Additional payment to mortgage

Driven5 said:

When speaking of going unemployed, cash (liquidity) is king.  Equity won't put food on the table or gas in the tank.

-Pay $350 each month from a $10k lump sum, and do not pay out-of-pocket for your mortgage for over 2.33 years. 

-Use a $10k lump sum to supplement income for 1 year, and have a guaranteed $833.33 per month. 

-Put a $10k lump sum towards your $30k mortgage principle, and at the end of the day you'll still owe $350 each month.

 

I think I like this idea.  I have two checking and one savings. From the savings I can send 10k to the principal.  The bills and mortgage all auto-pay from one checking account, so I can leave 20k there - 10k for the mortgage and 10k for the "salary".  I can then add an automatic transfer of $800/mo to the other checking account for my "salary."

I might adjust it... Instead of 3 distributions of $10k for salary, mortgage, and loan lump, I add in a fourth category for starting an IRA, so maybe 4 distributions of $7500

Is there a good calculator online where I can simulate making lump payments like this?  Like where I can input my specs from my mortgage and it makes an amortization sheet and I can plug in a "what if I throw $5k at the principal?" and it spits out a couple graphs for comparison?

But still open for debate... I'm still thinking about the not-paying-mortgage option

In reply to Curtis :

I think you may have misunderstood me.  That was not meant as a breakdown of what to do with $30k, it was a comparison of how various uses of $10k would (or would not) benefit you in this situation.  The point is that in your situation there is no real benefit to paying down the mortgage faster yet.  The cash will do far more to improve your month-to-month finances for the duration of your schooling than paying down the mortgage will...And when unemployed, that's where it matters most.  You'll have plenty of opportunity to accelerate your mortgage repayment after you've graduated and rejoined the ranks of the gainfully employed.

Combining my first two scenarios is fine if you need to keep your finances separated into individual buckets like that to keep them organized and controlled, but is also ultimately unnecessary as it's really all just coming from the same pipeline.

Curtis said:

In reply to yupididit :

Not typical.  I got a little lucky and I had to shop for over a year.  And simplicity is a HUGE deal for me.  I am a responsible adult (mostly) but I hate the craziness of how things get.  Its why I did escrow so I never forgot an insurance payment or tax bill.  Its why I set up all my utilities to directly draft from my account.  Its why I don't like being under a bank's thumb.  I also just hate the idea of paying interest.  Why pay it when I don't have to?  I understand the whole idea of investing and making more than my interest accrual, but the simplest, least stressful, least risk move FEELS like paying down the mortgage.

I am a huge fan of simplicity.  Now if I can only find a commuter car that gets 60mpg, has 500 hp, can haul 12' lumber, tow 8000lbs, go off-roading, and look like a Jaguar, I can simplify all my vehicles into one.

When I started looking for a house, I was looking for a $60k fixer in a rural-ish setting near Harrisburg PA... like a 15 mile radius.  I was finding some, but most of them were too much of a fixer to really live-in while fixing.  That was 2 years ago.  The supply started drying up and pretty soon I was looking at $90k homes that needed a bulldozer.  This one popped up for $87k and I think the reason it was cheap was because it was a 2bd/1ba, 835 sq ft tucked into a neighborhood that has mostly 3bd/2ba and 1200+ sf.  It was a misfit.  Even so, I was here to look at it within one hour of going on MLS, and one hour after that we submitted a full-price offer and it was accepted.  They had to cancel 9 showings the next day.

I would say I got lucky because I didn't hesitate.  It is also not really a fixer at all.  It was a flip in 2012, including all new furnace, PEX plumbing, water heater, appliances, the works.  I'm adding HVAC, and the furnace they put in already has an evaporator, so the whole job is going to cost me less than $1500.  I did update the closet in the master and I added some cabinets in the kitchen and will do new countertops.  The installation of the formica they did is not only ugly, but poorly done.

I had $45k squirreled away from my ex wife buying out my half of our old house, I put in about $5500 of my own cash, so the down big down payment left me with only $38k to borrow.

Link to my property on Realtor.com

You can look at comps around there to see what "normal" homes bring.  Still relatively cheap, but $87k is not the norm.

Yeah, under 100k in my parts is simply not livable. Given my kid summer program cost twice your mortgage a month, it'll be a long while before I can live like you.

In reply to Driven5 :

Ah... gotcha.

In reply to Curtis :

Excel has all of the tools you need to model your options.  

In reply to Curtis :

I totally get the simplicity thing.  It's why I paid off my mortgage a few years early. Yes, I could/would have made more money investing, but the peace of mind also has a value that is hard to quantify. I also put a substantial percentage of my income into pre-tax retirement accounts.

