[ironmaiden]

My father was a commercial fishing captain. He was on disability at the age of 50 and I was 8 years old. I knew we didn't have much, but people around us weren't swimming in stuff like they do now. Looking back I realized that what saved us was that my parents had paid off their mortgage. If they had to come up with mortgage money, we would have been in horrible shape.
They did have some savings, but not a lot.

I worry now with everyone refinancing their 30 year mortgage so many times that it really is a 40 year mortgage, that everyone is sucking all the equity out of their houses with home equity loans, of people taking interest only mortgages thinking their ship will come in later, of people in their 40's and up taking out 30 year mortgages.

The American dream used to be owning your own home. The key was owning. People used to have mortgage deed burning parties when they paid off their loan. Now if someone in our neighborhood did that, the neighbors wouldn't be celebrating for them, it would be disbelief.

 

[homesteadmamma]

I totally agree with you.

I know of people who will be paying their mortgage well into retirement. I'm afraid there are going to be many shocked when they see what it takes to retire on and when they see how much their pensions will be.

My dh worked 20 years for a company before he was forced into retirement. It was quite a shock when we found out his pension amount.

I'm glad we paid cash for our home. Looking back over the past 4 years, had we have had to pay a mortgage, I'm sure we would have lost our home or been forced to sell it.

I also look at these long term mortgages and think the only people making any money on them are the banks or loan companies. The interest paid on 30 year mortgages is astronimical. I also remember the 80's when many lost their homes because interest rates went so high.

Great thread!!

 

[bee9984]

dh and I were just talking about this last night. We are both in our 40's now and we are going to start putting any extra money which comes in on the mortgage . Income tax, any pay raises etc.

I was talking to a lady the other night and she and her dh are in their mid 30's. We started talking about the cost of living etc and I told her that we had made some changes and our next plan is to start paying down on our mortgage . You know what she said to me?.....She is not worried about that as they only have 6 months left to pay on their house and it will be paid off.

She said that it took them 10 years to do it but it has finally paid off all of the extra money they put towards their home except for any money they needed to do house repairs etc.

I was one of those people who was in disbelief! It is truly a rare occassion when you hear of this.

Heather

 

[pammy]

My mom and dad may not have much, but they own their house and have for 15 years now. Smartest move they ever made. Since dad hurt his back years ago I don't know how they would have gotten by with a mortgage payment.

We just bought our house last year, with a 25 year mortgage. It was what we could do at the time to be able to buy it. We've got a plan working now, and our goal is to have the mortgage paid off in 4 years. If things work like they have been it will be possible. This would mean that when I hit 38 and dh 37 we will own our home free and clear. Although we are saving over 15% now for retirement, once all our debts are paid we will be able to save even more than that.

A mortgage burning party.... hmmmm.... Now THAT'S a party!! :smball:

 

[amysh]

Pammy,

How much do you owe on your house? Will you have the other debt paid off first? I know you have your car for sale...but wouldn't it be better to pay off the student loans and RV first before paying off the mortgage, since the interest on the mortgage is tax deductible, and the other interest is not?

Amy

 

[pammy]

The rv will either be paid off or sold within the next few months (depending on a bonus dh gets). It's 11% interest right now, yikes!! So that will be taken care of first, for sure!

Waiting for the car to sell, hopefully it will be soon. Am anxious for this to happen, as we can start using that $500 extra a month on the next debt.

The student loan is locked in at 5.5% since I just consolidated them, it's got the cheapest rates of my other debts. I borrowed total of $19k and will be paying $28k total, $9k in interest. Not great, but compared to the house....

The house is on a variable 8.5% rate. We've had the home for a year and half now and it's went up twice already. We owe just over $65k now. If we pay at just this interest rate for 24 more years (interest rates will change, and we bought on a 25 year term) I will have paid $152,640 on a loan for $66k. A wise man once told me to make sure when I pay extra on the house to tell the bank, when I make the payment, to pay it on the principal, not the payments. I sure wish I could find a way to figure how much in interest will be saved by paying it early, would make for some awesome incentive!

Anyways, is this the route you would take if you were me? I'd love some advise as I'm always analyzing our strategy.

 

[amysh]

Well, I definitely agree with paying off the RV first (or getting rid of it, but it sounds like you are enjoying it, which is certainly something to take into account).

