have people here to bounce ideas off of, and to share good news like this. As we know, people in our own lives are usually not options re: sharing this kind of good news --- everyone in our lives are facing their own unique financial situations and challenges, and I don't really feel comfortable telling anyone that I've paid off my mortgage. Partly because I don't want my good news to make anyone else feel bad about their own situation, and also because I don't want anyone in my life to view me differently, or to think that I'm "rich", or to think that I can no longer empathise with their own situation. I guess I'm a big believer in the "millionaire next door" approach, and prefer others view me as an average joe -- which honestly, is exactly what I feel like. But at the same time, this is an exciting development and achievement, and it's nice to share that with someone -- especially people here who either know what it feels like firsthand, or who similarly aspire to achieve it and might appreciate the thread as another source of motivation.

Regards,
-RW
Last edited by rakish_weasel on Sat Sep 15, 2018 8:19 pm, edited 2 times in total.

ThankYouJack
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Re: Paying off mortgage with 87K left on it

Post by ThankYouJack » Sat Sep 15, 2018 7:43 pm

Congrats!! :sharebeer It is a great feeling, far better than I was expecting before I made the decision.

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Que1999
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Re: Paying off mortgage with 87K left on it

Post by Que1999 » Sat Sep 15, 2018 7:47 pm

That's great! Congrats!!

Enjoy your debt-free life now. I'm about $50k away and getting pretty antsy myself... :sharebeer

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welderwannabe
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Re: Paying off mortgage with 87K left on it -- DONE

Post by welderwannabe » Sat Sep 15, 2018 8:18 pm

rakish_weasel wrote:
Sat Sep 15, 2018 7:38 pm
The plan going forward, as discussed earlier in this thread, is to rebuild that EF back up to 2 yrs' worth. Monthly expenses should be ~$1800 but for EF purposes will round up to $2k. Two years' worth is $48k, which we'll call $50k. That is probably overkill for a mortgage-free existence, but it's also literally half of the amount I previously had in this EF earning a paltry 1.85%, and it's a small portion of the overall NW for sleeping easy at night.
Congratulations. I ended up with the exact same size EF that you have after paying the mortgage off.

Its a great feeling, and it made me feel more secure.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

rakish_weasel
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Re: Paying off mortgage with 87K left on it

Post by rakish_weasel » Sat Sep 15, 2018 8:34 pm

(Edited the earlier post to address HOI and Property Tax bills -- normally if these were paid via escrow by the bank, one would need to confirm with the city and the insurance co. to ensure the bills were being sent to one's home address, rather than the bank. Didn't apply here as I'd paid those bills directly myself, sans escrow, for a number of years, since I wanted better clarity on what those costs were and how they changed year over year.)

Agreed the feeling is better than I anticipated -- figured there would be a mix of feelings or some sense of it being anticlimactic, but definitely not. It feels like a weight off the shoulders, one that I didn't really realise was there since making the monthly payment was never an issue.

Que1999 - $50k is not that far off at all :happy I found it fascinating how the closer it got to being paid off (and thus the far-fewer actual $$ 'on the line' re: owed interest), the more dialled-in I became at getting rid of it anyway. Tfp noted earlier in the thread that this behaviour is known as the loss aversion bias, and he/she is likely right. I also think it boils down to a simple desire to complete what had been a long journey spanning hundreds of thousands of dollars -- when the 26.2 mile marker is in sight, there's an adrenaline rush to cross that finish line that probably wasn't present back at mile 17.

-RW

Lafder
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Re: Paying off mortgage with 87K left on it

Post by Lafder » Sun Sep 16, 2018 11:04 am

Awesome to hear how good it feels to have it paid off!

Congratulations! A milestone indeed!

lafder

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CardinalRule
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Re: Paying off mortgage with 87K left on it

Post by CardinalRule » Sun Sep 16, 2018 11:37 am

Congrats to the OP also! We're $60k away (we have made lots of extra-principal payments on our 2012 loan) and could pay it off easily with funds in a brokerage account. We keep telling ourselves that the rate is only 3% and cheap money, but I do think that there is a big psychological benefit to getting it done, once and for all. And so I'm getting antsy also. :happy
Que1999 wrote:
Sat Sep 15, 2018 7:47 pm
That's great! Congrats!!

