It’s no secret that I hate my mortgage. It’s no secret that I don’t believe there’s such a thing as good debt. But we do really love our house, our neighborhood, our short commutes, and our proximity to family. So we grin and bear it.
Since I fell into personal finance, I’ve taken a Bandaid approach to my mortgage. As in, rip it off as fast as humanly possible in the form of double or triple payments each month. And it’s working. Last October, I promised to share quarterly updates of the progress we’re making on our mortgage, so here’s where things stand at the start of 2017.
The Numbers
In keeping with 2015 when it took me at least two posts to properly calculate how much debt we paid ($24,000 was the actual total), the same is holding true for 2016. When I got my tax documents, US Bank pointed out that we put over $29,000 towards our debt last year, not the $27,000 I have previously calculated guesstimated.
So where does that put us now? We owe $174,239 on our house. That’s still a big number to swallow, but at least I can say we’re under $175k. At this point, it is what it is. As much I as I don’t like it, all I can do it make a plan to get rid of it.
The Immediate Plan
I’m a big fan of consistency. I find something that works, and I stick with it until it stops working. For at least this next quarter, our plan is the same. We’ll use our income to at least double our mortgage payments each month and put some or all of our side hustle money towards the debt as well. That means by April, we’ll have parted with another $8,000. Unfortunately, at this stage in the game, we’re still paying so much money in interest, our payoff progress won’t be that dramatic.
The Long Run
This is where things get a little interesting. While I have next to none of the details of my maternity leave worked out at the moment, I do know that it will be at least partially, if not entirely, unpaid. No amount of slicing and dicing will allow us to double our mortgage payments, pay our regular bills, and take care of any other medical expenses that may crop up on my husband’s salary alone. It’s just not possible.
As I see it, we have two options:
- Pay our required monthly mortgage payments and let that be that. It would certainly cause the least amount of stress in the short term. It also wouldn’t get us any closer to our goal of having our mortgage paid off by the time I’m 40.
- Draw down from our savings account to continue making extra payments. We have the money to swing three extra payments. And my future self would be really excited for that option. We’d stay on track with our goal and slice away at another hunk of interest. But I’m also not sure I’m comfortable putting extra money towards something like that when we are about to confront so many unknowns.
The good news is that we don’t have to commit to either option right away. In fact, we can truly play it month by month. That makes the planner in me nervous, but it also gives me an unexpected sense of peace.
So Tell Me…How are you tackling or how did you tackle your mortgage? Any suggestions for what we should do during my leave?
I am in the same bucket on finalizing our 2017 goals…… Mrs AE will be getting 60% of her take home pay for part of it and has enough PTO to cover another part but at least a few weeks will be unpaid (not to mention the insurance increase….)
Personally – I wouldn’t eat into savings to pay down a mortgage and would keep it as a buffer entering the unknown.
Thanks, Mr AE! The biggest question mark right now is actually what my salary will look like when I come back to work. In addition to the unpaid time off, I *believe* they will prorate me for the rest of the year. That’s the big GULP.
Completely agree with Apathy Ends advice here
Secret Retirees
Glad you chimed in, Secret Retirees!
I actually did dip into my savings to pay off my mortgage. I had around $47k in a savings account and felt that a much better use of that would be to pay off the remaining $32k mortgage and be done with it.
Huge disclaimer: I don’t have kids. Kids are an important factor since so much can happen at any time and you never know when you might need that money held in savings for a surprise medical bill or anything else that unexpectedly pops up.
If I was you, I’d keep that money in savings. You can always use it down the line to make additional mortgage payments (along with any interest its accrued). But it really comes down to how much money in your savings account makes you feel secure, and that’s going to be a very personal number.
I love it, Kate! I would absolutely rip the Bandaid off at that point! And I do feel like we are setting out into the unknown. I won’t decide anything until we get a better handle on everyone’s health and my leave 🙂
I love giving advice. Even when it isn’t solicited 😉 With the uncertainty of maternity leave, I’d make regular payments now and let the cash pile up while things get figured out. Then once you figure out if you’ll be paid at all, then you can decide if you want to make double payments or not. Pushing out the double payments a few months won’t make or break your plans. Best of luck!
+1 This is basically what I came here to say. If it were me, I wouldn’t be making any extra payments at all until you come back from maternity leave and know what your budget looks like then. Do you know how much delivery will cost you? Daycare? Diapers? Formula? Other baby stuff? You can always make a huge extra payment when you go back to work but you can’t get the cash back.
I agree. I would leave the savings in the account until later. Your budget may change, you’ll have additional expenses and, possibly, some unplanned expenses. You can always make a larger payment after you get a good idea of what your finances look like after the baby arrives. Just my two cents.
I’m so excited to follow your journey into parenthood!!!
Amanda, I think we’re definitely planning on the unplanned if that makes sense! Thanks for the great advice.
