Paid off Mortgage...what to do next

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
SubieGirl14
Posts: 52
Joined: Wed Mar 12, 2014 9:50 am

Paid off Mortgage...what to do next

Post by SubieGirl14 » Wed Jan 09, 2019 4:33 pm

Hi there, my last post was a year ago and I received great advice for which I am very grateful. Since then, I have been reading the forum on a regular basis, and continuing to gain knowledge. In January of 2018, our mortgage balance was $125k and we became very motivated to pay it off asap. We read many threads on paying off the mortgage versus investing and although I saw the financial benefit in investing more, I also saw the emotional benefit of paying off the mortgage. I am apparently an emotionally driven person...so our quest began in January and by December, we were mortgage free!!! How we did it is not the best way or a recommended way necessarily, but it worked for us. As with all plans, there was a lot of luck involved, no job losses, no big emergencies, no huge health issues. The details...

1. DH does not have 401k available at his job, but we knew we still wanted to max mine, so that was non-negotiable, $18,500 contributed.
2. Since we have until April 2019 to max 2018 ROTH, we decided to wait and instead, send the extra $1k month to the mortgage as extra payments. We missed out on returns for the year (or not based on how 2018 ended), but we did get a 4% return on paying down the mortgage, so it's something.
3. In January, I somehow talked DH into selling both of our newer paid off cars, and buying cheap, old cars that would hopefully last us until our mortgage pay off quest was over. We sold our cars for $51k, and spent $10k combined on an old Subaru with 130k miles and an old Nissan with 90k miles. We sent the remaining $41k to the mortgage. We did have to spend about $1k combined throughout the year on fixing the old cars.
4. We did not get raises in 2018, but did receive higher bonuses to offset that, so we sent the $10k from the bonuses and tax refund to the mortgage.
5. Throughout the year, we were able to pay $30k to the mortgage between our regular payments, all extra money, selling some items we did not need, cutting back our budget on things like dining out and vacations, and all credit card rewards that we received.
6. In December, we had a balance of $33k. We cashed out our $25k EF and took out $8k on a 0% interest credit card and made the last payment in full.

Current situation:
Emotionally: Ecstatic on a daily basis and do not regret the somewhat unorthodox way of achieving our goal.
Home: Owe $0 on $378k home
401k/IRA: $401k (maxed out for 2018 but the balance ended just about as it began in January 2018, we are invested 100% in equities)
ROTH: $56k (have not maxed for 2018, plan to do so by April, but again all gains were wiped out by end of year)
Credit Card: $8k owed at 0% interest for 21 months
Cars: Paid off clunkers that will hopefully last a while longer
EF: $0 - need to start saving this again

Now that the mortgage is paid, we have about $2900 leftover per month after expenses and maxing out my 401k. We expect about $7k after taxes from our bonuses in March (in lieu of raises again :annoyed ). We want to max out both ROTHs for 2018 and 2019. I know the credit card debt is a big deal for a lot of people, but we have been using 0% offers for years and we have never ended in a situation where the card was not paid in full prior to the offer expiring, so I am not super worried about that. Question is, we are obviously a bit behind in retirement savings. Should we prioritize maxing the ROTH's first instead of starting to save in our EF again? Should we buy bonds in 401k or ROTH with the new contributions since we are pretty much 100% equities currently? Not sure it makes sense to rebalance and sell equities low, but need some insight into this please. Also, the clunkers are a thought, they are still both running pretty well and will hopefully not need anything past normal maintenance, but should we assume that is not the case and prioritize EF savings first? I honestly would like no new car payments before paying off the credit card, getting some cash in EF and maxing out 2018 and 2019 ROTHs. Past that would be even better, but that all might be wishful thinking! Any and all insight is appreciated!

barnaclebob
Posts: 3777
Joined: Thu Aug 09, 2012 10:54 am

Re: Paid off Mortgage...what to do next

Post by barnaclebob » Wed Jan 09, 2019 4:40 pm

I would say go out for an expensive meal but it seems you took a few pretty rational shortcuts to pay off the mortgage. Nothing wrong with that so just go out for a modest meal.

I'd rebuild the EF to some bare min, say 3 months expenses, 20k or whatever, etc. Then start ramping up retirement savings until the EF is full. Your clunkers could go at any time or last a long time. You'll want to be able to afford to buy a new not quite as clunky of a car in a couple years, maybe one with 40k miles instead of 100k.

bloom2708
Posts: 6565
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Paid off Mortgage...what to do next

Post by bloom2708 » Wed Jan 09, 2019 4:45 pm

Nicely done. Your strategy worked for you.

