NRR - Paying off House

Wow, thanks for all the responses. I'll answer in order

Can you rent out the house?

Probably, but our goal is to be able to comfortably afford a nicer house relatively soon. The rental income would be nice, but would greatly reduce our down payment for the new house and thus increase our payment. We have one toddler and plan to have the second in a few years. Peace of mind from a low payment is the goal.

What are you paying in interest on the mortgage? What are you getting in interest on the savings?

Interest is low, but certainly higher than interest on savings. That's part of my reasoning for wanting to just get rid of the mortgage asap.

Why don't you just sell the house now and buy the home you want?

We like the security of our stress-free low payments while we still only have one child. We're in no rush to move (our neighborhood isn't that bad, but not desirable for a long-term living situation. We enjoy living way below our means for the time being if it means our future is more secure.

If you have a 401k at work....

We both work and make decent 401k contributions (not max). Though we do max out our Roth. For the short-term, we feel cash-on-hand is more valuable and will likely up the 401k soon.

No way do you refinance. Will cost you money to do that

My thought is that by refinancing, we'll make up the refinancing costs by paying less in interest costs over the time it takes to pay off the loan. I haven't worked the math, and I'm not certain I'm smart enough to.

A couple of your neighbors could go into foreclosure and your property value could drop like a stone

We have seen some short-sales in our neighborhood. Similar houses, not as nicely kept (plus we've done major work on the interior) that would probably prevent us from getting a decent price for our house now. Why would someone buy ours when they can get a similar short-sale for less? Sucks.

Live on the cheap for awhile. No need to jump right into another house.

We've been living on the cheap for almost a decade. That's how we've managed to save so much. We're not hoping to move until about 2-4 years from now (we're in our early thirties). We can't stay here with more than 1 child (well, we can but we'd rather not) and don't want to wait that much longer for #2.

Why pay off a house you don't want to live in? Why own something you don't want?

Mostly peace of mind. But also to not be paying interest (which is quite a large portion of our monthly payments at this point in our loan). The house will go up or down regardless of us paying it off or not, but the amount we pay towards the loan will be a much lower amount if we pay it off quickly.

What is the property tax difference on a $400+ home in a new location vs your current home?

Probably about $150-250 more per month depending on the property.

By the way, if the OP is still around, is your handle a reference to the late Saul Goodman, former timpanist of the NY Phil?

No. Saul Goodman from Breaking Bad. Better Call Saul!

Seems you're going to work this out so that you'll have a nicer house with a payment you can afford.Some things though related to comments from others:People shouldn't think of their homes as "investments". Often people DO make money on a home if they pay it off quickly and keep it for a long time, but the REASON to pay it off (any home, regardless of whether you want to live in it long term or not) is that it then limits your OUTGO. Owning a home outright is one of the pillars to financial freedom. You don't ONLY do that (I know you are investing too), but it is not foolish to pay off a home. A paid for home often saves a person hundreds or even thousands of dollars every month. That's a requirement for someone who won't have crazy income in retirement.

Better Call Saul!

If I paid my house off I'd do it with cash.

X-Runner wrote:

That's what money is for. To spend.

Yeah, use this advice if you want to still be working when you are 80 years old...

Life is the most valuable thing any of us have. And our life is limited. You can't buy a longer lifespan. But, you can spend your time in ways you prefer to.

How? SAVE YOUR MONEY.

Saving money gives you the freedom to spend your time as you see fit -- not as your boss or someone else sees fit. There will always be the possibility to make more money, or buy more things. You can't buy another day of your life. When it's over, it's over.

Money gives you the freedom to do what you want, when you want. You need to be debt free. You need to be saving as much as possible. Once you reach a certain point, you can do whatever you want, because you'll have no debt, and enough money to spend your time as you see fit.

If you want to piss your life away working, then keep buy stuff. New cars. Bigger houses. It's the American dream, right? Ask all the baby boomers who can't retire how it worked out for them...

The definition of investment wrote:

Charles Nonhomogenous wrote:

It's attitudes like yours that created our financial crisis.

Homes are not investments. Thinking about them as such is the wrong perspective entirely.

You are wrong.

Hardly.

I suggest you read something like this:

It points out rather quickly how poor a home is as an "investment".

People value different things.

It seems a lot of people value not working.

Me, I plan to work in my 70's.

If you plan to live long it is best to work long so you don't have to manage to live off of a deteriorating pot of savings for an extended time.

"You can't buy a longer lifespan. But, you can spend your time in ways you prefer to."

Exactly. So if you prefer to have things now then do that.

If you value waiting and working less later, then do that.

I don't know why working is pissing your life away.

Betty White is 90 and still working. It seems to work for her.

My grandmother is 90, hasn't worked for decades and lies in a hospital bed all day.

Of course it is better to work if you want to vs. working because you have to.

Bottom line: If you want more, you work more.