Student loan has a permanently low interest rate...so it is not such a high priority.

The question is whether or not you are able to deduct your mortgage interest. Do you file a 1040 long form, and do you itemize your deduction? That is, do you file a Schedule A? Schedule A is where the mortgage interest (and property tax) you pay is deducted. Also, if you paid any points on your mortgage, these are also deductible here. If you *can* deduct the interest, you are effectively paying a lower interest rate than the 'stated' rate. In order to figure it out, though, you need to know your marginal tax rate. (That is the tax you pay on the last dollar of income you earn. ) How do you calculate your marginal tax rate? Here is a calculator that you can use to estimate your tax bracket:

http://www.dinkytown.net/java/TaxMargin.html

Make sure you are looking at your marginal tax rate, not average tax rate when calculating your actual interest payment....

Once you know your marginal tax rate, you take your interest rate times (1-MTR). Suppose you are in the 15% tax bracket, and your interest rate is 8.5%. After taxes (assuming you itemize), your 'actual interest rate' is 8.5 * (1-.15) = 7.225% interest. Here is an article from Bankrate.com that probably explains it better than I do:

http://www.bankrate.com/brm/news/DrDon/20020227a.asp

There are a bunch of financial calculators to help you figure out how much you save by paying the mortgage off early. This one is very easy to use: http://ray.met.fsu.edu/~bret/amortize.html

I plugged in my original loan information (i.e., the regular loan payment) and then re-calculated it with an additional $200 per month added in, to see the difference. There are some that are a bit more sophisticated - I think bankrate.com has one, but I had problems with getting it to do exactly what I wanted.

Good luck with paying off your mortgage early. It does sound like it may be a better deal for you than paying off the student loans early, but maybe this will give you some additional information to clarify that you are doing the right thing for you.

Our mortgage rate is very low (after tax deductions, the interest rate is 3.51%!) We are no longer paying extra on the principal (as my husband has just started a new business), but we did for a while, just because we would both like the peace of mind of knowing the house is paid off. We managed to knock 14 months off a 15 year mortgage, which made us both feel better, even though we could *probably* invest the additional money somewhere and make a better return than 3.5%

Hope I haven't bored you to sleep!

 

[pammy]

"Hope I haven't bored you to sleep!"

Quite the contrary, I love the numbers!

I will admit that I have no clue what tax bracket we are in. An accountant has been doing our taxes, but I may try it myself this next year, so will know more about where we stand on things. I do know they deducted our mortgage, so it must have been a Schedule A. It was itemized. I have no clue about tax stuff and never thought it could ever be something I would want to know, ya know? But recently this stuff has really gotten interesting!!

About the rv, it is financed and I hear considered a second home to the tax world, so I get to deduct the interest from the taxes as well, including expenses for it. Well, will get to use it this upcoming tax term, but that's not incentive enough to have me keep it financed from now on, though. Want this stuff paid off! :toothy:

That is VERY interesting, and a point I hadn't thought about, our actual percentage we're paying after the tax rate. I checked the link, but there is a few things I don't know yet to fill in (things like the itemized deductions). Will save the link to favorites and work on when I get the house to myself.

Try this link http://www.crown.org/Tools/mortgage.asp (Hey, do you put your actual percentage rate in this, or do you put your stated rate?) I worked on these numbers yesterday morning. My current plan is that a year from now (if not sooner) I will be able to add $1200 extra on debt snowballing. Breaks down like this:

Mortgage paid first: Comparing just paying like I am now and the total payments compared to paying off the mortgage early by adding the $1200 extra by next year, the difference in interest saved is $83,643.94 and 19 years and 4 months time saved.

Student Loan paid first: Applying the $1200 extra to the student loan first saves $7,081.96 in interest and 13 years 2 months in time saved.

Put like that it would be more reasonable to pay the mortgage off before the student loan. Then could use my mortgage payment and extra $1200 on the student loan and still get it knocked out six months later, saving $2,869.87 in interest and 9 years 6 months in time saved.

LOL going a little nuts here now, I'm contemplating trying both ways, adding up the interest saved either way then comparing, but won't bore ya with that. LOL you bet I will be doing it so I can see myself though, hehe.

Anyways, thanks for the links, I WILL be checking them out.