Thank you for following along! It means the world!
+3 for saving. With so much uncertainty, I think having additional savings would be helpful. 🙂
Leigh, I really want to do a but, but, but…But I think you’re right. We’re going to make the double payments through March, and then we’ll hold off. As for your other questions, the only one that I can say “yes, sort of” to is the labor and delivery. I’m BFFs with the Blue Cross Blue Shield reps now. I call them constantly! But again, it really depends on how I deliver, everyone’s health, etc. So that’s the “sort of” part.
I love it! That’s how I learn. I’m always open to advice, solicited or not.
We’re paying the minimums on our mortgage ($1,000/mo) for the next two years while we pay off our $65,000 student loans. Once the loans are out of the way, we’ll start paying $3,000 to $4,000 a month on the mortgage. Our note was for $145,000, so we have it a little easier, but we should be able to pay it off within 6 – 8 years, depending on a few factors.
That sounds like an awesome plan, Mrs. Picky Pincher! I can totally understand wanting to tackle the higher-interest loans first!
Just let it be and don’t pay extra. I’m actually in the middle of a few months of not paying any extra on my own mortgage to be able to have a 1-month buffer and start actually living on the previous month’s income… I thought it would be more stressful not paying extra, but it’s really not a big deal because I know I’ll pick those back up as soon as I can. ALSO, speaking as someone that paid an overdraft fee and a late fee + interest on my credit card after my son was born and there were complications, KEEP THINGS SIMPLE… life hits hard with a newborn and if you’ve complicated things, you’ll end up paying STUPID FEES (I’m still flippin’ angry!). 🙂
Mr. P’s favorite thing to tell me right now is that my brain is shrinking. And sometimes I feel like he’s not wrong! I don’t like to automate, but I’ve definitely moved more towards that recently. Between not feeling great and feeling like I’m in a fog, I need all the help I can get. That’s really helpful advice, Maggie.
Adding kids to the home can switch things up. And the trouble is sometimes you can’t anticipate how the situation or you will change. My advice would be to stock pile that cash, just in case. Just in case things change or happen in ways you can’t foresee right now. You could open up a separate account called: to pay off the mortgage. Seeing the money piling up in there might make you feel like you are still making progress. But it will give you some cushion just in case.
While I’m not a huge fan of separate accounts, I think I could totally get on board with this, Ms. Montana. I feel like we have “enough”, but I also know that once Baby is here, I will never, ever probably feel like “enough is enough” again!
I’d have to agree with the other comments that you should make regular mortgage payments and stockpile the cash for now. Life has enough uncertainty and add to that another small person, I think it’s just safer to have the cushion.
As for our mortgage, we are tackling it by making small (but consistent!) extra principal payments. It’s not going away any time soon, but I like knowing that I’m shrinking the size and length of this debt.
It’s such a struggle, Gary! I know we had more money in our savings than we should. In addition to a 6-month emergency fund, we have probably another $20K that should be working for us. But now that I read all these comments, I feel like I need a paper bag to breathe into. Even if I can’t/don’t pay extra as I go this year, it would be really fun to make a huge extra payment at the end of the year (if there’s any money left)!
Excuse me, your brain is BUSY not SHRINKING. 😉
I know what you want to hear, which is what I would want to hear, but I’m gonna have to jump on the other side too. Pile up the cash for now. The stress of not having the cash later if you need it for something you can’t defer is much worse than the unfulfilled desire to pay down the mortgage. You can hit that sucker later if you find yourselves with no immediate need for that cash.
I wouldn’t make any extra payments until after maternity leave. For one the cost of daycare is a real shocker (shameless plug my post this Friday is scheduled to be about daycare costs). So your costs on the other end may be higher then expected. The second reason is some women have difficulty coming back. By that I mean they feel like they are missing part of their child’s life. You never know how you’ll feel, you could end up being a stay at home mom. It took my wife working through one kid and a year into the second before she realized that’s what she needed.
Another vote for piling up cash. You don’t know what you or baby need over the next year. You do know that the instant you make an extra payment, that money is gone.
Liquidity, flexibility and peace of mind are key right now. No need to mess with that.
Piling on the bandwagon here- anytime there are a lot of unknowns, cash is king. If you have to be on bedrest or there are any complications, it will give you so much peace of mind. As my great aunt said, you’re pretty lucky if the only problems you have can be solved with money.
So let the stash grow, and when everyone’s happy and healthy and life gets back to your new normal, you can make a whopping, earth-shattering mortgage payment and do a happy dance for weeks.
Wish I could insert a gif here 🙂
I’m with the rest, stockpile the cash. You may want to increase your emergency fund before your little one’s here, and you’re likely to have a host of new recurring expenses plus the cost of delivering your precious bundle. You’ll have daycare to consider (and quality care is pricey, especially for infants. Start looking now). Medical insurance, maybe upping life insurance for you and Mr. P.
