Testimony from Joy
In the summer of 2009, we bought a sturdy, 50-year-old house with a very needy kitchen. We had been renting for five years and saving for a nice down payment. Because of the imminent kitchen remodel, we kept back some of our savings for that project and paid just 20% down.
We made larger mortgage payments from the start but were also tucking a little more away for the kitchen project. And that plan was growing as we got different opinions and considered what would be the ideal remodel.
After ten months of consideration, we decided we weren’t ready to start a never-ending kitchen-remodeling-and-expanding-into-the-garage-etc. project. With that plan, we would have proceeded with a new phase only when we had the money in hand, so the total time and money required was overwhelming.
During our hesitation, we found an online mortgage calculator that allowed us to play around with numbers. We were already on track to pay off our mortgage 13 years early, but we realized that if we put our remodeling savings toward the mortgage, both with an initial lump sum and in increased monthly payments, we could pay off the mortgage in five more years—saving in interest close to the full amount of the principal!
Seeing those numbers, we were eager to delay a big kitchen/garage remodel eight or so years until able to do the full project all at once and with cash. So last summer we painted the walls and homemade cabinets and replaced the original, cracked counter top and the stained flooring, making my kitchen a happy place to be–all for under $1,000!
Two Recommended Number-Crunching Websites
Now I know people have purchased homes in different housing markets—regarding both location and economic times. The when and where of our home purchase helped to keep our total costs low. However, the decision to pay more toward the loan’s principal each month can save any home owner money.
I knew that truth theoretically, but until we were using a mortgage calculator, I didn’t dream the savings would be so great or the acceleration could be so fast. Anyone with a mortgage could benefit from number-crunching on a website like the ones we used.
DecisionAide.com — This link is the site we found most useful and flexible (though it doesn’t include specific dates, just numbered months). This site also has a full menu of other calculators that could “lend” some help in other financial considerations (including renting vs. buying and large vs. small down payments).
Mortgage-X.com: If someone wants to have the help of viewing specific dates and doesn’t have that much variety in extra payments, this calculator was the first, more basic one we used.
Joy employs her English degrees in numerous ways in the homemaking realm—but not by blogging! Her husband of almost 7 years, Joseph, serves as the assistant pastor for youth and music at their Midwestern church. Their three girls (4½, 3, and 16 months) and a new baby boy.
Mortgage free in reality in no where near as freeing as I had once been lead to believe. My real estate property taxes are currently $1600 a month and utilities are still expensive. My mortgage was only $700 a month when I had one. That extra $700 a month hasn’t gone far in today’s economy. It isn’t like you start feeling in the money.
Paying off your mortgage is a personal choice. We paid off our house and we are so happy we did! We are able to cash flow our sons’ tuition payments and save my husband’s income. We do not owe anyone a penny and our life is happier and much more peaceful.
Great article! Very inspiring. I’d really love to see pictures though 🙂
I’ve been sending in extra principle payments for the majority of the 17 years I’ve lived in my house. It will be paid off by the end of next year, more than 10 years early 🙂 Fortunately I bought a house that was really affordable and my monthly payment (without the extra principle) is still under $600. Hopefully after the house is paid off I can use that $600 per month to make repairs or put it into savings.
I think that is great, but one question I have about paying down the mortgage. If you have no mortgage, wouldn’t you be paying exponential amount in taxes because you do not have that large tax deductible? That is something that I have been wondering about.
I don’t know what you mean by “exponential” in regards to taxes, did you mean “exorbitant?”
Unless you have a very large mortgage (with a very large amount of interest) and other substantial deductions, the tax deduction benefit likely isn’t much of a benefit. You can play around with the numbers to define your own situation using the general idea presented in the following post:
http://thebudgetgeek.com/post/404349237/keeping-a-mortgage-for-the-tax-deduction-is-a-bad-idea
April, one of the easiest ways to control spiders is to remove their food source (i.e., kill the other bugs). Diatomaceous earth (available at garden centers) sprinkled around the foundation and in the garage will kill a lot of small bugs. Borax powder (in the laundry aisle) can also be sprinkled around. DH sprays our foundation with an all-purpose pesticide twice a year and it does seem to help. Use weather stripping and caulk to plug up some of the holes.
Best of luck with your new home!
We bought yellow bulbs for the porch lights. We use bug spray that we already had. We have started seeing dead bugs upstairs, but the main problem is downstairs so I believe the powders should work. I read online we have to knock down all the cobwebs and find the eggs. Yes we will be doing a Lot of caulking. The seller had some repairs done but the work was shoddy.
A reminder that for people like April and the homeowner with the 1959 appliances, safety comes before any pay down! If you have pests, appliances that might be leaking gas or water causing mold, if you have asbestos, any repairs or remodel to make your house safe is worth the investment! Even the OP, if the kitchen is in such poor shape that it is hazardous, that would be a priority for me. Just like an old furnace that might be dangerous, a kitchen with 70 year gas appliances and pipes needs to be inspected at least for any health concerns. I have seen so many health effects from things that could have been prevented, as a nurse we need to take care of preventative health before saving money.