Enjoy your debt-free life now. I'm about $50k away and getting pretty antsy myself... :sharebeer

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rocket354
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Re: Paying off mortgage with 87K left on it

Post by rocket354 » Sun Sep 16, 2018 5:16 pm

Congrats to the OP! I just bought a house a few months ago so I'm clear at the other end of the spectrum. But it's nice to live vicariously through others :)

Re: recasting mortgages. However you want to slice or dice it, whether you "pay more" interest depends on what you are comparing. My CU, for example, requires a 5-digit paydown in order to recast, no matter what. So they are not necessarily separate decisions. Either way, assuming minimum monthly mortgage payments each month:

1) If you are comparing how much you will pay in interest on a given loan amount to how much you will pay with paydown amount + recast, you pay less with the latter. The interest rate doesn't change, and yet the principal is lower, and the term has stayed the same.
2) If you are comparing how much you will pay in interest on a given loan amount to how much you will pay with just a recast, than the former will be lower or equal. If recasting actually extends your loan term (that is, you had prepaid principal at some point before) then you have the same principal amount, same interest rate, but longer loan term, so more total interest paid.

Also worth noting that if you recast you can always keep paying the amount you had been paying despite being given a lower monthly payment from the recast. Then you can pay it off as quickly as you would have (paying no more interest, just whatever small fee) but you have the safety buffer of being permitted to lower your monthly payment if circumstances require it.

nolesrule
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Re: Paying off mortgage with 87K left on it

Post by nolesrule » Sun Sep 16, 2018 5:59 pm

rocket354 wrote:
Sun Sep 16, 2018 5:16 pm
Congrats to the OP! I just bought a house a few months ago so I'm clear at the other end of the spectrum. But it's nice to live vicariously through others :)

Re: recasting mortgages. However you want to slice or dice it, whether you "pay more" interest depends on what you are comparing. My CU, for example, requires a 5-digit paydown in order to recast, no matter what. So they are not necessarily separate decisions. Either way, assuming minimum monthly mortgage payments each month:

1) If you are comparing how much you will pay in interest on a given loan amount to how much you will pay with paydown amount + recast, you pay less with the latter. The interest rate doesn't change, and yet the principal is lower, and the term has stayed the same.
2) If you are comparing how much you will pay in interest on a given loan amount to how much you will pay with just a recast, than the former will be lower or equal. If recasting actually extends your loan term (that is, you had prepaid principal at some point before) then you have the same principal amount, same interest rate, but longer loan term, so more total interest paid.

Also worth noting that if you recast you can always keep paying the amount you had been paying despite being given a lower monthly payment from the recast. Then you can pay it off as quickly as you would have (paying no more interest, just whatever small fee) but you have the safety buffer of being permitted to lower your monthly payment if circumstances require it.
You don't have a choice about making the lump sum prepayment for a recast, so the fair comparison is making the lump sum with or without the recast (and then what you do about the payment after the recast as compared to the original mortgage).

Otherwise you have to start getting into discussions about opportunity cost of what you did with money that didn't go toward the mortgage.

rakish_weasel
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Re: Paying off mortgage with 87K left on it

Post by rakish_weasel » Tue Sep 18, 2018 12:33 pm

CardinalRule -- thanks for the kind words, and glad to hear you are that close to having your mortgage paid off. As you noted in your earlier/first comment in the thread, really just not a lot of downside to doing it, especially given that standard deduction increase for 2018. I ran the numbers and confirmed I would not be itemising even with the mortgage intact, and so paying it off became even more of a logical move once the full 3.75% would be returned, rather than an effective ~2.9% after accounting for negated tax writeoff.

One thing I did decide on, whether sensible or not, was that I wanted to preserve the full EF balance until/unless the mortgage was eliminated -- meaning, I didn't want to reduce the EF in half to pay a 'large portion' of the mortgage, only to still have the $1900/mo payment due each month but with a "gutted" EF. I only felt comfortable cutting down the EF if it meant a full payoff, and thus the elimination of the $1900/mo payment, because that meant the newly-lowered EF would cover far more months of (also newly-lowered) monthly expenses.

Definitely get the 'antsy' feeling of getting it done, though -- exactly why I started this thread in the first place, as I was feeling that same pull. Hope you will let us know when you reach that goal - it is definitely a cause for celebration :)

-RW

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