Paying off your mortgage

[Frugal Nurse]

Today.... during my long naps outside by the pool... I thought about my old mortgage.

Long ago... I told be oldest brother that I was paying down the mortgage and planned on it being paid off in 5 years instead of 15.

He was shocked, mad, pissed, and pretty much called me one dumb dame.

Oddly, I have seen this thinking in many people. Maybe not so much here- although the topic never really came up here.

His woeful counselling consisted of this:
1. If I pay off my mortgage - I won't have the tax deduction.
2. If I pay off my mortgage and I am sued, they could take my house. If I have a mortgage, they won't take the house.
I crunched the numbers and read the insurance disclaimers.

Two Totally Wrong Assumptions.

1. I asked my unwise eldest brother if he would give me $10,000 a year and at the end of the year I will give you back $4900. He declined.
Then why would I shell out $10,000 in interest payments just so that I could get $4900 refund?

2. Homeowners insurance protects the homeowner from loss. If the bank still owns the home because it is mortgaged - they protect the bank and homeowner from loss. If I own the home by title and deed - they protect me from loss.
Eitherway, whether it is mortgaged or not, doesn't give me anymore or anyless protection.

Food for thought to pay down that mortgage!

Even though you don't think an extra $20/mo matters... it does.
General example: (numbers are not exact)
On a $165K mortg at 6% for 30 yrs = $1,900,000 in INTEREST.
If you paid a measly $20 extra per month for the life of the loan, you will have saved $100,000 in interest.
That's a significant amount for such a small increase in payment.

Increase your payments significantly and see exponential savings.

Some people think... "But, I am just barely scraping buy I can't pay anything extra." I say.. find the money somehow. Start with $20 now and move it up as things ease up.
If you make half my salary, why should you have to pay $2,065,000 for a home that I paid a total of $200,000 for?

Think of that way.


Now get going and pay off that mortgage! (cc first, then mortgage) Ya hear!


Cheer ee o!

[Russ]

1. If I pay off my mortgage - I won't have the tax deduction.

My father argued this forever. It wasn't until I read "debt free and prosperous living" that I realized this was the mortgage company talking.

[miaumiau]

That's what I'm trying to do too. Paying a bit extra on the mortgage payment every month. I'll be much more happier to have a mortgage-free home than to have something for a yearly tax deduction.

[EmilyD]

Problem with those yearly tax deductions is you have to have so many other things to go with them to count it.

With all the money I pay out in medical every year (a LOT) I still hardly get anything back. If you take your state taxes off one place you have to add them back in another. Just not worth the pain of itemizing IMHO

I probably would not even claim the taxes on the house ... the taxes are so complicated just doing the EZ ones.

However, I do make an extra $10.00+ (an even $500.00) a month on my house payment every month and I also add an extra $50.00 to the account when I deposit it (what we would be paying for the apartment). I already made a $200.00 principle only payment once this year and plan another one later on this fall.

The second question I asked the mortgage company was about the prepayment penalties (none). The first was what are the payments and the interest.

[sdrjeolsen]

Sorry, not to be picky...I'm just a bit @nal, but the interest would amount to 191,133.01, not 1.9M. It seemed like a lot, so I ran it through the bankrate.com calculator. But its still a lot of interest to shell out, for sure! The 20/mo would take the interest pd down to 179,132.97, saving ya over 12K in interest. Would make of one heck of a nice trip to Europe or a nice used car...all on 20 a month, not bad!

Thanks for the reminder and incentive to keep putting the extra on the house!

[Michelle68]

We're hoping to build up our EF by January, then put all extra toward our mortgage. If all goes as planned, we'll be mortgage free in 7 years. (Just in time for DS to go to college. ) I like your reasoning, FrugalNurse.


--Michelle

[frugalfoster]

Definitely worth paying it off. However.....on the insurance situation....here's what can happen because it happened to me. If you are in an accident and the damages are greater than your insurance limits, they can and WILL come after your house. It happened to us and our limits were $100,000/$300,000. We had about $75,000 of equity in our house at the time. They successfully got $30,000 of it. Here's the real clincher....my husband who was at driving at the time did not have a ticket to his record or an accident. This was a chain car pile up and there was a young boy who was riding in his stepfather's car wearing no seatbelt. Even though his stepfather hit the car in front of him..thus sending the boy forward to hit his head on his stepfathers, my husband who then hit them from behind was the main deep pocket in this case. Apparently when a case involves a child it does not matter who is at fault, they go after the deepest pockets. I had police officers who assured me that the most damage happened from the first impact. My insurance company...one of the best in Washington State was was really upset by this. They had offered the family of the boy the full limit but they went ahead and got a lawyer. By the time the people paid the lawyer fees they actually got less than what my insurance company offered them in the beginning. So you see, it can really happen, so get yourself an umbrella policy if you have a house you could lose.

