Any tips from those who have paid off their house early or are on track to do so?

[eliza61]

Just like Dave says though, people that make the most foolish money decisions and get in the most trouble somehow turn into math majors when they are trying to get out of debt.

Look, Ramsey is catering to the lowest common denominator. The guy that is in debt up to his eyeballs and is about to lose his house needs far different advice than you or I.

You or I would not agree with Dave that NOBODY should EVER have a credit card. Most of the folks calling him though, SHOULD NEVER have another credit card.

The pounding on Dave Ramsey just for the sake of pounding on Dave Ramsey is a common activity.
There is very little of his advice that is useful for ME. After listening to his show for years though, I see that his advice has helped many many folks.

I don't think we necessarily "pound" on Dave, it's just that I find Dave is focused on his advice to the exclusion of every thing else.

For example, the guy up to his eyeballs in debt maybe so due to job loss. So beating him up for having credit card debt is pretty useless. Most long term unemployed are not racking up cc debt willingly.

Very rarely does stuff happen in a vacuum. So when people ask about his advice (or any tv guru) my first recommendation is to take it with a grain of salt.
For example, as some one posted, in some one zeal to fulfill daves "no debt" advice, do they have a savings?, retirement, college fund. Sorry, I think telling some one to forgo their retirement savings to pay off a mortgage bad advice.

Of course you turn into math majors. When I first started working companies gave out pensions. There was no such thing as IRA's and 401K's so we didn't have to be math majors. I didn't know much about investing (and still don't know alot) because when I started out, you worked for 30 years got a nice pension and you retired. I had to learn about compounding interest by necessity.

I always say one of my biggest regrets was that I am a late saver, I never ran up cc debt not because I knew better but probably more because when I was growing up NO one had massive cc's. If you were a mom, you may have had a sears card and a Montgomery ward or a speigal card. LOL I bet half the people here don't even remember Montgomery Ward. Necessity breeds invention. when I hit my middle 30's I had to become knowledgable because the company I worked for got rid of my pension. If you lose your job and your income gets cut, you become a professional at bargain shopping and coupon cutting. Personally I'd be more worried if folks did not adapt.

 

[Colleen27]

Look, Ramsey is catering to the lowest common denominator. The guy that is in debt up to his eyeballs and is about to lose his house needs far different advice than you or I.

You or I would not agree with Dave that NOBODY should EVER have a credit card. Most of the folks calling him though, SHOULD NEVER have another credit card.

I would disagree even with that. Many of the people who follow him the most devoutly are those who can least afford the poor credit penalties that eventually come as a consequence of his anti-credit teachings. In principle I agree with him - I am very anti-debt and hate that credit scoring has crept out from just a measurement of a loan applicant into things like insurance rates and employment applications, but that is the world we live in and I wouldn't recommend anyone "never" have a/another credit card because a good credit score is essential for so much more than just borrowing money these days.

 

[QVCshopper]

The thing with paying off a mortgage over time and investing in the market over time is that you are doing dollar cost averaging - which most people think is the safest way to invest. And I only have my mortgage money in a diverse portfolio of good dividend paying stocks that tend to be more stable in a market crash (a lot of utilities). There isn't a scary big bang of timing the market poorly and taking money out when its low - or putting it in when its high. A mortgage isn't usually a short term thing, and we aren't talking about a short term commitment to the idea of investing rather than paying down a mortgage.

I know all about dollar cost averaging and diversification. I'm just saying that in our situation, there is no way we would be where we are financially right now had we not paid off our mortgage and then saved the payments into our personal accounts because all of our cash (that we then invested) would have gone to mortgage interest. We came out ahead--and by a lot--because neither my husband nor I pull in the big bucks. We do not cross six figures together. We are doing fairly well for our situation and on track to save more than enough for retirement, and we are working on college for the kids. Of course, there's no way we will be able to save as much as some do, but I'm hoping for $100k or more per kid and at least two million for retirement. My husband said if we stopped investing right now, we'd be at three million for retirement based on average returns because we are fairly young (I'm 37, he's just 39). He also works at the same mutual fund company I used to work at. Ironically, I used to write about how to diversity and dollar cost average.

I will add, though, that no mortgage gave me a peacefulness that I needed, because my parents fought about money my entire childhood. Everyday there were screaming fights and worse, something which my husband and I don't (thankfully) worry about right now.

 

[A_Princess'_Daddy]

Nit: Should probably specifically call out "after correcting for tax implications on both sides."

For some people, it's more of an emotional decision than a mathematical one, and everyone is certainly free to make whatever decision they feel is best for themselves. That said, if we look long term, then market volatility becomes less of an issue, and one will find that real estate is basically a push compared against inflation, while diversified stock investments may push 10% or higher on average. The other oft overlooked issue--which has been pointed out by a few PPs who stress strong savings--is that paying off a house early is about as non-liquid of an investment as one can make, and won't be anywhere near as helpful as having cash to throw at issues that come up. For some types of problems, namely job loss, the ability to borrow against it may not even be available.