I would put 1/2 of the $2,900 in the Emergency Fund and 1/2 in Roth IRAs for 2018. If you don't quite get to the full $5,500 for 2018, that isn't the end of the world. My guess is you will get there based on your dedication.

At least get 1 months expenses in there so a car repair or another expense doesn't go right to the credit card.

I would pay off the $8k before funding 2019 Roth IRAs.

Having a free $2,900 each month will give you a lot of options. Emergency Fund rebuilding, 2019 Roths, Car fund, taxable/brokerage account for additional investing.

Personal finance is personal and you did what worked. You have the income to recover quickly and knock out that last $8k.

Welcome to mortgage free land. I don't think you will be running back to get a new mortgage anytime soon. :moneybag
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

Topic Author
SubieGirl14
Posts: 52
Joined: Wed Mar 12, 2014 9:50 am

Re: Paid off Mortgage...what to do next

Post by SubieGirl14 » Wed Jan 09, 2019 4:50 pm

Thank you both! If I have it my way, we will never have a mortgage again!

Bloom: would it make sense to use the $7k after tax that we are expecting from bonuses to finish maxing out ROTHs for 2018? Then continue using 1/2 of the $2900 towards EF and the other half to pay off the cc?

SundayMorning
Posts: 32
Joined: Tue Jul 11, 2017 6:04 pm

Re: Paid off Mortgage...what to do next

Post by SundayMorning » Wed Jan 09, 2019 4:53 pm

Interesting, wish I could pay my mortgage with a credit card. Our loan servicer does not accept credit cards.
Were you able to use the card as normal to pay the mortgage / were where additional fees to do so? Did you get cash back rewards on that transaction?

Congrats on the mortgage pay off! :sharebeer

If it were me, I would:
1. Split the cash flow between EF and the remaining credit card balance.
2. After the credit card is paid, finish funding the EF until comfortable with it being full.
3. Ramp up investments
4. Newer Car(s)

Therapist Investor
Posts: 210
Joined: Sun Apr 15, 2018 8:57 pm

Re: Paid off Mortgage...what to do next

Post by Therapist Investor » Wed Jan 09, 2019 4:55 pm

Congratulations to you both! You are in a very exciting position. It goes without saying that from now on you should keep your cost of living the same and kick your savings into high gear. If I were in your situation, I would prioritize getting an emergency fund set up and then paying all of the credit cards off for good. Maybe save 1-2 month's expenses and then tackle the credit card debt. I would do that before making Roth contributions. You should invest in bonds in tax-advantaged accounts (either your 401ks or Roths/IRAs).

Eventually you will be completely debt free and have an emergency fund (3-6 month's expenses saved is ideal; put it in an online savings account like Ally or Vanguard Prime Money Market Fund). At that point max out all tax advantaged space and then start investing in a taxable brokerage. This site https://www.bogleheads.org/wiki/Priorit ... nvestments has more on how to prioritize your investments.

Way to go and best of luck!
"Get what you can, and what you get hold, 'Tis the stone that will turn all your lead into gold." | -Benjamin Franklin

User avatar
willthrill81
Posts: 11939
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Paid off Mortgage...what to do next

Post by willthrill81 » Wed Jan 09, 2019 4:58 pm

Kudos to paying off your mortgage! :beer We're also aggressively paying ours off, hopefully achieving that by the end of the year.

Your next step depends, IMHO, on yours and your husband's job security. If either of you isn't in a very stable position, I'd rebuild the EF to at least a couple of months' of expenses ASAP, then pay off the 0% credit card before that promotional period ends.

If you're both in stable positions, I'd slowly pay off the 0% credit card, timing the payoff to occur before the promotional 0% period ends. At the same time, I'd max out both of your Roth accounts. That will probably take all of your $2,900 monthly since maxing out both Roths will be $2k monthly. Once the credit card is paid off, I'd rebuild your EF. Any extra funds you get will just speed up this process. Yes, there is some risk involved in going this route since you don't currently have a 'true' EF, but it isn't going to be that way for more than about a year, and you could pull out your Roth contributions if needed. Also, I would urge you to consider taking out a home equity line of credit (aka HELOC) just in case you suddenly need some funds; I'd rather have a little temporary HELOC debt than raid our Roth accounts.

Losing precious Roth contributions, especially since you don't have a lot of tax-advantaged space, is worse than going a year without an EF in my estimation, but as I said earlier, I wouldn't go that route until you both have very stable employment.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

bearwithbear
Posts: 30
Joined: Thu Jun 28, 2018 5:55 pm

Re: Paid off Mortgage...what to do next

Post by bearwithbear » Wed Jan 09, 2019 5:01 pm

OP,

Well done!
Fully fund the both Roth (2018 and 2019) and the 401K.
The emergency fund will build up a little slower but that is fine.
Not worried about it or the $8,000 on the 0% card.

