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Death to the Mortgage

September 5th, 2012 at 07:07 am

Or maybe more to the point, "Death to the Mortgage Interest!"

I am at the point where shorter term mortgage are extremely enticing with lower rates, BUT not willing to give up the liquidity. So, I need to put away the amortization tables, at least until next year. Or until something significantly changes.

Our current mortgage goals are "to pay more principal than interest, going forward," and "To pay $10k off per year." At the least we are committed to paying more principal. In good years (gainfully employed) we can commit to the $10k annual payoff.

We've been in our house for 10 years, and have refied 3 times. We have only ever refinanced for lower mortgage rates - no cash outs.

Out of curiosity, I looked at where we are today on the principal balance, versus where we would be if we had never refinanced. Keep in mind, we have 30 years left on this loan, versus would only have 20 years left if we had never refinanced.

As of today? Our principal balance is $3k higher than it would have been if we never refinanced. Which is interesting because we were planning to pay about an extra $3k this year. I have the cash, but just making sure no one has surgery this year - probably won't commit this amount until 11:59pm on 12/31/12. But, I think that makes it pretty even steven!!

I found this really surprising (up to today, we have basically never borrowed against mortgage or prepaid anything - so this is basically just with regular payments). How is this possible? Well, our mortgage payment is about $600/month smaller than it used to be, BUT more of the payments are going to principal with the significantly lower interest rate.

Yes, I do still have 30 years left on this mortgage (versus the 20 I Would have otherwise) so it's not apples to oranges. But, obviously it's going to be pretty darn easy to knock off those last 10 years. If we commit to pay more principal than interest...

As of today, we are pretty committed to never refinancing at 30 years again. But, I may have said that before. Ask me again is I can get 2% on a 30-year. But I think the point is we would just get a 20-year mortgage in that case.

I was always amused by advice not to refinance again at 30 years because "one should have no mortgage debt in retirement." Our mortgage goal pay off is age 45-50. Who said anything about a mortgage in retirement? Wink I think we have already knocked off a year or two off our newest mortgage (with some very small pre-payments). So, if not of concern to us. Worst case - age 63-ish payoff. By next year we may have knocked it down to age 60. Odds are we will refi to a 15-year or a 20-year at some point. Which would be age 50-55 payoff.

All this to say, be careful of overly simplistic financial advice. I am all about keeping it simple, no doubt! But, I am also about thinking about the big picture and running different scenarios.

8 Responses to “Death to the Mortgage”

  1. ThriftoRama Says:

    Funny to hear you talk about your mortgage. You always seem so not into paying it off fast! : ).

    I just helped my sister refinance. it was a mess. She had an ARM that was about to reset to 14 percent. Last time she refinanced, she just called some number off a Ditech commercial and got totally screwed. Ugh. The good news is I got her down into the 4 percent range AND into a 20 year loan. There is a lot of good stuff out there.

    Now that we have paid off a big chunk of the loan I thought of refinancing into shorter term and lower rate (I HATE seeing how much of our money goes to interest, after having lived without a mortgage for so long), but I can't find a way that it speeds up the 5 year pay off plan or saves us money in the long run. Most of our payment goes to principal now, so far I am just sticking to the original plan.

  2. Petunia 100 Says:

    Thriftorama - Over on the Bogleheads Index Forum, they talk a lot about PenFed's HELOC. They say it is no fees and 1.99% fixed for the first 5 years, variable rate after that. If you are on a 5 year pay off plan, perhaps a PenFed HELOC would save you some money.

    Monkey Mama - That is really something, 3 refis and only 3k behind where you would have been if you were 10 years into your original mortgage. Have you calculated how much interest you have saved thus far with the refis? Just curious. I keep wondering to myself how long before you start attacking your mortgage in earnest. Smile

  3. MonkeyMama Says:

    &@Petunia - I know - did not expect that at all! I don't know if I care to calculate the interest saved - it is complicated with 3 refis. Maybe another time.

    @Thriftorama - I was going to suggest the same - 5 years @ 1.99%. For a 5-year payoff, any traditional refi doesn't make sense, but a HELOC or a ARM might.

    "You always seem so not into paying it off fast!"

    Since When?!?! My plan is to be mortgage-free by age 45 - this has been my goal for a long time. (Most of the groundwork for this was laid in our 20s - and with moving to a lower cost region - so I will admit I haven't been overly mortgage focused in recent years. Fair enough. But it's like, "I am not obsessed with killing the mortgage? Do you even read my blog!?! LOL).

    "I keep wondering to myself how long before you start attacking your mortgage in earnest."

    Now? Big Grin It's really my only financial goal at the moment - all my other ducks are in a row. But we have only gotten to this point very recently. The last refi, ironically, is a big part of that. Frees up a lot of cash to put back into the mortgage.

  4. Looking Forward Says:

    I would be very curious about how much you've saved in interest. Smile

  5. MonkeyMama Says:

    I'm really surprised on the curious about interest questions. If you guys insist! I might have some time to kill today.

  6. snafu Says:

    Sadly, most home buyers are unaware of how mortgage amortization tables work. The only thing people seem to think about is 'how much is the monthly payment including taxes and mortgage insurance. The true experience for many is to pay three times the initial value. For example a basic, $100,000. mortgage can easily cost $300,000. over 30 yrs. [It would be less given the extra ordinary low interest rates available just now.]

    You can shave years off your mortgage by making extra payments to the principal. Some people target tax rebate to their mortgage principal or set aside $100. per month for that principal paydown. What are you willing to give up to free up funds for the mortgage?

  7. Monkey Mama Says:

    Okay - this is *real* exciting (sarcasm!). I think I saved about $14,000 in interest over 9 years, with two refinances. This is net of fees to refinance. I think this is because for about 6 years I only refinanced down 1%. Then down another 1% for 3 years. My current 4% loan was left out of the equation. & even after all that I paid $125k in interest over 10.5 years. (Which is no biggie to me, because that is insane cheap compared to our renting options in that same time period - which I am sure contributes to an impression I am no so bothered with having a mortgage. Regional differences - hard to get across in an online forum. It's kind of interesting - because I feel the opposite. I feel my entire life has revolved around keeping housing costs reasonable. & we have made extreme sacrifices over the years to do so. All this to say, it's a lot of money, but it easily could have been a heck of a lot more, and that is why I am content with that. & I am more a looking forward type. I am only paying $600/month to interest, now? RIGHT ON!! That's what all the sacrifices were for).

    I am more interested in going forward, NOW that my mortgage interest rate is 60% lower than where I started in 2001. Interestingly, if I keep this mortgage the whole 30 years, I will pay $14k less in interest than if I had kept the original mortgage (from this point to the end - with only 20 years left). So basically, I might have added 10 more years to the term, but I shaved off $14k in interest, going forward. That is still an additional $138k in interest to pay over 30 years. BUT, these current 15-year mortgage rates can knock that interest figure down to under $50k. So could simply paying it off in 10-15 years. So I can't really calculate until I reach the end, how much I saved over the original mortgage I agreed to. But, I think it's possible I will save $100k in the end. Will see...

    **Original mortgage was about $305k of interest paid over 30 years.**

    Numbers not overly impressive to this point, but to be continued...

  8. Looking Forward Says:

    I think $14k beats a poke in the eye. Big Grin

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