Tackling that mortgage in 2019
January 28, 2019
In 2017, we took on a HUMONGOUS loan. (Was that really two years ago??)
After we signed those papers, we sold our previous home and applied a small chunk of those sales proceeds toward our loan with an eye on recasting the loan – recalculating a new monthly payment based on the new principal amount while keeping the same terms (interest rate and length of loan) at no extra charge.
I made sure, when we were researching loans, to confirm that Chase would do this at no charge and there were no limits on how many times we were allowed to do it.
That first recast, and the second one with double the payment to principal when more sale funds were available two months later, brought down our monthly payment a total of $700. Not TO $700, reduced it BY $700. The remaining payment is still in the multi-thousands. That gives you an idea of how high our mortgage is! YEEKS.
Making those two moves not only reduced the total balance and our monthly payments, it also saved $102,599.54 in interest! (I used this calculator to figure that savings out.)
I continued to pay a little over the monthly payment due to cut down the principal further, little by little, and made the equivalent of half an extra payment last year.
We don’t have any huge chunks of money coming in this year (that I know of. Feel free to bless us, universe) so I was only aiming to pay down a set amount to principal this year but then I got this email from Chase inviting me to enroll in their New flexible mortgage payment options!
Ok, I’ll bite.
I went in to explore and see if they could offer me anything better than we could do on our own. (I can never resist a do better with money challenge.)
The short answer is no, because of this bit: “No funds are applied to your account until you’ve reached the total monthly payment amount.”
If I did the every two weeks option resulting in two extra half payments, or one extra payment a year, they still wouldn’t be applying the principal any sooner than they currently do now so there’s no point in signing up for a new system when my own system works fine and can be adjusted to do the same thing.
I calculated what one extra payment to principal would be over 12 months. I added that number to our current monthly payment is now and voila! My own flexible mortgage payment option!
This is a little stretch. It’s $188 more to principal than I was paying last year. We couldn’t swing that much extra in 2018 because JB’s therapy ate up all our monthly disposable income. The elimination of the IRA monthly expense, my raise, and cutting back to one JB therapy session per week freed up money for increased targeted and regular savings. After those were deducted, I had a surplus of $676. That’s 3.5 extra mortgage-principal payments. Then I can figure out where to find the money for April through the rest of the year.
I’ve been really conflicted about what to focus on this year: investing while/whenever the market is down, hoarding cash in case things take another turn for the worse with our jobs, or paying down the mortgage. Paying off the loan is a good risk free endeavor insofar as a guaranteed 3.8% return on our money but also we need the power of compounding to be on our side insofar as our investments go. Our investment money is already scheduled to come out of each paycheck but I hadn’t decided how much to divert to the mortgage.
Why not give this a shot? If it’s too tight by midyear, I can back off again.
I’m holding off on paying down the mortgage for now. I have one at 3.25% and at the pace interest rates are rising, I’m thinking it might just be better to hoard cash I would put to a mortgage in a high yield savings account. More flexible in case of a downturn, and the delta is only ~1% at this point.
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Excellent point! I have been trying to convince psyche that it’s ok not to try and wrestle down the Impossible Mortgage right now on that specific point. I don’t know why it’s refusing to hoard as is natural!
Smart on DIYing the extra payments!
I’m throwing an additional $140 a month at it minimum, but I’m trying to make it closer to $300, plus whatever saved savings I build up during the month. This financial month has been fantastic already for saved savings (and I’m only halfway through) so it’ll be an extra big payment in February. Then again, I’m lucky to have such a low mortgage that every little bit makes a noticeable impact. I’m hoping to have the mortgage paid down within 7-10 years. Once I get a renter in the guest house I hope to throw that rent directly onto the mortgage.
That would be so awesome.
We paid off ours early by living someplace where housing is cheap… Not really an option in the bay area.
In terms of how we did it mechanically– we did it by adding extra money to each mortgage payment. We never did recast (the cost through wells fargo was something like $200 or $300), but whenever we were in a situation in which our income fell drastically I would look into it in case we needed to recast. We did no-fee refinance twice– our original rate was above 6% and our final rate was 4.75%, and both of those changed our annual terms, though the second increased our monthly rate (by cutting the years) rather than decreasing it like the first one (which added years).
Property taxes are still a really major expense for us.
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Yeah we can’t replicate THAT part but adding a bit extra to each payment will get us there eventually. Someday.
I’m on the lookout for a no-fee refinance, too.