Bear

bloom2708
Posts: 6565
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Paid off Mortgage...what to do next

Post by bloom2708 » Wed Jan 09, 2019 5:01 pm

SubieGirl14 wrote:
Wed Jan 09, 2019 4:50 pm
Thank you both! If I have it my way, we will never have a mortgage again!

Bloom: would it make sense to use the $7k after tax that we are expecting from bonuses to finish maxing out ROTHs for 2018? Then continue using 1/2 of the $2900 towards EF and the other half to pay off the cc?
Yes. That sounds good. If it comes in before tax filing day, then use it to finish the Roth's and bolster the Emergency Fund.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

Gufomel
Posts: 334
Joined: Sat Feb 14, 2015 9:52 pm

Re: Paid off Mortgage...what to do next

Post by Gufomel » Wed Jan 09, 2019 5:10 pm

Congrats!

Contribute the max to ROTH for 2018, but leave it in a money market fund. Treat it as your EF (some people do this anyways) until you get your EF built back up in your bank. If you end up needing the money before you get your EF built up, you can withdraw your contributions from your ROTH penalty free. But if you don’t end up needing it, then you can buy stocks/bonds with the ROTH money once your EF is built up. If you don’t contribute the max to your ROTH, you’ll never get that space back.

Topic Author
SubieGirl14
Posts: 52
Joined: Wed Mar 12, 2014 9:50 am

Re: Paid off Mortgage...what to do next

Post by SubieGirl14 » Wed Jan 09, 2019 5:10 pm

Thank you for the replies!

I got the credit card at the end of November, and it has 0% interest on purchases and balance transfers. I used the credit card to pay regular bills like my property taxes, home owners insurance for the full year, and car insurance for the next 6 months and used the cash I had for those expenses as part of my budget to pay the mortgage. It worked out only because a lot of those bills get paid in December. I did get cash back rewards for all $8k, but there was a $150 fee to pay the taxes, which pretty much cancels out the rewards. I do like having the card for emergencies at 0% interest until I build up the EF again though, but hope not to have to use it!

User avatar
Darth Xanadu
Posts: 684
Joined: Sat Jan 27, 2018 1:47 am
Location: Middle Earth

Re: Paid off Mortgage...what to do next

Post by Darth Xanadu » Wed Jan 09, 2019 5:11 pm

SubieGirl14 wrote:
Wed Jan 09, 2019 4:50 pm
Thank you both! If I have it my way, we will never have a mortgage again!

Bloom: would it make sense to use the $7k after tax that we are expecting from bonuses to finish maxing out ROTHs for 2018? Then continue using 1/2 of the $2900 towards EF and the other half to pay off the cc?
that's what I would do ... I would not forfeit the 2018 Roth space. Between Jan-March surplus, plus bonus paid in March, you can fully fund Roth IRAs for 2018. Then I would probably go 50/50 towards Emergency Fund and credit card. Once that's all checked off you can fill 2019 Roth IRA.

Well done, great discipline!
"A courageous teacher, failure is."

warpork
Posts: 9
Joined: Thu Nov 27, 2014 10:13 am

Re: Paid off Mortgage...what to do next

Post by warpork » Wed Jan 09, 2019 6:44 pm

First of all, congratulations on dumping the home debt! Feels great doesn't it?

I'd echo what a couple others have said, take advantage of getting your money into the ROTH for tax year 2018. That being said, you could slowly add to it for the next few months, or what I think would be better in your situation (since you have a big ZERO EF account now) would be to put that extra $2900 into a short term account (MM/savings) and then as you get closer to the deadline, move that money, along with any bonus money, into the Roths. This gives you the option to get the money quickly if an emergency should arise in the next 3 months (always better to not have to go through ANY hoops if there is a true emergency as it's less stress to deal with). Yes, you lose a few months of compounding, but in the long run, it's only 3 months.

I'd continue to pay the minimum on the 0% CC until October when I'd pay it off (I've always paid my 0% balance transfers off a month early, reason being, it gives me an extra month if I forget and make the minimum payment by accident). Extra money would build up the emergency fund until you have 3-6 months worth of expenses (should go quick as you no longer have that boat anchor of a house payment). After getting the EF in place (and having the 0% card paid off), start attacking the 2019 Roths. Once those are fully funded, I'd start thinking about upgrading one of the cars, maybe......