You might want to think about just buying new doorknobs. That is what we did rather than hiring a locksmith.
Great resources!! Thanks so much!
I would recommend only paying extra on your mortgage if you have 6 months worth of expenses set aside in the bank as an emergency fund. Also, it may be beneficial for some to invest the money rather than paying down the mortgage, depending on what your investment is. We can earn more in dividend income on preferred stock investments than the mortgage rate we’re paying.
You should also take into account that you can deduct mortgage interest, which lowers your effective tax rate on your tax return and saves you money (although we may see the day soon where you can no longer claim this as a deduction.)
I love this! Fantastic perspective. As long as it is functional, I would much rather pay down the mortgage, and wait on the remodel.
I may be the only voice of semi-dissent. We have lived in our house for 13 years and have always wanted to remodel the kitchen. While our kitchen is large, it functioned poorly. We finally remodeled this winter and now we spend much less money eating out and more time together in the kitchen. I completely agree with living in your home for a few years to be sure what you can or cannot live with. But I wish now that I had remodeled while my kids were younger and we would have been able to enjoy the kitchen for the last decade. And I say this even though we had to borrow some of the money to pay for the remodel (I had been saving bit by bit over the years in a special kitchen fund.) My advice is to consider not only how much you are saving by not remodeling, but also the benefits to your family (which may not be related to money) of living with the remodeled space.
I totally agree! We paid over $15,000 for a kitchen remodel about 3 years ago (using cash) and it has saved us a ton of money because we never eat out. I love using my kitchen and cook from scratch much more now.
My husband and I purchased the home we want all of our children to grow up in so we plan to be here for years. We have wanted to renovate the kitchen and add an additional Master Bathroom from day one and were originally putting money aside solely for the renovation and addition projects. We had three small children when we moved in and now have four that are getting bigger every day. We will NEED the extra bedroom space when the boys get bigger. We decided fairly quickly that as long as we could hold out on the renovations we would do some smaller projects but also get on a schedule to payoff the mortgage MUCH earlier than planned. I am so happy to be making strides in both goals but I also know that if we did not have the funds to devote to both, the mortgage without a doubt would come first.
I raised 7 kids in a four bedroom, they are now leaving home and I am glad I didn’t move for separate bedrooms, they are closer because they have shared rooms, just a thought. Now they get together for sibling dates!
Just another site but I use this one every month to push myself to put extra money on our mortgage. This one is straightforward and also kinda “pretty” :o)
http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx
This is very similar to our story! We moved into a 1970s home a few months ago with a small kitchen and no master bath. We loved the house but wanted to either renovate the kitchen or add on a master suite. We decided to live in the house and see how it works for us. After using our kitchen, we’re completely happy with it just the way it is and don’t have any plans for changes. As for the master suite, we’ve been quite content in our small ‘master’ and it’s not that big of a deal to walk down the hall to go to the bathroom (especially since our house is small!) The money that we had saved for our upgrades will be applied to principal! (And that, to me, is more exciting than any master suite or kitchen!)
Hi Joy,
Good information. I think that I would enjoy your website.
Betty
This is encouraging. We have a very ‘needy’ kitchen as well. The oven and stove top and cabinets are original to the 1959 house. :0 When we first bought the house we considered a major renovation, but decided we’d rather not go back into debt over it. We likely won’t have the house paid off before we need to renovate, though we are going to hold out as long as possible. Praying that the oven holds out until we’ve got money saved!
Thanks for the post; it confirms what we’re doing too, for the most part. And congrats on your new little boy. You’re a busy mama, and you even found time to do a guest post – way to go! 🙂
While this advice is practical from a money-saving perspective, it’s not for everyone. Just because paying more can save any homeowner money doesn’t mean it’s the best place to invest “extra money”. This may be the case when comparing things like ROI for major remodeling projects. However, it’s also important to consider the amount of time you plan on living in your current home- ie long-term plans/goals. Since the housing market is still quite unstable and there’s no way to know when home values may begin to increase again, for many it makes better financial sense to save or invest the money rather than pay down a principal- that’s no guarantee of greater equity in the short-run. Just another point to consider. =)
There’s no guarantee that an investment will give a rate of return comparable to what Joy’s family is going to save on interest. Living mortgage free would give so much freedom; having money tied up in investments doesn’t.
No, but if you need to move in two years, you may not recoup the extra money you put into the payments. That’s all she’s saying. Paying down your mortgage is absolutely the way to go if you plan to stay in the house long-term.
We put 20% down on our house seven years ago. That equity is almost completely gone due to the market downturn. So that’s $40K we scrimped and saved and put into this house, and it’s vanished. If DH ends up getting a job out of state when he graduates law school in two years, we will lose that money if the market hasn’t improved by then.