One thing to keep in mind, I don't think you can keep the escrow account for taxes after the mortgage is paid off, so you may be on your own to pay attention to those bills.  For me, it's the Township tax bill due in April and the School tax bill in Sept.  The latter is about 3x the former, so it's a sizable check to write.  Of course, I also know folks who pay more than that as their monthly mortgage payment, so it's just a matter of perspective. Every township seems to handle it a bit different.

My bank does offer an escrow account thing for after closing a mortgage, but I think the fees are a little excessive.

FYI, a good friend of mine set up an escrow account for his property tax in conjunction with his BofA mortgage. They berked up and didn’t bother to pay the property tax resulting in a 15% penalty ($550).

After bringing the mistake to BofA’s attention, they did an investigation and came back saying yep, we see you did everything right on your end to set up the account, this mistake is 100% our fault and if you want us to pay the penalty you’ll have to sue us – click, dooooooooooooooooooooo.

I have never forgotten to pay my property tax…Halloween is about carving pumpkins and writing a check to the county collector…New Year’s day is about having the Rose Parade on in the background while I, wait for it, write a check to the county collector.

Curtis said:

My bank does offer an escrow account thing for after closing a mortgage, but I think the fees are a little excessive.

Our county offers auto-drafts of the property tax, and you can set it up to come out every month as 1/12 of the total bills. Look into it; I bet yours does too unless it's really rural and behind the times.

My insurance company also offers monthly billing and auto-drafts. It's pretty great. I'm like you - I don't want to have to sit down every month and pay bills when I know they need paid and I know I'll pay them in full. Just go ahead and take them out automatically!

Oh, and my advice doesn't change based on your update of your financial status. I still would invest everything I could and keep 100% of the mortgage for as long as I could. Liquid investments give me way more peace of mind than a paid off house. Especially as your payment is so low it's just not a big deal. You'll have bills to pay forever as long as you're not a homeless hobo so having one more auto-draft bill isn't a stressor for me. If it was some enormous percentage of my take-home pay I would be more upset but it's just not.

In reply to Curtis : Curtis, off topic, but I read that you are planning on putting Air Conditioning  in your house.  

Instead of central air why not use window air?   You can buy a great high efficiency A/C  window air unit under $200 and if the room is small enough around $100. Less than $500 should turn your house into a freezer with the latest most efficient units.    Scatter a few around the house with remote controls and if you aren’t using a room turn that needs Air turn it off. 

Spending $1500 for central air means you won’t update it when more efficient units come out  so your electric bill will be higher than it could be.

 Plus if one little unit goes out it’s not a disaster.  

Don’t have enough windows?  Put it in the wall!  It’s real simple carpentry.  ( mount it near the ceiling and let the cold air settle.) 

I’ve got  one right over the master bed and one in the Kitchen.  OK, I have to open the cabinet to use that one  but it blows right over the cups and glasses  cooling things off nicely.  

My house is 5500 sq ft I cool it all summer with three cheap window units. ( only one is in an actual window)  only July Aug  and part of Sept is the electric bill $100 higher than basic electric use. 

My fiancé bought the $1500 central air unit when she moved in with me.  It’s still in the cartons uninstalled. Not once this year has she commented about me doing the install.  Neighbors with their $3-400  a month A/C bills  seem to have convinced her of the logic of my approach.  

Agree, I would not pay a dime extra into that house. 

In reply to frenchyd :

That doesn't sound like a wise investment at all. 

The savings in the initial purchase will be completely over run by the devaluation in the sales price when it comes time to sell it. Window units are a perfect way to communicate "cheapazz" to a future potential buyer. 

SVreX said:

In reply to frenchyd :

That doesn't sound like a wise investment at all. 

The savings in the initial purchase will be completely over run by the devaluation in the sales price when it comes time to sell it. Window units are a perfect way to communicate "cheapazz" to a future potential buyer. 

Ding ding ding.

And I'm sure Paul and I share the LOLZ at people as far north as you talking about cheaping out on the A/C (5500 sq ft house and window units, there's a term for that but I won't share it here). The A/C here has been running for the last 2-3 months already and will be for the next 5 or so. There is one room in the house we don't use, so we just have the vent blocked off.

In reply to SVreX : You are right if your goal is to flip a house.

If your goal is low operating cost , low purchase price and A/C security  then you are wrong.  

Can you cool a 5500 sq ft house for under $100 a month? All summer like mine?    ( mind you she works full time from home and she likes it in the 60’s )  

If your central Air goes out does the house get hot?  Or do you have back up?  

Window A/C units get more efficient every year but a central unit may operate 15-20 even 30 years inefficiently.  

Using furnace ducts is a lousy way to cool. You have to blow the cold air up and then let it settle. That takes a lot more energy than just blowing it out and let it settle ( brief review, cold air settles)  

For Cripes sake if you must use central air use zone air. Rather than furnace ducts to distribute cold air.  