One thing that you must remember, SAVE FOR AND PAY YOUR PROPERTY TAXES (and home owners insurance)! Just putting that out there as most people have that rolled into their mortgage and after paying that thing off, the escrow account goes away.

Congrats again, and welcome to the club!
Warpork

User avatar
BL
Posts: 9070
Joined: Sun Mar 01, 2009 2:28 pm

Re: Paid off Mortgage...what to do next

Post by BL » Wed Jan 09, 2019 7:38 pm

Gufomel wrote:
Wed Jan 09, 2019 5:10 pm
Congrats!

Contribute the max to ROTH for 2018, but leave it in a money market fund. Treat it as your EF (some people do this anyways) until you get your EF built back up in your bank. If you end up needing the money before you get your EF built up, you can withdraw your contributions from your ROTH penalty free. But if you don’t end up needing it, then you can buy stocks/bonds with the ROTH money once your EF is built up. If you don’t contribute the max to your ROTH, you’ll never get that space back.
+1
I believe you have up to 60 days to return any "borrowed" Roth, not that I encourage that action.

Rus In Urbe
Posts: 466
Joined: Sat Dec 09, 2017 2:12 pm

Re: Paid off Mortgage...what to do next

Post by Rus In Urbe » Wed Jan 09, 2019 7:45 pm

CONGRATS on paying off the mortgage. We did that years ago, and there's nothing like the feeling of having zero debt of any kind.

Sounds like you are on a good path to financial security---and, eventually, wealth.

Set some new goals----as others have suggested: first the emergency fund, then ramp up the retirement funds.

And be sure to give yourself some rewards along the way. For my SO and I, that means fixing up our home and garden, as well as some great travels, and some meals out here and there. We don't like spending a whole lot of money, so a little goes a long way with us in terms of enjoyment. Whatever you do, give yourself a pat on the back and a reward---even if it's something small, some flowers for your wife, a meal out. Mark the moment.

Teamwork is essential in creating a solid financial future. Sounds like you are on track, and I could only wish for you the happiness and security that we have found.
I'd like to live as a poor man with lots of money. ~Pablo Picasso

lakja
Posts: 81
Joined: Mon Nov 06, 2017 5:34 pm

Re: Paid off Mortgage...what to do next

Post by lakja » Wed Jan 09, 2019 8:06 pm

A lot of information missing here: incomes, retirement assets, taxable account, time to retire, kids, etc...

But, I would consider getting a HELOC on your home for an EF. It will provide liquidity in case of emergency and reduce your EF cash needs. Plus, if you have Roth contributions still available, you can always tap those in case of real emergency. Based on your incomes, it seems you could probably get by on one salary, especially with an extra 3k/month in cash flow free.

Secondly, I’d recommend evaluating your longer term goals. Setup a plan to achieve those. I’d be trying to maximize the return on that free 3k/month. Sounds like in the short term re-establishing a moderate EF and then focusing a significant portion toward retirement. Maxing out both 401k will take 3.1k/month for 2019.

majiaknight
Posts: 109
Joined: Tue Jan 26, 2016 2:55 pm

Re: Paid off Mortgage...what to do next

Post by majiaknight » Wed Jan 09, 2019 8:14 pm

Big congrats to your mortgage payoff with great execution of the plan!

I think you could prioritize with funding your (backdoor) Roth IRA for 2018 before the April deadline. You can withdraw contributions (not earnings) you made to your Roth IRA anytime, tax- and penalty-free. This means you may treat the Roth IRA contribution as a temp EF in short term. Then you could build your normal EF (in savings or iBonds, etc) and max the Roth IRA for 2019 at the 2nd half of 2019. It is generally advised to have at least 20% of your investment assets in bonds / fixed income (like a mix of Bond Fund, Brokered CDs, etc) in your tax advantaged accounts. Check the https://www.portfoliovisualizer.com/ to backtest and compare different AA. You could use the new money to gradually re-balance the portfolio which I always do.

Patrick584
Posts: 41
Joined: Wed Sep 06, 2017 8:38 pm

Re: Paid off Mortgage...what to do next

Post by Patrick584 » Wed Jan 09, 2019 8:45 pm

A point which has not been made is that you can max out your 401k without making even contributions throughout the year. Many take do front loading, but you could do backloading while you handle the higher priorities.

An emergency fund should be based on the risk and severity of accessing alternate cash flows. If you have access to cheap credit or other liquid assets, you may not need a large EF.

Maven
Posts: 54
Joined: Sat Dec 08, 2018 4:01 pm

Re: Paid off Mortgage...what to do next

Post by Maven » Wed Jan 09, 2019 9:16 pm

Just wanted to say CONGRATULATIONS! Way to think out of the box!