Wouldn't there be tax benefits to retaining a small balance?

Randy Oldman wrote:

Wouldn't there be tax benefits to retaining a small balance?

Maybe I'm mistaken on how this works, but the tax breaks on $10k of interest would be less than the $10k you'd save by not paying interest at all.

Rates and prices are about as low as you will ever see. There's no guarantee the options will be as good a few years from now. You may want to start looking for the right house. A good opportunity may give you incentive to move your schedule ahead.

Ragnarok wrote:

Maybe I'm mistaken on how this works, but the tax breaks on $10k of interest would be less than the $10k you'd save by not paying interest at all.

Yessir! I always tell people that if they like the tax benefits of a 5% mortgage than they'll absolutely LOVE a 10% mortgage, shoot, get some real big benefits with a 20%'er!

When I graduated from college, I made it a goal to buy a new house every year. I've got 17 of them now, missed a couple years but not many. I've found that where there's a will there's always a way. Original poster should just suck it up and do it, whatever it is that he wants to do.

Flagpole wrote:

If you'd rather wait until the current one is paid for, then go ahead. I like your plan of minimizing outgo and paying the house off quickly. The only idea I don't like is you refinancing...just doesn't make sense.

Flagpole (if you're still checking this thread),

I meant to ask you specifically about your comments.

In regards to refinancing with a large lump payment: would we not make up the cost of the refinance by paying less interest in those two years? I think we're paying almost $10k per year (we just did taxes and I should remember the exact figure, but I can't) in interest. Certainly this amount will slowly go down over that span, but not by a ton.

We're at $190k on the loan, if we paid $115k with the refinance and made that loan $75k we still have $20k left over which is plenty by my standards (my wife likes our money liquid though). I can't imagine we'd be paying anywhere near $10k/year in interest on a $75k loan.

You don't count just a lower payment due to the refinancing to figure out if you should refinance or not. Of course you will have a lower payment (due to the principle being much less), but if you're planning to keep the house for just 2 years (24 months) then you have to get back all the money you paid for:Attorney feeApplication feeTitle SearchAppraisal feeTitle insurancecredit checkLein checkand anything else they want to charge you with that goes with closing on a house.Unless you can close with next to no cost, you'd be better off just paying the house off in 2 years.

Go here -http://www.bankrate.com/calculators/mortgages/refinance-calculator.aspx

See if it makes sense for you. If it takes close to 24 months to recoup your costs, then, even if it is a few months less than that I would not do it...there' still a hassle with refinancing.

Flagpole wrote:People shouldn't think of their homes as "investments". Often people DO make money on a home if they pay it off quickly and keep it for a long time . . .

Whether or not you choose to think of it as one, your home is a very important investment. Hundreds of thousands of dollars in savings may depend on how you manage:

* your initial assessment of value relative to price

* interest rate/equity accumulation

* leverage (if/when to pay it off at all in light of other investment opportunities)

* the $250K/$500K capital gains exemption (every two years)

I agree with the person who thinks of work as a satisfying part of life -- but if you are looking forward to an early retirement, don't fall victim to the simplistic thinking that home ownership = security.

Net worth determines security. Net worth determines when you can retire. A home may or may not be part of your net worth. It is neither necessary nor sufficient for a comfortable retirement. Millions of retired people live luxuriously in apartments and rental homes.

I'm not saying that you HAVE to own a home before you retire, but if you DO own a home, you need to own it outright (or within a few months of it) before retiring. If you DON'T own a home, you should have made arrangements to be able to handle rising rent over 25+ more years.My comment about not thinking of your home as an investment is directed to the people who watch the value of their home rise and their equity rise all the while taking 30 years to pay off a loan that ends in them paying 3 times as much for the house as the purchase price.It is best to think of you home as a place to live...a CHEAP place to live once you own it outright. This gives your investment money more power as you don't have to use it to pay a mortgage.

Saul Goodman wrote:

Flagpole (if you're still checking this thread),

I meant to ask you specifically about your comments.

In regards to refinancing with a large lump payment: would we not make up the cost of the refinance by paying less interest in those two years? I think we're paying almost $10k per year (we just did taxes and I should remember the exact figure, but I can't) in interest. Certainly this amount will slowly go down over that span, but not by a ton.

We're at $190k on the loan, if we paid $115k with the refinance and made that loan $75k we still have $20k left over which is plenty by my standards (my wife likes our money liquid though). I can't imagine we'd be paying anywhere near $10k/year in interest on a $75k loan.

I am not sure if you are clear on this, but you can walk in tomorrow and make a 100k payment on your loan - you don't have to refi in order to do that. That would advance you pretty far along the interest/principal curve for your continuing monthly payments (but would not lower them) and wouldn't cost you any of the refi fees. Based on what you describe I would likely not refi, but I would consider putting a big chunk of $$ on the mortgage now, rather than waiting until you have the payoff amount in hand.