In reply to z31maniac I will grant you that in the desert you have it worse than we do in the land of 10,000 lakes (actually over 15,000) 

You  don’t have our  winters  though, but I digress.  

Please stop by and check out my house ( if I could post pictures I would)  I’ll give you plenty of time to find my A/C units.  Well the one window unit in a window isn’t that hard to spot but it overlooks my neighbors driveway/ parking spot and provides privacy.  

It only takes a little thought to deal with them in a nice way. I’m sure you can come up some ideas. 

None of them are as noisy or stick out like my neighbors.  Can’t hide them. I finally had to put a screen up to block the view of their unit and quiet it down.  

Frenchy I wrote you a thorough step by step on how to post pictures from you phone.

SVreX said:

In reply to frenchyd :

That doesn't sound like a wise investment at all. 

The savings in the initial purchase will be completely over run by the devaluation in the sales price when it comes time to sell it. Window units are a perfect way to communicate "cheapazz" to a future potential buyer. 

You did read where it’s a small house in a neighborhood of bigger houses didn’t you?  

The next owner won’t care what kind of A/C it has. It will be bought because it’s affordable. 

frenchyd said:

In reply to z31maniac I will grant you that in the desert you have it worse than we do in the land of 10,000 lakes (actually over 15,000) 

You  don’t have our  winters  though, but I digress.  

Please stop by and check out my house ( if I could post pictures I would)  I’ll give you plenty of time to find my A/C units.  Well the one window unit in a window isn’t that hard to spot but it overlooks my neighbors driveway/ parking spot and provides privacy.  

It only takes a little thought to deal with them in a nice way. I’m sure you can come up some ideas. 

None of them are as noisy or stick out like my neighbors.  Can’t hide them. I finally had to put a screen up to block the view of their unit and quiet it down.  

 

EDIT: There's no point.

When I bought my current house I put a serious chunk of change down and finance the balance over 10 years. I paid it off in 5 years by throwing money at the principal. While I understand Frenchies theories on investing rather than paying down a mortgage, I personally enjoy the fact that I don't have to worry about a house payment nut. When you don't have to pay a house payment it gives you a lot of freedom.

YMMV

Ovid_and_Flem said:

When I bought my current house I put a serious chunk of change down and finance the balance over 10 years. I paid it off in 5 years by throwing money at the principal. While I understand Frenchies theories on investing rather than paying down a mortgage, I personally enjoy the fact that I don't have to worry about a house payment nut. When you don't have to pay a house payment it gives you a lot of freedom.

YMMV

I’m with you! Pay off the mortgage!!  Twice I put a lot of money in the stock market. 

The first was all washed away in one morning in September of 1987, my fault I was overly aggressive in going after yield. 

After that I put my retirement into the DOW. Nice conservative but strong steady yields. 

Did you know that if you take your retirement funds out early the Government gets 50% up front and then taxes you 30% of the rest?  I found that out in 2008.!!!! 

As I’ve repeatedly said, life happens.  

Good lord man, give it a rest.

frenchyd said:

Ovid_and_Flem said:

When I bought my current house I put a serious chunk of change down and finance the balance over 10 years. I paid it off in 5 years by throwing money at the principal. While I understand Frenchies theories on investing rather than paying down a mortgage, I personally enjoy the fact that I don't have to worry about a house payment nut. When you don't have to pay a house payment it gives you a lot of freedom.

YMMV

I’m with you! Pay off the mortgage!!  Twice I put a lot of money in the stock market. 

The first was all washed away in one morning in September of 1987, my fault I was overly aggressive in going after yield. 

After that I put my retirement into the DOW. Nice conservative but strong steady yields. 

Did you know that if you take your retirement funds out early the Government gets 50% up front and then taxes you 30% of the rest?  I found that out in 2008.!!!! 

As I’ve repeatedly said, life happens.  

I thought the penalty for early withdrawal (before 59 ½ for 401K’s) was 10% plus whatever the normal tax would be (15% in the case of assets held over one year). Additionally, I thought you could start withdrawing from your 401K at 55 if you’re laid off and don’t find another job with no penalty, just the normal tax.

I’m several years away from these ages so my knowledge isn’t iron clad but your 50% plus 30% which equals 65% tax is far, far more draconian than anything I remember hearing….are you sure about your numbers?

In reply to RX Reven' :

uhhh...numbers to me don't add up on a number of levels. Plus I thought Frenchy was 70 or so in 2008 he would have been over 59. Oh well. It matters not to me. Back to your regularly scheduled programming.

Don't forget a 72(t) distribution if you are interesting in accessing your retirement income early.

At Curtis’s income level I would recommend a Roth IRA which has no penalty and no taxes for early withdrawals of principal. Which you should never do but I recognize life has challenges.