Saving$
Posts: 1754
Joined: Sat Nov 05, 2011 8:33 pm

Re: Paid off Mortgage...what to do next

Post by Saving$ » Wed Jan 09, 2019 9:34 pm

BL wrote:
Wed Jan 09, 2019 7:38 pm
Gufomel wrote:
Wed Jan 09, 2019 5:10 pm
Congrats!

Contribute the max to ROTH for 2018, but leave it in a money market fund. Treat it as your EF (some people do this anyways) until you get your EF built back up in your bank. If you end up needing the money before you get your EF built up, you can withdraw your contributions from your ROTH penalty free. But if you don’t end up needing it, then you can buy stocks/bonds with the ROTH money once your EF is built up. If you don’t contribute the max to your ROTH, you’ll never get that space back.
+1
I believe you have up to 60 days to return any "borrowed" Roth, not that I encourage that action.
THIS!

1. NEVER lose tax advantaged space if you don't have to; you can never get it back. Fully fund both your and DH's Roth for 2018.
2. Once the 2018 Roth is fully funded, fully fund the 2019 Roths
If you need emergency cash, you can divert the cash from funding the Roths to the emergency; if you need more, you can withdraw from the Roth. If you can't replace the withdrawn funds, you are no worse off than you would have been putting the funds into an EF.
Once the above is done:
3. Fund the EF
4. Pay off the credit card before the 0% expires, even if you have to use the newly funded EF. You can replenish it, and your Roth can again be the EF.

JoeRetire
Posts: 2807
Joined: Tue Jan 16, 2018 2:44 pm

Re: Paid off Mortgage...what to do next

Post by JoeRetire » Thu Jan 10, 2019 7:34 am

SubieGirl14 wrote:
Wed Jan 09, 2019 4:33 pm
401k/IRA: $401k (maxed out for 2018 but the balance ended just about as it began in January 2018, we are invested 100% in equities)
Are you sure you want to be 100% in equities? How old are you?
Cars: Paid off clunkers that will hopefully last a while longer
EF: $0 - need to start saving this again
Seems like you need to immediately put every dollar into your emergency fund. Having it at $0 and betting that there will be no emergencies seems rather risky, particularly when you are living with two clunker cars.

Next, you need to make sure you can pay off the credit card balance before the 0% term expires.

Once that is done, start saving up for your next car(s). You don't need to plan for new cars, just something that isn't a clunker and won't cause you any car payments.

You've taken a rather unusual approach to your mortgage, and certainly not one I'd do. But it appears to make you happy, so good for you.

User avatar
djpeteski
Posts: 826
Joined: Fri Mar 31, 2017 9:07 am

Re: Paid off Mortgage...what to do next

Post by djpeteski » Thu Jan 10, 2019 7:48 am

Congratulations!

Radical, and aggressive plan! It is a bit too aggressive for my blood, but it is not my life. :sharebeer :sharebeer

So to me you have a looming deadline: April 15th, and you need 11K to fully fund the Roths.

Between now and that time you have about 20K: 2,900 * 4.5 + 7000. If it was me, I would save it all until April 1 and reevaluate. I doubt this will happen but if you need major car repairs or some other calamity befalls you, I would reevaluate fully funding the Roths. However, if things go okay, you should have about 9K in savings, and the Roth's fully funded.

From there, I would aggressively be paying down the card. By the end of July this should be done. You two are then home free. You have plenty of time to rebuild your emergency fund, replace those cars with nicer ones, and fully fund 2019's Roth.

Great work.

User avatar
Watty
Posts: 16873
Joined: Wed Oct 10, 2007 3:55 pm

Re: Paid off Mortgage...what to do next

Post by Watty » Thu Jan 10, 2019 7:55 am

Congratulations on getting the house paid off.

A couple of things to do.

1) In a couple of months when there has been time for all the paperwork to clear check with your county to make sure that the mortage lien has been removed. In some places you can do this on line. Do this even if you get paperwork saying that it has been done. Once in a blue moon there will be a problem and the lien removal does not actually get recorded right and it will be much easier to fix now than in 20 years when you want to sell the house.

2) Contact your home insurance company to have the mortage company taken off of your home insurance. There are pros and cons but you may also want to increase your deductible if that will save you a lot on your insurance premiums.

3) Make sure that the property taxes and insurance get paid even if you do not get a bill. If you had an escrow account the bills may still be going to the lender.

