#1GoodMoneyThing Update and Attack the Mortgage!
October 26, 2015
Popular frugal finance says: Want early retirement? Live on less.
But I don’t want to! Been there, done that, still wearing the crappy free t-shirts because holes aren’t a good reason to throw them out. Obviously we CAN live on less, and boy have I, but given the choice, and I’m giving myself the choice, I choose to spend mindfully and selectively so we can spend on good quality or pay for expensive stuff when we have to. Besides, while I know frugality-focused Early Retirement folks enjoy their wage-working-free days, my desire to retire early has a lot more to do with freeing up time and energy to do things I care about like animal rescue, helping foster kids, addressing poverty, etc. That takes money.
Why not do both?
In an alternate universe, I could, so I would! But here in this somewhat crappy version, I simply can’t and I will not sacrifice health for wealth again when it’s not for survival.
Nope. I’m a forever fan of the multi-faceted approach.
Reducing our spendable cash flow: we were saving 25% of our salaries, net. That’s untouchable unless it’s paying down debt or keeping us afloat during job loss. We’re saving another 15% to account for LB’s expenses. Until / unless it’s spent on LB, it’s also untouchable outside of catastrophe or debt paydown.
The one-income life: replacing one of our incomes and benefits, or learning to live without one of our incomes for a while, isn’t going to happen through a side gig right away, but it’s a goal. I’m starting the income replacement with our investments.
Cutting our expenses ruthlessly: I negotiate our internet bill regularly, we don’t have a phone bill, we use the heck out of our cell phones and have the lowest plans appropriate to our usage. I’ve tried to refinance the mortgage several times, to no avail, but no fear! There are other ways to kill that mortgage.
With thanks to Nicole and Maggie for pointing me in the direction of a useful amortization spreadsheet, I’ve worked the numbers:
I love the potential for savings here. It’s time for a good hard look to see how much we could comfortably throw from savings in a big ole prepayment when each dollar is worth two in this scenario! There’s a serious temptation to throw all the cash at it but I’ll refrain from overzealous stupidity, I won’t deplete our savings cushion even if it feels like our jobs are relatively secure for now.
Update: Had a chat with PiC, we’ve decided that we can pull together cash from enough sources to make a big prepayment this month so we’re going all in. It’ll be worth almost twice the value in interest we don’t pay over the life of the loan so I’m over the moon about that. And you’d better believe I’m looking at ways to relieve my cash spending so I can throw more cash at it next year.
Woo for making extra mortgage payments! I love the feeling of the smaller mortgage 🙂 I originally started out with somewhere over $300,000 in interest to pay. With a ton of pre-payments, it’s down to under $90,000 if the rate resets to the highest it can (7.5%) or under $30,000 if it only resets to ~3% (the current estimate). It’s really, really lovely having a smaller and less scary mortgage size! I know it’s a lower rate of return investment, but it means so much to me psychologically.
Leigh, that’s inspirational!! And honestly, given the rate of interest on our mortgage (high) and the possible savings interest from CDs or other shorter term vehicles (low), it’s a good ROR for us.
It is amazing how big those early pre-payments are– when most of your regular payment is going to interest instead of principal a little extra principal goes a long way. Now is definitely a great time to pre-pay.
I also agree with Leigh that it’s nice seeing the mortgage go down to something reasonable, even if I have no plans to pay it completely off any time soon. Knowing that in an emergency I could drastically cut our required monthly payments is a nice feeling.
Agreed, I love seeing the mortgage now that it’s approaching Not as Scary levels. I don’t know if we could cut our required monthly payments in an emergency but now I want to go find out.
That’s called “recasting” your mortgage. My credit union (where I first had my mortgage) would recast for you at any time for no charge! The bank where I have it now charges a nominal fee, which I think is $100. I would definitely do that if I left my job, for example, since it would halve my payment.
Ah ha! THANK you! Sometimes the terminology disappears from my brain. I’m sure our bank would charge a fee but it’s awesome to have that in the toolbox as a part of the If We Lose A Job options.
Yay, prepayment! I’m glad you’re not killing your health for more money. I’m sure I could make a lot more money off my blog if I put in the time and effort but… I got other fish to fry.
Good luck in your savings endeavors. I’m hoping for some good savings numbers this month too. But we won’t know for sure until mid-November.
Yep, it’s an argument I have with myself routinely. I have to constantly tell myself not to be foolish. It’s a bit harder when half the equation is in dollars and the other half is in health and well being.
Crossing my fingers for your savings!
The good thing about paying off a mortgage is that is a certain post-tax return. But that rate of return is very low at current US interest rates, so I would be asking if there is some better investment that I could be making. I’m in no hurry to pay off our mortgage.
If we had a lower mortgage rate, I’d be investing for income instead but ours is just about 5% 🙁 That’s why I’ve been eager to refinance. But in the absence of a lender willing to take us on, prepayment will have to be my MO.
We overpay the mortgage and have been doing that since we refinanced from a 15 year to a 10 year. Sometimes I think we’re crazy to do so, especially since we may move, other times I realize it will lighten the load and provide new possibilities as we won’t have to work to pay off a huge monthly mortgage bill each month. Our mortgage should be done in 3.5 years. When it’s finished we’ll throw money at our beach house and get that sucker paid off too!
I’ve never looked at a 10 year mortgage, but that’s awesome that you were able to refinance AND overpay! No matter what you end up doing, I feel like in most cases prepaying is generally a good thing for our overall financial flexibility. I just hate the feeling of debt hanging over our heads, even if it is our shelter.
What calculator did you use? I’m planning a chunk in the next month or two, and would like to run some numbers!
Our rate is low so this is purely risk reduction for the payment. Although investing in theory could do the same thing, I like the idea of lowering the payment if needed (recasting is free for us).
I used this amortization spreadsheet: http://www.getrichslowly.org/amortizationtable.xls
Yay for free recasting if you need it.
[…] We saved 25% in cash, aside from retirement funds, the whole year and made a huge mortgage prepayment. […]