Absolutely to the bolded. I've been told that my posts are too technical and confusing, so I try to keep them simple, sometimes to the detriment of including all the relevant information and caveats.

 

[KennesawNemo]

Gracomom - you imply something there - if you currently pay any PMI, you want to pay down your mortgage to the point that the PMI goes away before you invest. That PMI is money you are throwing away.

So for MOST people, with your extra money:

1. Set aside savings so you can pay the mortgage in case of a financial bump in the road.

2. Pay down mortgage to get rid of any PMI.

3. Consider moving extra money to investing - you are likely (though never guarenteed in investing) to come out financially ahead over paying off a mortgage, and the money will be more liquid (though not completely so, which is why you want step one). Take into account your circumstances - you may value the security of a paid off house, or need the cash flow improvement from not having a mortgage, more than you need the extra money you are likely to get from investing. If you are investing, you want to treat the money like its your house (because it sort of is). This isn't the money you buy some penny stock your uncle recommends that you "can't lose" on. You want low volatility stock in reputable companies with solid balance sheets and prospects (and I prefer the ones that pay dividends for this purpose, because it lets me do napkin math on the delta). ETA: AND you only want to do this if you are going to be disciplined about leaving it there and letting it grow. If the moment it gets to $10k you are planning a Disney trip with a concierge stay at the Poly off that money - pay down your mortgage instead.

I've asked couple personal finance questions in the past and read all posts about personal finance and you always give very good advice.

Thank you.

 

[disney1990]

If you want to pay off in 8 years, find out what that payment would be and make it every month. We were told we didn't qualify for a 15 year loan, so we were given a 30 year. However, we made the 15 year mortgage payment every month, just like it was our loan amount. So glad to actually own our home.

 

[DetroitDisney]

If you aren't maxing your 401k out each year, you shouldn't be paying down the mortgage. Take your tax deduction and put money into investments.

A paid off home does you no good but cash flow. You can't use a brick for groceries. I actually work in lending and talk to tons of people every day that plead me to let them pull equity out of the home they desperately need. But because of any minor issue (credit, income, etc) they can't.

Liquid cash > theoretical equity

 

[disney1990]

If you aren't maxing your 401k out each year, you shouldn't be paying down the mortgage. Take your tax deduction and put money into investments.

A paid off home does you no good but cash flow. You can't use a brick for groceries. I actually work in lending and talk to tons of people every day that plead me to let them pull equity out of the home they desperately need. But because of any minor issue (credit, income, etc) they can't.

Liquid cash > theoretical equity

Yes, lots of people wish to pull money out of their houses and most of these are people still paying on their house. A 401k is definitely important, but people cannot afford to retire with a mortgage, so pAying off the house is just as important.

 

[Sagginit]

since your asking for advice on how to find/locate extra money to pay off your debt ill give that. i don't have a mortgage but i had hefty student loans that i have been hacking away at. i will be done with them in half the time that they were planned out to take

one strategy mentioned is throwing anything extra at it. this includes bonuses at work, gifts, tax refunds, etc. the other is finding money in your budget each month to dedicate to it. if you don't have a budget come up with one and see if you have the extra or can cut back somewhere. one way to determine what you really need in life is to go bare bones for a month or two. i did this about 3 years ago. i quickly realized things i did not miss (going to the movies, fast food, magazine subscriptions) and what i really missed. in that instance you may be able to find more money in your monthly budget.

as others said a key is to have a savings cushion so you never have to miss a payment and looking at your interest rate to determine if it's worth it. i paid off a lot of my high interest loans first, doing a reverse snowball. i started putting more in my 401K last year since most of those big ones were eliminated, but it totally paid off as i had considerable gains and made a lot more than the interest i was accumulating.

i have windows 8 and i also got an app that lets me track my loans. it has charts so i log each payment, including extra ones. it shows me how much interest i saved, how much quicker it gets paid off, and lets me plug in those extra monthly payments to see how much quicker it will go. this has been really motivating and worth the $2 i spent on it

 

[DetroitDisney]

Yes, lots of people wish to pull money out of their houses and most of these are people still paying on their house. A 401k is definitely important, but people cannot afford to retire with a mortgage, so pAying off the house is just as important.

Refinance into a new 30 when you're ready to retire. Then you have 100k in the bank and a $500/ mon payment, instead of having no mortgage and no savings.

Equity is worthless until you sell. Cash is king.

 

[chicagodisneyfan]

Yes, lots of people wish to pull money out of their houses and most of these are people still paying on their house. A 401k is definitely important, but people cannot afford to retire with a mortgage, so pAying off the house is just as important.

That's an incorrect statement. Many people can and do retire with a mortgage - we have plans to buy a 2nd home and if interest rates are low - we will take out a mortgage.

Retiring does not mean you are poor.