Interesting, I’d never heard of “recasting” before. My husband and I have decided that (barring any major financial changes) we are not going to try to pay off our mortgage early. Oh I love the idea of it in theory – but in reality over the next five years the house will need several expensive maintenance projects; over the next ten years we want to provide good homeschooling experiences; one, two, or maybe even all three of our kids will need braces; and ten to fifteen years from now we’ll be helping those three kids with college, trade school, entrepreneurship, and/or other career-launching costs. So we need the flexibility of massive amounts of cash soon rather than the long-term investment of paying down the mortgage. Our current 30 year mortgage is set to finish when we’re 64 years old, so even if we don’t pay extra it will be still be done by retirement – as long as we never let refinancing kick the goalpost further the way one set of our parents kept doing or move frequently the way the other set did. And who knows? Perhaps once all three kids are grown & flown, we’ll finally be DINKs who can demolish the remaining mortgage in no time flat!
I don’t know when I ran across it reading in PF blogs but it doesn’t seem to be discussed all that much. It’s been so helpful for us!
Yes in theory it sounds wonderful to eliminate the mortgage, doesn’t it? But we always have to consider it through the lens of our own reality.
I took out my 30-year mortgage 6 years ago and have been paying it down pretty aggressively for the last 2 years – I’m paying an extra $600/month against principal and have so far cut 7 years off the life of the loan.
My interest rate is only 3.25% and it may make more sense to invest that money, but I’m already maxing out my 401(k) and have a 6 month e-fund. Even if I keep this up the whole time, it’s still going to take me 10 more years to pay it off completely (April 2029!). BUT that’s a short enough timeline that investing instead would be a little risky.
My real question is: should I do a Roth and only THEN pay down the mortgage? but I think my retirement savings are in good enough shape that I’d rather keep doing what I’m doing. My vision is that I’ll pay off my house, maybe work One More Year to build up cash reserves and then retire in my very late 50s.
I have no idea if I’ll be able to keep this up – obviously things could happen like changing jobs, taking a paycut, going on some amazing trip, or doing a self-funded sabbatical. Or health stuff. Impossible to know!
Wow, go you!
I think the answer to your question will depend on what your retirement goals are and how far you are from them. You might want to do the Roth because there are benefits to having the money grow tax free and it’ll give you more options when you retire but honestly I rarely had any money to put in a Roth when I qualified so I’m not as well versed all the ins and outs as I should be.
Ugh, deciding between investing, paying down debt, and saving is always a struggle for me… I don’t think I’ve found a balance yet!
You’ll know when I know 🙂
My ARM is going to increase a bit this year, so I promised myself that all side-hustle and “extra” money that shows up in my life this year is going towards extra principal on the mortgage. Gotta jumpstart the extra repayment because I swear to have it gone by the end of 2025.
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Take it down, Josh!
Bay area, represent! 🙂
We bought around the same time as you, and have a HUGE mortgage. We are taking this in steps. First, we paid off our vacation house, which was super small in comparison. We’d been paying that down for 9 years, so we were at the halfway mark. We took a lump sum from selling our Seattle house, and paid off the rest of the vacation house. That monthly payment is now rolled into our mortgage.
We’ve built an incredibly aggressive plan to get our house paid off in seven years. That’s the time when my youngest son will be out of high school, and theoretically out of the house. This plan involves us putting all stock vests, bonuses, & raises into our house, and to blow up/toss our plans to remodel.
It will require a lot of luck for it all to come together, but we’ll see. We already feel pretty invested in the market with our 401Ks, so I personally don’t sweat the lost market opportunity. I am excited about the security/emotional benefit of having the house paid off, even at the expense of some investment gains.
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*fistbump of solidarity and oversized mortgages*
It’s awesome that you’re invested enough that you can focus on paying off your mortgage!
I think we refinanced our house 7 times and as the interest rates fell we shortened our term from 30 to 15 then 10. Looking back this was pretty dangerous. We always assumed we’d both have jobs which I know now is far from a given. We also threw extra money at the mortgage for years. Then we stopped doing that and started putting in the extra into a separate savings account. It wasn’t a better deal but it felt like a slightly safer deal. It allowed us a cash cushion we could use for the mortgage or for something else if a desperate situation arose. We never used that fund for the mortgage. We ended up investing the lump sum at some point. We have one year and one month until our mortgage is paid. When it’s finished we’ll start paying for private school tuition for my youngest, but at least we’ll pay less than we did for our house each month.
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Wow that’s a lot of refinancing. It’s amazing that it all worked out for you so well, congrats on being only a year out!