Topic Author
SubieGirl14
Posts: 52
Joined: Wed Mar 12, 2014 9:50 am

Re: Paid off Mortgage...what to do next

Post by SubieGirl14 » Thu Jan 10, 2019 9:59 am

Thank you all for the replies, insight and support! Feels great to be able to actually discuss this with someone as we are not discussing it with many people in real life.

To answer some of the questions that have been asked:

We are in our early 40's, no kids. Retirement accounts are not large: $402k in 401k/IRA and $56k in ROTHs. HHI is $140k and bonus of about $3-8k, higher in years without a raise such as 2018 and 2019. The $2,900 left at the end of each month is after maxing my 401k. DH does not have 401k at his current job. In the past, since we had an EF and maxed both ROTH's, we would add whatever additional cash we had into CD's (serving as our bond allocation), but as those CD's matured, we used them to pay down the mortgage. That is how we got to the $125k balance in Jan 2018. Should we eventually start saving in CD's again, or are bonds that much more beneficial?

In regards to the property taxes, we never had a escrow account on this mortgage so we always saved for our taxes throughout the year and paid them in full. Nothing will be changing there!

I have seen mention of obtaining a HELOC in case of emergencies. I have not thought of that as a preemptive measure mostly because I have seen a lot of mention of HELOC's being closed down in economic downturns. Should we look into one anyway?

The 0% interest ends 21 months from November 2018, so we have some time, but ideally, I would like to have it paid off by the end of this year. I am thinking of it as backup in case of an emergency short term since it would give us a good amount of time to pay it back. The cars I call clunkers have been pretty reliable thus far, and are in great condition. My concern is that they are higher mileage and we do drive a lot so I am hoping they get us through this year at least so we can catch up with ROTHs for both years, pay off CC and build up EF. Then I would like to upgrade one of the cars at a time. Of course the chances of things working out exactly as I would like are not very high! We have not had older cars in a very long time, so this particular sacrifice was a huge adjustment.

As far as rewarding ourselves, we love nice dinners and good wine. We cut that all out last year in order to work on the mortgage, but did have a nice dinner or good bottle of wine every couple of months when we accomplished a large enough portion of our goal. It kept us motivated, as I am not good at the going completely without route. Very nice dinner and bottle of wine once mortgage was paid off :beer

Thank you all again for all the input. As many people have said previously, this is a great community!

User avatar
willthrill81
Posts: 11939
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Paid off Mortgage...what to do next

Post by willthrill81 » Thu Jan 10, 2019 10:11 am

SubieGirl14 wrote:
Thu Jan 10, 2019 9:59 am
I have seen mention of obtaining a HELOC in case of emergencies. I have not thought of that as a preemptive measure mostly because I have seen a lot of mention of HELOC's being closed down in economic downturns. Should we look into one anyway?
The reason that many people lost their HELOC a decade ago was because their home equity vanished. If you started with 20% equity in your home, but then your home declined in value 20%, your equity disappeared, and banks justly no longer wanted to extend you a HELOC. With a home owned free and clear, the likelihood of that happening to you is far lower than for many people.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Topic Author
SubieGirl14
Posts: 52
Joined: Wed Mar 12, 2014 9:50 am

Re: Paid off Mortgage...what to do next

Post by SubieGirl14 » Thu Jan 10, 2019 10:21 am

I didn't think of that, thank you!

tenkuky
Posts: 791
Joined: Sun Dec 14, 2014 4:28 pm

Re: Paid off Mortgage...what to do next

Post by tenkuky » Thu Jan 10, 2019 11:46 am

willthrill81 wrote:
Thu Jan 10, 2019 10:11 am
SubieGirl14 wrote:
Thu Jan 10, 2019 9:59 am
I have seen mention of obtaining a HELOC in case of emergencies. I have not thought of that as a preemptive measure mostly because I have seen a lot of mention of HELOC's being closed down in economic downturns. Should we look into one anyway?
The reason that many people lost their HELOC a decade ago was because their home equity vanished. If you started with 20% equity in your home, but then your home declined in value 20%, your equity disappeared, and banks justly no longer wanted to extend you a HELOC. With a home owned free and clear, the likelihood of that happening to you is far lower than for many people.
Like Subie, I hadn't thought of this, and would like to learn more.
Since I am on track to also aggressively pay off the mortgage by end of this year, is it recommended to open a HELOC right away and let it sit unused till you need it? Understand the variable nature of interest etc, but not the rules around what happens if balance zero for prolonged time.
Also curious about fees, annual costs and lock-ins if used.
Do have an EF for at least 12 months expenses and trying to build taxable account for retirement.