 

[rlu929s]

You say you follow Ramsey, so I'd just stick to the baby steps.

Pay off all debt.
Build your emergency fund. (6 months)
Make sure 15% of income is going to retirement.
Save for college (if needed).
All the rest is pointed at the house.

That's our plan. In 2013 we finally built up our savings and got rolling with Roth IRA's and college 529 plans. We held off on the house to save up and pay cash for a new to us car, as it was time.

After a little more saving we'll start tackling the house full speed ahead until a new car refresh is needed. Hopefully 5+ years.

Of course you have to save some for those Disney trips

 

[eliza61]

That's an incorrect statement. Many people can and do retire with a mortgage - we have plans to buy a 2nd home and if interest rates are low - we will take out a mortgage.

Retiring does not mean you are poor.

+1.
My retirement goal is to be a "snow bird". I don't want to move to Florida full time because I love the NorthEast coast in the summer and fall but hate the cold. So in most likelihood I'll keep my house in Philly and either rent or purchase a condo in Florida. Which means I'll have some type of living expense.

The whole purpose of saving is to eventually spend it.

 

[crisi]

I've asked couple personal finance questions in the past and read all posts about personal finance and you always give very good advice.

Thank you.

You are welcome. Personal finance is really important to me and I'm glad my advice fits for you.

 

[AnnaS]

+1.
My retirement goal is to be a "snow bird". I don't want to move to Florida full time because I love the NorthEast coast in the summer and fall but hate the cold. So in most likelihood I'll keep my house in Philly and either rent or purchase a condo in Florida. Which means I'll have some type of living expense.

The whole purpose of saving is to eventually spend it.

This is our goal also.

I used to think I wanted a second home - but have changed my mind on that (I see what others go through and we had a condo in Jupiter we sold last year (given to dh and bil from my in-laws - we were not ready to go back and forth).

 

[NY Disney fan]

Don't be so aggressive about it that you leave yourself vulnerable. If financial disaster should strike you'll appreciate an oversized emergency fund far more than a lower principal balance on your home. Pay what extra you can afford after fully funding a generous liquid savings, and don't touch that savings to speed up your mortgage payoff unless/until it is enough to pay the remainder in full. I think that's the one of the two big flaws in DR's approach - his savings targets are on the very low side, in my opinion, and not likely to be enough to cover any major setbacks that might arise.

I agree with this. I don't believe in paying off mortgages early. You are better off saving the extra funds in an emergency fund to have the maximum flexibility.

 

[100AcreWood]

You say you follow Ramsey, so I'd just stick to the baby steps.

Pay off all debt.
Build your emergency fund. (6 months)
Make sure 15% of income is going to retirement.
Save for college (if needed).
All the rest is pointed at the house.

That's our plan. In 2013 we finally built up our savings and got rolling with Roth IRA's and college 529 plans. We held off on the house to save up and pay cash for a new to us car, as it was time.

After a little more saving we'll start tackling the house full speed ahead until a new car refresh is needed. Hopefully 5+ years.

Of course you have to save some for those Disney trips

I have to admit we have been fans of Dave Ramsey for 9 years but I don't necessary follow everything he says. We read the total money makeover and used that to get on a written budget and get out of debt. We're hoping to change "our family tree" as Dave says. Our parents are both spenders. If they want it, they buy it and therefore have money trouble. While I love Dave for what he has inspired us to do, we still use credit cards (we always pay off our cards each month but we didn't want to walk away from the points). According to the baby steps we're on step 5. We have a 529 for the kids but it's hard to say how much is enough for college. So my dh wants to pay off the mortgage so we will free up extra cash if we need it for college or retirement later. HOWEVER, we are now looking into investing extra money instead. Thanks again for all the arguments, pros and cons of paying off the mortgage.

 

[Shelly F - Ohio]

My bank debits an extra $150 a month to go on principle. When we get our taxes back I bank the month till Oct and then but it on the principle too.

We watched for great rates and refied a year ago for 2.75%. So that cut our interest in half.

We are set to pay off our new 20 yr loan in just 6 more years!

 

[Shelly F - Ohio]

I agree with this. I don't believe in paying off mortgages early. You are better off saving the extra funds in an emergency fund to have the maximum flexibility.

You are not a fan of paying off a mortgage early but you are a fan of wasted thousands of dollar on yearly interest payments! Wow must be nice to have money to burn freely. The interest makes up a huge chunk of the monthly payment and I would rather pay my loan off early verses lining the pockets of the bank.

 

[supersnoop]

You are not a fan of paying off a mortgage early but you are a fan of wasted thousands of dollar on yearly interest payments! Wow must be nice to have money to burn freely. The interest makes up a huge chunk of the monthly payment and I would rather pay my loan off early verses lining the pockets of the bank.

If you've got a 2.75% rate, and you can earn 3%+ elsewhere, aren't you throwing away money by paying off the mortgage?