It’s great that you’ve doubled payments for a while, but you may have to slow down the mortgage payments to keep the rest of your financial ship ship-shape for while.
I’m going to chime in to agree with the consensus here – prepare for the unexpected and then you can make a giant payment later if everything goes according to plan.
One idea is to track the money, or physically separate the amount of each extra payment. Earmark it for the mortgage and only use it if absolutely necessary. If you do need to use some of it, keep track of that too. The deficit amount could be a good goal number for you to make up in the future.
I’m starting to get worried about bed rest and having to leave work early as this pregnancy wears me down. And, there’s new concerns this time about how insurance works with stays in the NICU. I feel your pain on waiting on unanswered questions about not only leave, but short-term disability before delivery. I worked till the bitter end with the other three pregnancies, so all my time off could be spent cuddling babies. It wouldn’t so horrible to spend time with the other three while waiting to give birth, but I’d prefer to have as much time as possible to get into a routine with the two babies.
I’m in the same boat as you. I want to get rid of our mortgage, but I want to keep the flexibility of a cash buffer. Here’s something we did about a year ago. We stockpiled a good amount of cash towards our mortgage, and we put in a separate account. We had some job uncertainty coming up, so we struck a balance. We contacted our bank and asked them to recast our loan for a smaller balance. Essentially, they take your remaining amount owed (with the extra payments deducted) and recast the new (smaller) balance over the life of the loan. This makes the monthly payments smaller.
While the payoff date doesn’t change, we don’t pay a lot of attention to that (since we plan to pay the mortgage off early anyway). This just gives us more flexibility on a monthly basis. For us, we got more flexibility, but we’re still on track to dump the mortgage sooner with extra payments. We always have the option to pay more, and now we have the option to pay less.
Just thought I’d throw it out there as some middle ground. ?
I think I would be looking for little ways to keep chip, chip, chipping away. So maintaining double payments probably is a bit risky, but even $25 a month would make me feel better. It’s not a lot, but it’s something. Or another way of handling might be to really stretch your budget and come in under estimate on things like groceries and insurances. Not always possible, it depends how much flex you currently have in there. If you save $10 per month on groceries, that’s a little extra you can pay off your mortgage.
It’s difficult to let go of mortgage overpayments once you get started, I know that!
We just finished paying off our mortgage. We overpaid a little (rounding up to the nearest number) when we were stockpiling cash early on for various reasons (saving for leave, DH wanting to quit), used big lump sums after the thing we had been saving for cost less than expected, made double payments for a while, then stopped prepaying at all later on when the balance was small and we weren’t saving much in interest anymore.
Now with the mortgage gone I’m having a hard time remembering to pay daycare…
I agree with everyone suggested you hoard your cash. Pregnancies and children don’t always cost as planned. Having it around would help me sleep better.
Replied the following to your tweet (https://twitter.com/picksuppennies/status/853002226301673472):
Assuming a 30-year @ 174k, if you put an extra $1000 per month it would shorten your repayment to 10 years. BUT, this means that you receive no benefit until it is paid off. If you invested in Vangard@7%, you would have approx $200k in 10 years; @10% that would be $240k.
The $8k generated/yr even at lower return (4% SWR) would presumably pay your mortgage payments (which is the goal!). And as it grows it would then cover your *taxes and insurance* which is the the *real* goal: live forever in a property without worry. Only through investments can you do this: $0 mortgage still has tax/ins AND you have a huge pool of reserve, after-tax investments that could also pay your mortgage payments in any emergency situation.
In summary: investments can pay taxes and insurance as well long after your mortgage is $0, and in the same time it takes to pay down your mortgage you can get enough investments built up to cover the mortgage payments while benefiting from investment growth, safety buffer, and tax benefits of the mortgage interest deduction. The fact that it then pays your taxes and insurance for life is just a bonus.
I know that paying off the mortgage feels like a big accomplishment, but you are in a much weaker financial position with meager investments and a $0 mortgage than a $150k mortgage and $150k investments.
I think it’s quite common here to switch to interest only during times like these but no way could I handle doing that. (Plus we are so early in the mortgage that most of the $ goes to interest anyway, we wouldn’t save much by cutting out principal…)
We definitely won’t have the option of doing anything but the bare minimum without my income, so, yeah.
As someone with 3 kids, my advice is do what adds the least amount of stress to your life. There is so much to enjoy, worry about, love, marvel at, and stress out about in the first few months after a wee one joins your family. The very last thing you need is money stress.
To that end, you said it yourself when describing option #1. “It would certainly cause the least amount of stress in the short term.”
The night before my lovely wife went back to work after (her first) maternity leave was one of the most emotional nights of our lives. I questioned every money move I’d ever made. More cash = more flexibility, which is something you might appreciate.