SimonJester
Posts: 1944
Joined: Tue Aug 16, 2011 12:39 pm

Re: Paid off Mortgage...what to do next

Post by SimonJester » Thu Jan 10, 2019 11:50 am

willthrill81 wrote:
Thu Jan 10, 2019 10:11 am
SubieGirl14 wrote:
Thu Jan 10, 2019 9:59 am
I have seen mention of obtaining a HELOC in case of emergencies. I have not thought of that as a preemptive measure mostly because I have seen a lot of mention of HELOC's being closed down in economic downturns. Should we look into one anyway?
The reason that many people lost their HELOC a decade ago was because their home equity vanished. If you started with 20% equity in your home, but then your home declined in value 20%, your equity disappeared, and banks justly no longer wanted to extend you a HELOC. With a home owned free and clear, the likelihood of that happening to you is far lower than for many people.
I really despise the idea of a HELOC as your emergency fund. To me you are just wrapping up debt into a secured asset. Cash in the bank is a GREAT emergency fund.


I would prioritize rebuilding that emergency fund over the next few months. Then make 100% sure you can pay off that credit card by the end of the 0% rate.

Dont forget to start saving your monthly escrow payments for property tax and insurance, as you will now be paying these vs escrow. Speaking of which, you should get your escrow back in a month or so from the bank assuming you had one.

Once you have the emergency fun in place, that credit card knocked out, focus on maxing the 401k, and Roth IRAs each year. Then start saving towards replacement vehicles so when that day comes you can write a check. I would then drive the current vehicles as long as you can.

Last word of advice, be careful who you tell about doing this, that includes close family. Some may assume you have no mortgage payment so you are rich and can loan (loose) money now...
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

User avatar
willthrill81
Posts: 11939
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Paid off Mortgage...what to do next

Post by willthrill81 » Thu Jan 10, 2019 11:55 am

tenkuky wrote:
Thu Jan 10, 2019 11:46 am
willthrill81 wrote:
Thu Jan 10, 2019 10:11 am
SubieGirl14 wrote:
Thu Jan 10, 2019 9:59 am
I have seen mention of obtaining a HELOC in case of emergencies. I have not thought of that as a preemptive measure mostly because I have seen a lot of mention of HELOC's being closed down in economic downturns. Should we look into one anyway?
The reason that many people lost their HELOC a decade ago was because their home equity vanished. If you started with 20% equity in your home, but then your home declined in value 20%, your equity disappeared, and banks justly no longer wanted to extend you a HELOC. With a home owned free and clear, the likelihood of that happening to you is far lower than for many people.
Like Subie, I hadn't thought of this, and would like to learn more.
Since I am on track to also aggressively pay off the mortgage by end of this year, is it recommended to open a HELOC right away and let it sit unused till you need it? Understand the variable nature of interest etc, but not the rules around what happens if balance zero for prolonged time.
Also curious about fees, annual costs and lock-ins if used.
Do have an EF for at least 12 months expenses and trying to build taxable account for retirement.
If you already have a 12 month EF, going to further lengths is probably unnecessary, although you certainly could. The lenders offering HELOCs that I've seen don't care if you have a zero balance for a lengthy period of time. The draw period during which you can access the HELOC is ten years with Chase, who we bank with and will probably get our HELOC with. The only fees are a $50 origination fee and a $50 annual fee.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
willthrill81
Posts: 11939
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Paid off Mortgage...what to do next

Post by willthrill81 » Thu Jan 10, 2019 12:00 pm

SimonJester wrote:
Thu Jan 10, 2019 11:50 am
willthrill81 wrote:
Thu Jan 10, 2019 10:11 am
SubieGirl14 wrote:
Thu Jan 10, 2019 9:59 am
I have seen mention of obtaining a HELOC in case of emergencies. I have not thought of that as a preemptive measure mostly because I have seen a lot of mention of HELOC's being closed down in economic downturns. Should we look into one anyway?
The reason that many people lost their HELOC a decade ago was because their home equity vanished. If you started with 20% equity in your home, but then your home declined in value 20%, your equity disappeared, and banks justly no longer wanted to extend you a HELOC. With a home owned free and clear, the likelihood of that happening to you is far lower than for many people.
I really despise the idea of a HELOC as your emergency fund. To me you are just wrapping up debt into a secured asset. Cash in the bank is a GREAT emergency fund.
Nowhere have I recommended that anyone substitute a funded EF with a HELOC for any length of time. But the OP is in a situation where she's asset heavy and cash light. She should be able to fund her EF in a year or two at the most. If she needed emergency cash, taking it out from a HELOC puts her in a very similar situation to where she was when she still had a mortgage but an EF. The HELOC option is actually much safer because she could lock the rate when desired and amortize the comparatively small repayments over a ten or twenty year period, whereas the entire amount of the mortgage has to be paid every month to stave off eventual foreclosure.