[Dave'sGirl]

What is an 'umbrella policy"??

[Greebo]

What is an 'umbrella policy"??

An umbrella policy is an insurance policy that adds additional coverage over and above that of your homeowners or auto insurance, or for any other liability reason.

For example - since we purchased investment real estate, we wanted some additional coverage should something happen on our property. So we have the following insurance:
Homeowners - for our personal residence
Auto - for our cars
Landlords - for our investment real estate

Since each of those policies has a limit to how much they will pay out, on top of that we have an umbrella policy for $1 million. If anything should happen on any property or with our cars, and we are sued (which of course can happen whether its your fault or not), the umbrella policy kicks in to cover anything between the liability of the basic policies and $1M. Furthermore, the insurance company goes to bat FOR you in court to help prevent the cost from going any higher.

Our homeowners is $500ish a year. Our auto is $2000 a year. Our landlords is about $450 a year.

Our umbrella policy, which covers all of the above, was only about $250/yr if I remember correctly.

So on each policy that's about $700k MORE liability coverage, for half the cost of our homeowners.

To go back on topic, FN is absolutely right - a tax deduction is a lousy reason to keep payments.

[Frugal Nurse]

Sorry, not to be picky...I'm just a bit @nal, but the interest would amount to 191,133.01, not 1.9M. It seemed like a lot, so I ran it through the bankrate.com calculator. But its still a lot of interest to shell out, for sure! The 20/mo would take the interest pd down to 179,132.97, saving ya over 12K in interest. Would make of one heck of a nice trip to Europe or a nice used car...all on 20 a month, not bad!

Thanks for the reminder and incentive to keep putting the extra on the house!

I stand totally corrected. I thought it was outrageous too!

was using my son's laptop.. could barely see the the tiny numbers on the calculations. LOL Do you think they made those numbers soooo small so you couldn't see it!?

(woke up this morning am my damn eyelids were swollen shut. Seems like my naps by the pool were a bit longer than I thought!)

[TheRootedNomad]

Oh boy do I agree with this one.

[Wendy99]

I only agree with this one if you have a massive EF in the bank. Only reason being we were quite young when we bought our home (early 20's) and we paid quite a bit more each payment and were so proud of that. Then as we got going and had children that had to stop. Then we realized our house needed so much work (and still does need windows, roof, siding etc), but we didnt have the money (no EF fund, no savings) to help us. I went on mat leave, hubby lost a good paying job and our kids ended up needing a lot of stuff that wasnt covered by our health plan - we had twins born with an immune disorder. Had we had an emergency fund and did the work on our house (we didnt even realize it needed done) we would have been laughing through this time. So we ended up refiancing the first time we renewed after 5 years, and again just before our second renewel after another 5 years (which is were we stand right now, but due to an unforeseen circumstance we had no choice (because we had no EF)). I guess it's a good thing we had paid extra so the renewel was never over the amount we actually paid for the house, but frustrating just the same. My husband wanted to refinance again this month - DANGEROUS GAME. I told him no way!!! We got the Tightwad Gazette after joining this site and I have a hold on Dave Ramsey's Money Makeover at the library and we are seeing huge progress already in our financial situation. It's just a learning game and we learned the wrong way. So while I totally agree with making more payments against your mortgage my advice is to have a big EF prior to paying off too much. Makes common sense to most people, but it's something that didnt even cross our minds

[The Muse]

Yep! As my signature says, my mortgage is on target to be paid off around 8/2012 which is about 11 years ahead of schedule. I'll save approximately $70K in interest.

I'd much rather have that $70K in my pocket than the useless tax deduction which is barely a drop in a bucket given what we pay in income tax as high earners with no kids.

[emily_hope]

We do pay extra on our mortgage each month. We also have rental property and we pay extra on it as well. At this point in time, these are the only two debts we have. All our vehicles are paid for and we don't have CC debt. Thanks to joining Frugal Village and all the advice I've gotten here, we paid off all our other debt.

[sdrjeolsen]

I stand totally corrected. I thought it was outrageous too!

was using my son's laptop.. could barely see the the tiny numbers on the calculations. LOL Do you think they made those numbers soooo small so you couldn't see it!?

(woke up this morning am my damn eyelids were swollen shut. Seems like my naps by the pool were a bit longer than I thought!)

lol, I hear ya, hehehe. I am fighting off the whole reading glasses thing...come on, I'm only 42, I couldn't possibly need reading glasses. I think they make the type smaller so we feel older....kinda like my clothes these days.