Your plan would then require you to foreclose on the home in order to benefit from paying less of the principle. What you paid for the home is what you paid for the home regardless of how much you have paid towards that home within the last few years. If your $250,000 house is now worth $200,000 and you owe $210,000 or you owe $180,000 the current value and what it will sell for will not change. Your money has already been lost because of the price you paid regardless of the current value and is like any other investment.
Better to have scrimped and saved and be able to walk away without owing, even if not recouping what you wanted. Many, many people are taking huge sums of cash to closings because they didn’t pay more to their house. And many others are taking out loans in order to sell a house…not a situation I’d want to be in!
The more you put in on the front end or in extra payments, the less you are paying in interest, thus a higher ‘return’ on your money. We recently took a large chunk out of the stock market (before the huge downs of late) and threw it at our mortgage. We figured out we would save over $4000 in interest the first year alone and there is no way that the same chunk of money would be making that much for us in the market. We didn’t touch any retirement money and it is not for everyone, but for us to have the very real possibility of paying off our home next year in sight it made a whole lot of sense, especially in this economy.
Of course, as is already mentioned if you play to walk away from your home and let the bank foreclose, then none of this applies. I would hope and pray that people only do that as a very last resort. We all need to do all we can to be responsible for the debts we take on.
Heather
Most people blindly follow the advice of Dave Ramsey when he tells everyone to pay off the mortgage early and that it is right for everyone. Well, it is not right for my family. I would much rather have liquid cash that I can take out of an investment, even if it is at a loss, than have two more years to pay on my mortgage and need the cash. Even a “three to six” month expense cushion can’t even repair that.
No one ever remembers that there are three factors that you have to compare when paying off your mortgage. The first is ROI. Typical long term investment in a stock portfolio yields 8% average per year, excluding any dividends that you can make. The second is the tax break that you get for your mortgage interest. The third is inflation. Simply put, a $1000 mortgage isn’t going to be worth $1000 in thirty years, it’s going to be worth $250. (Imagine only paying $250 on your mortgage?!?!)
The BEST CALCULATOR is at http://www.hughchou.org/calc/payoff_v_borrow.cgi — to see if your loan vs. your investments would be better!
Here is an even better loan calculator that I found:
http://www.fhahomeloanmortgage.com/calculators/invest-vs-prepay.shtml
I agree with some of these points for so many reasons. We recently purchased a new home and got a steal. The windows are outdated, this neighborhood generally is filled with 4 bedrooms and ours is a 3 and our appliances need some upgrades (my dishwasher sounds like amonkey is in there grinding the gears, but I am grateful to have any dishwasher!) We talked about paying extra to our mortgage and we discussed that due to the fact that it is not really the home we will stay in forever (or even the 30 year mtg) , it is pointless for us to pay extra. Yes paying it off early would be great, but for us, the upgrades like a 4th bedroom and bigger deck will pay off and still leave us with plenty of profit. as with anything, knowing your goals and prices are what will help make this decision.
Great post! I have a 150 year old house that is constantly reminding me of how beautiful it could be. But all its needs are cosmetic. I could renovate the kitchen right now (among other things) or have my mortgage paid off in 8 years. My oldest is only 3 – so the idea of having no mortgage while he’s still in elementary school helps keep my renovations to paint and light fixtures only!
Plus, I think too many people do renovations (or make purchases in general) based on what they think they need, rather than seeing if they can live with what they have. My ideas for the kitchen have changed dramatically in the last 3 years, due largely in part to living here and seeing what works and what doesn’t. I can only imagine how my tastes will change in another 8.
I totally agree with that last point. We got a “deal” on our house (based on the market at the time and even what I see houses in our neighborhood selling for now I’m very grateful) because it had been on the market much longer than most houses in the area. Honestly, I think the main problems were the lack of shower, 1950/60’s era kitchen with no dishwasher, and the ugly carpet and wall paper. We spent a few thousand and many hours of back breaking work on the cosmetic changes. The shower was a problem but rather than opt for a complete bathroom remodel my husband and FIL took some copper piping and we have a homemade shower (it doesn’t look as bad as you’d think!). While I routinely curse the lack of dishwasher I’ve accepted we are willing to spend the money on a kitchen remodel when we can pay extra on our mortgage. Sure a modern kitchen, bathrooms, and new windows would be lovely but I’d personally rather be a bit more financially solvent!
I definitely agree about making changes before seeing if you can live with them. When we bought our first house, we made lots of upgrades after moving in. Five years and 3 kids later, I can see that those changes were not really essential. To be honest, I wish we had waited until after kids arrived before major upgrades because then you really see what you can and can’t live without!
I love the idea of being totally debt-free – mortgage and all! We got the first half done – no consumer debt. Thanks for the encouragement on the mortgage half:)
Some great advice you have here. Another great source is http://www.daveramsey.com. He is a wonderful source of financial information, he also has a mortgage calculator that you can plug in different number scenarios to see different results. A wonderful tool to use.
We started FPU last night and have been using his “plan” since April, it really is great common sense help.