Yes, she needs to be careful, but she's clearly debt averse and unlikely to get in real trouble since she knows the risks and what she's doing.

She could immediately fund her EF, but then she would lose valuable and irrecoverable Roth space.

Another strategy is to fund the Roth accounts, but just invest the funds into something relatively safe, so that if the a real emergency does come along, the money can be pulled out without running the risk of significant loss of capital.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

MathWizard
Posts: 3473
Joined: Tue Jul 26, 2011 1:35 pm

Re: Paid off Mortgage...what to do next

Post by MathWizard » Thu Jan 10, 2019 1:02 pm

Saving$ wrote:
Wed Jan 09, 2019 9:34 pm
BL wrote:
Wed Jan 09, 2019 7:38 pm
Gufomel wrote:
Wed Jan 09, 2019 5:10 pm
Congrats!

Contribute the max to ROTH for 2018, but leave it in a money market fund. Treat it as your EF (some people do this anyways) until you get your EF built back up in your bank. If you end up needing the money before you get your EF built up, you can withdraw your contributions from your ROTH penalty free. But if you don’t end up needing it, then you can buy stocks/bonds with the ROTH money once your EF is built up. If you don’t contribute the max to your ROTH, you’ll never get that space back.
+1
I believe you have up to 60 days to return any "borrowed" Roth, not that I encourage that action.
THIS!

1. NEVER lose tax advantaged space if you don't have to; you can never get it back. Fully fund both your and DH's Roth for 2018.
2. Once the 2018 Roth is fully funded, fully fund the 2019 Roths
If you need emergency cash, you can divert the cash from funding the Roths to the emergency; if you need more, you can withdraw from the Roth. If you can't replace the withdrawn funds, you are no worse off than you would have been putting the funds into an EF.
Once the above is done:
3. Fund the EF
4. Pay off the credit card before the 0% expires, even if you have to use the newly funded EF. You can replenish it, and your Roth can again be the EF.
Good list, but in #2, funding just the 2018 ROTH, the 2019 ROTH can wait for now.
Funding the 2019 ROTH now, and having to withdraw the contribution in 3 months means OP will forfeit the 2019 ROTH space.
Better to wait until the EF is built up, or until Apr 15, 2020 rolls around , preserving the 2019 ROTH space.
In the meantime, the older cars are going to need maintenance, and an EF and car fund needs to be set up, since the older cars will likely need to be replaced sooner rather than later. This is all about cash flow.

With $2900 extra each month, OP should have enough before April 15, 2010 to fund the 2019 ROTH, providing a sudden expense
should appear. Once a decent 1st tier EF exists, the CC is paid off, and enough money is available to replace a car should it die,
then the OP can fund the previous and current year ROTH in the same year.

I'm in the same situation as the OP, though ahead by 1 year.
A year ago, the house was paid off and the last kid was out of college.
I replaced one of the two olds cars with a relatively new one by draining the EF and putting $2K on a CC, paid off the next month,
I shifting expenses in Apr 2018 by putting them on a CC which was paid in May, again draining the EF to fully fund the 2017 ROTH.
I have been building it back up, and will just fund the 2018 ROTH this year, not having to fully drain the EF or play CC games.
I suspect that it will take 2 years before I can fully fund 4 ROTHs in one year (myself and spouse for 2 calendar years)

Topic Author
SubieGirl14
Posts: 52
Joined: Wed Mar 12, 2014 9:50 am

Re: Paid off Mortgage...what to do next

Post by SubieGirl14 » Thu Jan 10, 2019 1:26 pm

All the additional insight is helpful, thank you. I think we are going to break down the $2,900 monthly extra as follows for the next 3 months:

$400 CC payment
$500 Roth 2018 DW
$500 Roth 2018 DH
$1500 EF

Assuming nothing crazy happens by March, I will add the $7k bonus checks and $1k from the EF to max the 2018 Roths. At that point, I should have $3.5k left in the EF and a CC balance of $6.8k. We really don't want to miss out on the 2018 Roth contributions if we can help it. I am ok with carrying the 0% debt as long as money is being added to some sort of savings, and not being spent.

User avatar
Darth Xanadu
Posts: 684
Joined: Sat Jan 27, 2018 1:47 am
Location: Middle Earth

Re: Paid off Mortgage...what to do next

Post by Darth Xanadu » Thu Jan 10, 2019 2:14 pm

This sounds like a very reasonable plan...Good Luck!

:sharebeer :moneybag :sharebeer
"A courageous teacher, failure is."

Post Reply