I can't stand my mortgage

[corn18]

Ok, the math says that I am ok with my current mortgage:

30 yr fixed, 3.75%, $2169 P&I ($850 taxes & insurance)
Owe $438,000 (27 years)
Current home value $500k

Yup, I am greater than 80% LTV, but I somehow managed to get a single VA loan for the full amount. Have refinanced 3 times in the last 8 years. All EF and other funds are full.

I want it gone.

I may move in the next 3 years (75% chance).

I can put all my leftover bonuses towards the mortgage starting in March 2017. This is after I fund all retirement accounts to the max each year ($70k), and fund all other expected expenses each year (with a cushion). I can't cash flow a higher payment right now due to how I am paying taxes on my bonus (paying as I go vs. quarterly estimated payments).

2017 - $100k extra
2018 - $100k extra
2019 - $100k extra
2020 - $77k payoff

Calculators show this saves me $221,000 in interest. Big fan of that. Reality says I am just getting a 3.75% return over the next 27 years. I like the first one better and that's what is driving me. Plus, I have never been mortgage free and never thought I ever could be. So, this is the next big step for me and has become an obsession.

Not having the payment greatly reduces my expenses in retirement. Not investing that $377k greatly reduces my nestegg when I start retirement. I ran a lot of numbers and it seems to be a wash, really, for retirement.

I know I could take the disneysteve approach and put some towards the mortgage and some in investments, and any rational person would do that. But I want the mortgage gone.

So, what would you do?

Tom

[Jluke]

How much interest will you pay in the next 3 years?

It really comes down to how long you plan to be in this house and then what you will pay for your next house - less?

Otherwise, your yearly plan seemed reasonable.

I dislike percentages b/c they can be deceiving.

3.75% seems like nothing... 221k in interest on the other hand... even if it is over 27 years.

[corn18]

How much interest will you pay in the next 3 years?

It really comes down to how long you plan to be in this house and then what you will pay for your next house - less?

Otherwise, your yearly plan seemed reasonable.

I dislike percentages b/c they can be deceiving.

3.75% seems like nothing... 221k in interest on the other hand... even if it is over 27 years.

How much interest will you pay in the next 3 years? $49,000. Yikes! I get to deduct some of that in the 39.6% tax bracket, but it is way too complicated to figure out. Even if I get 1/3 of that back in taxes, that's still over $32k in interest.

Next house will be the same or less.

[disneysteve]

I would take the "disneysteve approach".

If the odds are high that you will sell the house, prepaying the mortgage isn't going to yield that great a savings. And remember, it isn't 3.75%. It's the effective rate after the tax deduction, so probably more like 2.3-ish%. Can you do better than that investing the money? You certainly can.

That's why we always say the answer doesn't have to be all or nothing. Start making extra principal payments with some of the available funds and invest the rest. That way you advance the mortgage repayment but also get the benefit of the higher earnings on the investments.

[Fishindude77]

Do just what you are doing, get rid of the mortgage.
Being in debt and making monthly payments on a mortgage (or any loan) sucks.

[scfr]

Since you asked ... I wouldn't wait 3 years to move.
I'd wait for the March 2017 bonus to come through. Then I'd list the current home for sale when the local RE market starts to heat up for the spring.
Once the current home sells, I'd buy a $300-350K home with 40-50% down.
For the remaining 3 years, I'd put about half of the bonuses towards the mortgage and the rest to the nest egg. By the time that 2020 bonus comes around I'd have a paid off home AND a bigger nest egg.

[disneysteve]

Being in debt and making monthly payments on a mortgage (or any loan) sucks.

Not necessarily. If you can do something better/more profitable with that money, why not?

Would you choose to save 30K in interest over earning 60K in income just to get debt-free?

Maybe you would, and to be fair, I pretty much did that with my student loans. I aggressively prepaid them even though I could have earned more by investing the money but I didn't want to still be paying for my own education when my daughter was in college, which is what would have happened had I stuck to the payment plan.

So there is definitely a psychological piece to this.

[TexasHusker]

Remember that if you extinguish the mortgage payment, you still have property taxes and insurance. My total payment is about $2K a month, with $800 of it being property taxes and insurance ! Only about $780 of it is interest, which ain't much !

[TexasHusker]

Several years ago, I owed $135K on my house that was worth $350K , with a principal and interest monthly payment of $1450.

I really wanted to pay it off, but I didn't have $135K.


So...I refi'd my house - borrowing around $185K. My payment stayed around the same. I took the $150K extra cash from the refi and bought a rental. The rental proceeds paid ALL of the P&I on my own without me doing a thing!

So I effectively eliminated my house pmt by buying the rental.

[Fishindude77]

I just don't like owing money. Every time I've borrowed, I've paid it off well ahead of the due date. Have not had a mortgage payment for many years, freeing up tons of $$ to do other things with. Cash is king.

[corn18]

Since you asked ... I wouldn't wait 3 years to move.
I'd wait for the March 2017 bonus to come through. Then I'd list the current home for sale when the local RE market starts to heat up for the spring.
Once the current home sells, I'd buy a $300-350K home with 40-50% down.
For the remaining 3 years, I'd put about half of the bonuses towards the mortgage and the rest to the nest egg. By the time that 2020 bonus comes around I'd have a paid off home AND a bigger nest egg.

Transaction costs would be a headwind on profit if I move in place. If I wait until my company wants me to move, they will cover all transaction costs.

[Petunia 100]

Tom, you can afford to do what you want. So, if killing the mortgage will make you happy, just do it.

[parafly]

Tom, you can afford to do what you want.

+1

Personally, I like to hedge my bets and go for a balanced approach. At the end of the day, there is no wrong answer, and you should do what feels right to you.

[Singuy]

The beauty about paying off a mortgage is the certainty it gives you. You are certain in 3 years, the house is 100% yours. You, however, can't be certain if a financial crisis from x,y,z will happen or not happen in the next 3 years.

Everyone talks about a greater return than a mortgage interest payments. The returns are greater..over a long period of time on avg. But will it be greater in the next 3 years?...well that will be your call to make.

Given that your interest is so low, it's not really hard to make a return pass this interest rate..but whatever makes you happy in this case.

[creditcardfree]

How is the market in your neighborhood for selling? Is your house going to sit awhile on the market? Or will it sell relatively fast? It wouldn't be great to have it paid off holding all your funds while trying to sell.

I personally like the idea of a paid for home! So do what your gut says.